Finding the Balance for the Future of Globilization: An Historical Perspective on the Political Economy of Globalization and the Environment

Item

Title

Eng Finding the Balance for the Future of Globilization: An Historical Perspective on the Political Economy of Globalization and the Environment

Date

2011

Creator

Eng Otto, J. Eva

Subject

Eng Environmental Studies

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FINDING THE BALANCE
FOR THE FUTURE OF GLOBALIZATION

A HISTORICAL PERSPECTIVE ON THE
POLITICAL ECONOMY OF GLOBALIZATION AND THE ENVIRONMENT

by
J. Eva Otto

A Thesis
Submitted in partial fulfillment of the requirements
For the degree of Master of Environmental Study

The Evergreen State College
Fall 2010

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© 2010 by J. Eva Otto. All rights reserved.

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This Thesis for the Master of Environmental Study Degree
by
J. Eva Otto
has been approved for
The Evergreen State College
by

__________________________________
Edward A. Whitesell, Ph.D.
Member of the Faculty

___________________________________
Ralph Murphy, Ph.D.
Member of the Faculty

___________________________________
Viki Sontage, PhD,
Executive Director, EcoPraxis

____________________
Date

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ABSTRACT
Finding the Balance for the Future of Globalization:
A Historical Perspective on the Political Economy of Globalization and the Environment
J. Eva Otto
This study explores the connection between globalization and the degradation the Earth’s
biosphere by examining how the philosophy of economic integration between nation
states throughout the history of global trade has led to the current global environmental
crisis. Beginning with the first global trading system of colonialism, the process of
economic integration, known as globalization, has led to economic patterns of production
and consumption that have diminished the Earth’s resources and created widespread
environmental pollution. Over the past 500 years, a historical and philosophical link is
drawn between the early global trade models of colonialism and the current laissez-faire
model of global capitalism. Beginning in 1945, a contemporary model of globalization
was institutionalized under the first world governance system directed by the Bretton
Woods Institutions. Since then, global trade has rapidly accelerated to an unsustainable
scale resulting in the Earth’s sixth largest mass extinction. This author asks, what changes
in our political economy must take place in order to create a balance between global
trade and environmental protection? In response, two alternative models for the political
economy are presented. The first is a reform model called sustainable development that is
currently underway. Sustainable development seeks to balance the needs of the economy,
society, and the environment for current and future generations to come. The second
model is called restorative development and it seeks to fundamentally restructure the
political economy away from a culture of imperialism and towards a culture of peace.
The restorative development model fosters a society with spiritual and scientific
consciousness and uses new forms of technology to restore abundance to nature’s web of
life. In conclusion, this work suggests that both models must be implemented in order to
find a balance for the future of globalization.

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TABLE OF CONTENTS

ABSTRACT ……………………………………………………………………………….iv
CHAPTER 1 Executive Overview..…………………………………….…………….…...1
CHAPTER 2 A History of Globalization and Ecological Thought…………….….….…..9
.
CHAPTER 3 Phase One of Contemporary Globalization (1945-1971)………….…...….45
CHAPTER 4 Phase Two of Contemporary Globalization (1971-1989)……………….....61
CHAPTER 5 Phase Three of Contemporary Globalization (1989 – Present)….……...…82
CHAPTER 6 Sustainable Development……………………..………….……….……...111
CHAPTER 7 Restorative Development……………………………………………........131
REFERENCES…………………………………………..…………………..…….……...156

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CHARTS AND FIGURES

FIGURE 1 Symbolism (Sustainability and Restoration)……………………………….113
FIGURE 2 Restorative Development & Balance.………………………………………114
FIGURE 3 The Cartesian Model……………………………………..………….……. 146
FIGURE 4 The Tetrahedron……………………………………………...……….……147
FIGURE 5 Principles of Synergetics..………………………..…………………...……..147

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ACKNOWLEDGEMENTS

Special thanks to my advisor Ted Whitesell for his sustained patience and support in helping me to complete this
thesis. I am grateful for this knowledge.

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CHAPTER 1: Executive Overview
1.1

Introduction
“If the success or failure of the planet and of human beings depended on how I am and what I
do…How would I be? What would I do?”
~Buckminster Fuller

Since my earliest childhood memories, I have been deeply concerned about the
destruction of the natural environment and its effects on humanity. Throughout my
undergraduate education I searched for answers. When I enrolled in the Graduate Program on
the Environment at the Evergreen State College, I had a very broad and burning question, “How
can we solve environmental problems worldwide?” Early on in my research I discovered that
environmental destruction is a systemic problem that is rooted deep within the socioeconomic and
political framework of imperialism. Its history is a complex series of events in human evolution
and cultural behavior. I concluded that, in order to solve environmental problems worldwide,
changes would have to be made through political and economic policy. Therefore I chose to focus
my research on environmental degradation and its relationship to the political economy of global
trade as it developed over the past 500 years. Political economy deals with political science and
economics as a unified subject. It is the study of the interrelationships between political and
economic structures and processes. In conclusion, this work offers recommendations for how to
reform the political economy towards life-restoring polices that can bring humans back into
balance with nature.
Research for this master’s thesis includes empirical and secondary investigations on
economic globalization and its effects on the environment. Research was collected over seven
years and fieldwork included attendance at over a dozen international conferences including the
2002 and 2003 World Social Forums (Porte Alegre, Brazil) and the 2002 United Nations World
Summit on Sustainable Development (New York, Bali, Indonesia). I attended economic

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conferences hosted by European and Asian central banks as a delegate with the Global
Interdependence Center1 in the Czech Republic and France (2004), Italy (2005), Estonia (2006),
Ireland (2007), France (2008), and China (2010). Additionally, I was an attendee at the National
Association of Business Economics (NABE) in Chicago (2005), the US Green Building Council
conferences in (2005, 2007, 2010), and a delegate with the International Sustainable Institute on
an eco-planning study in Curitiba, Brazil (2006).
During these conferences I participated in dialogue, policy formulation, and interviews
with leading experts from around the world on a number of issues pertaining to the politics,
history, and future of economic globalization. Using data compiled through formal and informal
professional meetings with economists, central bankers, politicians, government officials,
academics, indigenous peoples, women, youth groups, scientists, business people, and nongovernmental organizations around the world, this study explores the history of events in our
political economy that led to the depletion of the Earth’s biosphere and what changes must be
made to the political economy in order to avoid human extinction and restore ecological health.

1.2

Globalization and The Environment

The first chapter is an executive summary of the main concepts found in this body of
work. It begins by tracing back the history of our political economy to the early trade models of
European colonialism in the 15th century. Global trade subsequently continued through the postcolonial period, called classical liberalism, and the export-led development model, referred to as
neoliberalism (IFG, 2002). Since the advent of the global trading system approximately 500 years
ago, economic integration between all nation states of the world has been increasing.
Globalization is now the modern term for this continuing process of economic integration (IMF,

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www.interdependence.org

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2000) and is historically rooted in the practice of imperialism2 (Parenti, 1995). This imperial
ideology in the development of the political economy has led to an ongoing war against man and
nature.
Chapter 2 explores the historical process of globalization that started with the spread of
colonialism and (Northern) European military power, religion, science, governance, and institutions
to (Southern) colonies in the Americas, Africa, India, and East Indies. It involved the occupation of
land, the subjugation of native people, the spread of poverty, the rapid exploitation of natural
resources, and the destruction of ecosystems. In the 20thth century, a contemporary form of
globalization came under the first world governance system for global trade directed by the
policies of the Bretton Woods Institutions. Contemporary globalization (1945-present) is a time of
economic imperialism in trade that has accelerated to an unsustainable scale, resulting in
widespread poverty and environmental destruction worldwide. Contemporary globalization is
explained in detail in Chapters, 3, 4, and 5.
Chapter 2 continues by examining ecological thought and behavior as it developed along
dominant (Imperial) and subdominant (Arcadian) philosophical and scientific trajectories
(Worster, 1994). The subdominant ethic towards nature called the Arcadian tradition of science is
rooted in pre-Christian, pagan cultures and honors the interconnectedness and kinship between
man, god, and nature. The Arcadian ethic has been subdominant to the Imperial ethic towards
nature rooted in the Western philosophy of Christianity. The Christian belief that nature was
man’s domain to be controlled, rearranged, or altered as he so desired, led to an imperial
approach in both the political economy and the fields of science. As a religion, Christianity held
an indifference and antagonism towards nature. This detached, external view of nature was made
possible by overthrowing the pagan, earth-based, feminine, and native views of spirituality. As a

Imperialism is the state policy of extending a nation's authority by territorial acquisition (using
military force) or by the establishment of economic and political hegemony over other nations.
Before the 15th century imperialism had a long history in the succession of empires in Asia, and the
Mediterranean.

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result, Christianity detached man emotionally and morally from nature, allowing him to be
exonerated and justified for his violent conquest over native people, animals, women, and the
environment. Consequently, the political economy was developed for the advancement of human
empire. The scientific tools used for this advancement were developed with a disregard for the
natural environment, thus resulting in technology that lacks a complete understanding of the
principles of mathematics, engineering, and physics. This led to centuries of inefficient
technologies and unabashed environmental destruction.
By the early 20th century the quest for human empire led to worldwide financial collapse
and the devastation of two World Wars. In the aftermath, Western nation states banned together
to create a more peaceful and just system for global trade under the global governance of the
Bretton Woods Institutions in 1945. This new, unprecedented model of contemporary economic
integration was conceived to help make trade more efficient and predictable. It has undergone
three phases in the development of the political economy since 1945, all of which have favored
the Imperial ethic over the Arcadian ethic in global trade, resulting in decades of economic
imperialism. This has exacerbated the problems of ecological devastation at the global scale.
Chapter 3 explores the first phase of contemporary globalization in the post-WWII years
between (1945 and 1971). During this time global governance institutions were formed and put in
place through an agreement between allied countries, signed in Bretton Woods, New Hampshire
in 1944. The newly created Bretton Woods Institutions (BWI)3 adopted Keynesian4 economic
models of regulated capital flows in global trade. Keynes’s models were subsequently transferred

International Monetary Fund (IMF), The International Bank for Reconstruction, and
Development (later renamed the World Bank) and the International Trade Organization (finalized
as the General Agreement on Tariff and Trade [GATT] in 1948 and the World Trade
Organization [WTO] in 1995).
4John Maynard Keynes was a British economist and author of The General Theory of Employment,
Interest, and Money (1936). He was a revolutionary in the sense that he challenged the assumptions of
the earlier classical liberal schools of economic thought. He suggested that free market systems had
a propensity towards instability and proposed a new range of vigorous government action to
remedy it. The Keynesian policies of regulated capital flow and full employment through mass
consumption and production held sway over economic policy in the political economy from 1936
to 1971.
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to the economies of the Third World where development became the task of BWI economists
who believed that the problems of poor countries could be rationally assessed and technically
managed with the aid of Western guidance (Brohman, 1996). For American workers, the first
phase of contemporary globalization was a time of unprecedented growth, US expansionism, and
government policies supporting social welfare. During this phase, growing awareness about the
loss of wilderness and the impacts of industrialization on the environment began to surface.
Chapter 4 describes the second phase of contemporary globalization when regulated
exchange rates and controls over the movement of capital between nation states began loosing,
allowing the deregulation and privatization of public goods between (1971-1989). During this
phase, US corporations and the Bretton Woods Institutions worked to dismantle Keynesian
economic models of global trade in favor of laissez-faire neoliberal models.5 Corporations grew in
size, wealth, and political power. By 1981 neoliberalism became the economic model advocated
by the United States and the Bretton Woods Institutions, which primarily benefited Northern
corporations. Conversely, many Southern developing countries fell into spiraling debt with
Northern corporations and the BWIs as they attempted to use development loans to build a free
market economy. Free trade had destructive impacts on the environment in developing countries
during this time because of the unregulated and rapid extraction of their primary natural
resources at volatile commodity prices. Emerging environmental scientists and activists launched
a global movement to warn humanity of the environmental consequences associated with the
capitalist model of global trade. Several ecological fields emerged and, in some countries, such as
the United States, legislative action took place in order to protect air, water, and food quality.
In the United States the social contract that American workers enjoyed in the first phase of
contemporary globalization began to erode as Northern corporations downsized and shipped

Neoliberal economics is a new form of neoclassical liberal economic theory. Neoliberalism places
a new emphasis on supply-side factors, private initiative, market-led growth, and outward-oriented
development, while turning away from older development policies based in demand stimulation,
import-substitution, state intervention, and centralized development planning (Brohman, 1996).

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good-paying US jobs with benefits overseas to the South at lower wages. By the end of the second
phase of contemporary globalization, regulatory and state-controlled economies worldwide were
largely abandoned by nation states in favor of free market liberalization under neoliberal models
of global capitalism.
Chapter 5 outlines the third phase of contemporary globalization, when the concept of
globalization was popularized worldwide (1989-present). It is associated with the fall of statecontrolled economies in Eastern Europe, and the subsequent institutionalization of neoliberalism
into the Bretton Woods Institutions. During this era, neoliberalism went on to change US laws
and national sovereignty through the ratification of new, far-reaching global trade agreements,
including the North American Free Trade Agreement (NAFTA) in 1994, and the World Trade
Organization (WTO) in 1995. New laws for deregulated global trade diminished environmental
protection and made it difficult for individual nation states to enact any law that would restrict
access to the extraction of natural resources by corporations. During the third phase of
contemporary globalization, a plethora of scientific publications linking the global trade model to
environmental degradation were published. However, the political economy remained immune to
environmental warnings from research groups and laws that might hinder corporations from
extracting, polluting, and rapidly exploiting natural resources. As a result, the third phase of
globalization culminated in a financial crisis and multiple environmental crises. Chapter 5
concludes that society can guard against the loss of biodiversity needed to sustain a global
economy, however the current laissez-faire model of neoliberalism must be replaced with a new
political economy that can integrate protection for society and the environment into international
trade agreements that are enforceable by law from the local to global levels.
Chapter 6 begins with the assumption that in order to address the root of environmental
problems worldwide a change in the present political economy must take place. Change is
possible through both models of reform and restructuring of the global trading system, and in
some cases these two models overlap and coexist (Khor, 2002). Chapter 6 explores the reform

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political economy known as sustainable development. The reform model of sustainable
development seeks to balance the needs of the economy, society, and the environment for current
and future generations. Sustainable development reform does not necessitate a change in the
Imperial ethic, rather it is an internal reshuffling of priorities and incremental policy change
implemented by established organizations such as the Bretton Woods Institutions. Direction for
sustainable development reform is being articulated by the United Nations, with the help of civil
society organizations, at the global governance level and being adopted through many national,
regional, and local governments. The business community is also adopting sustainable practices in
some cases and voluntarily reforming production processes to save money by reducing wastes and
inefficiencies. There is hope that sustainable development reform will mitigate the impact of
global trade on the environment and create strong economic growth through a new green
economy. Chapter 6 discusses new tools for a sustainable development approach to the political
economy including natural capitalism, ecological economics, and environmental accounting.
Chapter 7 explores restructuring the political economy towards a paradigm shift in
science, spirituality, and human consciousness called restorative development. Restorative
development necessitates the rejection of its time-honored philosophy of imperialism in favor of a
new culture of peace, incompatible with the Imperial ethic. Restorative development heralds a
return to the Arcadian ethic towards science, god, and nature, where holism and interdependency
shift the human view of separateness with nature towards an understanding of interconnectedness
with the whole of the universe. The restorative political economy seeks to reestablish the health of
human and ecological relationships from the bottom-up, with strong emphasis on personal
responsibility, community involvement, and participation in local decision-making. Restorative
development reverses negative cultural and ethical behaviors such as the use of exclusion,
violence, and war in international trade. Chapter 7 discusses global and local initiatives for a
restorative political economy, including replacing the Bretton Woods Institutions, restorative local
economies, and the new age of consciousness in science and spirituality. This thesis concludes in

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Chapter 7 with the recommendation that both models of sustainable development and restorative
development are necessary to create balance between the global trading system and the
environment for the future of globalization.

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CHAPTER 2: A History of Globalization and Ecological Thought
2.1

Imperial Beginnings

Globalization is a modern term for an objective and subjective process of economic
integration between nation states that is not, “an outcome or a condition, but rather a process that
the world is currently experiencing” (Gordon, 2001, p. 5). The International Monetary Fund
describes it as “ a historical process, the result of…increasing integration of economies around the
world, particularly through trade and financial flows” (IMF, 2000). Globalization has been
evolving since global trade began over 500 years ago. The common use of the term was
popularized in the late 1980s to describe expedited international trade, communication, and
financial flows (IMF, 2000). Currently, globalization has reached a scale where its policies now
threaten ecological integrity on the planet. In order to prevent further ecological decline, a
historical perspective on the evolution of globalization is helpful to understanding how to correct
imbalances in the future.
Initially European countries brought about a rise in global trade and engendered the first
global trading system, known as colonialism. Colonialism was a crude method for trade and
wealth accumulation. It was accomplished by conquering new land and cultures, then
subsequently removing their resources by force. In 1492, Christopher Columbus became the first
in a long line of infamous conquerors to invade the Americas and her inhabitants in the name of
the Spanish Crown.
The phrase "discovery of America" is obviously inaccurate.
What they discovered was an America that had been discovered
thousands of years before by its inhabitants. Thus, what took place
was the invasion of America -- an invasion by a very alien culture.
(Chomsky, 1999, p. 63)
When Christopher Columbus arrived in the Bahaman Islands from the war-torn continent of
Europe he was greeted by the Arawaks, an indigenous people remembered for their culture of

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hospitality and belief in sharing (Zinn, 2003). Columbus on the other hand, was conditioned by a
culture of imperial wars and feudalism in Europe. Therefore, he later wrote in his travel log:
They…brought us parrots and balls of cotton and spears and many
other things, which they exchanged for the glass beads and hawks’
bells. They willingly traded everything they owned…They were wellbuilt, with good bodies and handsome features….They do not bear
arms, and do not know them, for I showed them a sword, they took it
by the edge and cut themselves out of ignorance. They have no iron.
Their spears are made of cane….They would make fine
servants….With fifty men we could subjugate them all and make
them do whatever we want. (Jennings, 1975)

Shortly after his first voyage, Christopher Columbus and his predecessors began a 500-year
imperial expansion of Western ideology around the globe that claimed over 100 million Native
American lives in its first hundred years (Chomsky, 1999). The colonial system grew into a
competitive mix of European imperial countries, commonly situated geopolitically in the Northern
Hemisphere (e.g. Spain, Portugal, Netherlands, England, France). Imperial countries used
military power to forcefully take economic and political control over a colony or country, primarily
located further in the South (Africa, India, Latin America). Japan joined Northern imperialists in
the 19th century and came to dominate other Asian countries.
The colonial trade system was the first organized political and economic relationship
between the global North and South. Through a system of tax and tariff exchange, slavery, and
servitude, wealth in the form of land, labor, and natural resources, was transferred from Southern
colonies to Northern imperial countries (Zinn, 2003). It was unabashedly a relationship of
domination. Resources and labor were forcibly extracted from the colonies as raw materials for
export industries in imperial countries (Korten, 1996). Imperial nations such as England forbade
their colonies to develop industrially even though they had the resources to do so. This was done
in order to maintain a cheap supply of natural resources that could be remanufactured in
England and sold in European markets or back to colonies as finished goods. This began centuries

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of inefficient and wasteful global patterns of trade that continue presently, in which natural
resources are shipped back and forth between continents multiple times during commodity
production, costing enormous amounts of time, labor, and energy.
European social conduct in the New World reflected the conditioned behavior of imperial
oppression in Europe under the feudalist system. The conquering of indigenous people therefore
came naturally. They were labeled as backward nomadic savages and therefore justifiably made
into slaves and legally treated like beasts. Native cultures were intentionally destroyed to make
way for Christianity and the laws of Europe’s imposed settlements. Colonialism sought to
systematically destroy existing native traditions and reorganize them into “civilized societies” that
adopted Western culture. Religion played a key role in the social transformation of indigenous
people. Christianity was exported to the New World through the most influential sociopolitical
organization of the Western world at that time, the Roman Catholic Church. Natives were forced
to worship the strange and foreign European god Jesus Christ, who justified their ill treatment on
Earth, and promised them salvation after death.6 Exonerated by the Church, merchants and
conquerors set out to claim rights to new land and resources in the name of god, similar to the
ways in which feudal kings violently claimed divine ownership over land and resources in Europe.
Millions of indigenous people became victims of the same imperial governance and servitude that
had plagued Europe for hundreds of years.

In March of 2000 Pope John Paul II released a formal document and performed a special mass
at St. Peter’s Basilica to ask forgiveness for centuries of sins. He acknowledged the church’s acts of
violence and oppression against women, natural healers, midwives, native people, scientists, people
perceived to be heretics and non-believers over the centuries. The document references jailing,
burning alive of individuals, torture, and genocide against entire religious faiths. Pope John Paul II
acknowledged the violation of human rights and the enforced conversion of non-believers. He also
apologized for the church’s crimes committed against Jews, and for not speaking out against the
Holocaust. Retrieved from www.religioustolerance.org/pope_apo.htm.

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2.1.2

Imperialism, Spirituality and Nature

Christianity played a key role in detaching humanity spiritually and morally from nature.
As a religion, Christianity held an indifference and antagonism towards nature, excluding all but
man from the realm of divine grace. It promoted the view that the Earth’s bounty was designed
by the creator for man to dominate and control (Worster, 1994). Animals were declared to have
no souls, and thus, no claim on man’s moral sympathies. Women were subordinated to men in
society and often given no equal rights, education, or decision-making power.
In pre-Christian societies and religions men and women often saw their place together
within nature’s garden, rather than expelled from it. Spirituality was deeply rooted in nature, and
deities often took on the persona of animals such as the pagan goat-god Pan piping on his flute, or
the Hindu god Ganesha who was depicted in the image of an elephant. Many agriculture societies
worshipped the Earth Goddess and respected the feminine principles in nature including fertility
and reproduction (Campbell, 1998). Even in cultures where empire was present, such in Egypt
and Mesopotamia, female goddesses were often worshipped and held in high regard. In
indigenous cultures, native people felt deeply connected to spirits in nature and prayed to them.
They believed that guardians and spirits lived in every tree, every stream, and every hill.
Christianity on the other hand did not idealize humankind’s relationship with nature or
the divine gifts of the feminine. Rather Christianity removed the feminine principle from the
sacred holy trinity and idealized instead the relationship of an obedient son to his father, or a
faithful flock of believers in Jesus Christ to their pastor. The image of Pan (and nature) became
the source of demonic threats and fleshly desire caused by animal instincts, which Christianity
asserted must be forcefully repressed. By discrediting Earth worship and recreating god and his
saints in man’s image, Christianity made it possible to exploit nature with a mood of indifference
towards the natural world.

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As the study of science evolved under the influence of Christian religious society, it
developed a subdominant and dominant philosophical ethic towards the human relationship with
nature (Worster, 1994). The subdominant ethic towards nature, called the “Arcadian” tradition of
science, expressed man’s interconnectedness between god and nature. The Arcadian ethic was
first popularized in the 16th century classic poem Arcadia, by Jacopo Sannazaro (1534). Arcadia
idealized a pastoral lifestyle based on a peaceful and artful co-existence with nature. This ethic
subsequently developed into a naturalist science, which spawned the concepts of organicism,
conservation, and the field of ecology. The Arcadian scientific view was antithetical to the
growing machine culture in Western science isolated from the natural world. It rejected the
advent of industrial society and its methods of scientific analysis. Arcadians saw the factory system
as increasingly isolated from nature and ripping at the moral fabric of the village community
(Emden, 1956). Early Arcadian scientists such as parson-naturalist Gilbert White wrote about the
concepts of holism, and held reverence for the divinity of all living things. Arcadian philosophy
was epitomized in White’s (1789) publication, A Natural History, where White found himself part of
the interconnected and benevolent splendor of the creator’s web of life, in which abundance and
purpose was provided to all.
The Arcadian view of science was subdominant to the Imperial view of science rooted in
Christian society, which sought to conquer the Earth physically, spiritually, and technologically.
Early Western philosophers such as Francis Bacon shaped the development of scientific thought
with several published works including The New Atlantis (1597), which promised a new Garden of
Eden designed by scientists. His view reinterpreted the relationship between man, nature, and
god as one of control, domination, and acceptance. Bacon wrote that the Earth was made for
man, not the other way around, and that god wanted man to use the bounds of nature to build a
Human Empire. Bacon’s view towards nature increasingly fragmented and ignored the complex
whole of nature’s relationships. Bacon’s sentiments encouraged society to forge ahead and
conquer nature with the Imperial ethic that nature was man’s domain to be controlled,

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rearranged, and altered, as he so desired. As a result many in the scientific community adopted
the Imperial ethic and belief that human knowledge and technology was superior to that of
nature.
As Western science developed, imperialism continued to play a prevailing role in the
growing theory of the political economy. Consequently, the tactics of the colonial economic era
continued through the more sophisticated mercantile era of trade, when advances in technology
were used to benefit the rise of European empires.

2.2

Mercantilism

By the early 17th century increased global trade spawned a new economic philosophy
known as Mercantilism. Mercantilism stimulated the first efforts to formulate what we now call
the study of political economy (Heilbroner, 1999). European statesmen and merchants began
developing principles for trade based on national policies of accumulating bullion, establishing
colonies, maintaining a merchant marine, and developing industry to attain a favorable balance
of trade. Export surpluses with foreign countries were preferable to deficits for trade, and stateimposed regulations were legitimate if they helped to attain those objectives (Beyon, 1999).
Mercantilism did not become a formal doctrine but, rather, a new philosophy of shared beliefs
and practices for trade amongst elites (Heilbroner, 1985). According to mercantilism, the wealth
of a nation depended primarily on how much gold and silver it possessed. Great power and
wealth only came to those kings and elite merchants who were successful at extracting and
accumulating vast quantities of gold and other precious metals. Gold extracted from colonies
allowed a country to hire more ships and militia to go on expeditions for more land and gold. It
was the perfectly lawful way of obtaining more wealth for a nation.
The first director of the East India Company, Thomas Mun, explained in his (1664)
England’s Treasure by Foreign Trade, that England’s best means as a nation for increasing its wealth

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and treasure was by trade, “wherein we must ever observe this rule; to sell more to strangers
yearly than wee consume of theirs in Value” (Mun, 1664). Mun also suggested exporting goods
with inelastic demand because of higher yielding prices. The governor of the East India Company
at the time, Josaih Child was also a proponent of competitive trade and advocated for low interest
rates regulated by state authority in his (1668) work, Brief Observations Concerning Trade and the Interest
of Money.
As trade increased an interdependent relationship between the ruling class (state) and the
merchant class (capital) emerged. This was because mercantile trade relied on strong state
enforcement by monarchies to impose heavy regulation on imported goods to protect domestic
merchants (Heilbroner, 1985). The accumulation of capital and private property also needed a
legal framework of protection and legitimacy of ownership. Political philosopher John Locke7
wrote in The Second Treatise of Government published in England in (1698), “The great and chief
end…of men’s uniting into commonwealths and putting themselves under government is the
preservation of their property” (Locke, 1698). Henceforth, both the state and capital class became
dependent on each other (for wealth creation and protection of wealth) yet, at the same time, they
became rivals for economic advantages and political control. Nonetheless, as with colonialism, the
benefits of mercantile trade pertained only to the economic and political elite class in imperialist
countries, and excluded the poor (labor class) at home and abroad.

John Locke was an influential economic thinker who published his book during a time when the
English were rebelling against tyrannical kings and setting up a parliamentary government. His
book was explicit on defining political rights and the role of government for the bourgeois, while
ignoring inequality in property ownership and the plight of the poor. Locke, a man who had
grown wealthy from investments in the slave trade was in favor of the free development of
mercantile capitalism both at home and abroad. Locke was in favor of child labor and suggested
that all children over the age of three should attend “working schools” so they would be “from
infancy…inured to work.” (Zinn, 1999, p. 73-74).

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2.2.2

The War Against Man and Nature

English philosopher and political theorist Thomas Hobbes portrayed a worldview for
society and nature that was significantly at odds with traditional thought, most notably in his
greatest work, Leviathan (1651). Instead of a kind and benevolent god who created a peaceful and
purposeful coexistence, Hobbes looked at nature and saw an arbitrary world, where man was in a
constant state of violence, fear, and war. He argued that, in order for man to avoid the condition
of civil war and savage degeneration, an all-powerful monarch (rather than god) would provide a
common power to keep society in awe, helping humans through a life that was hateful, solitary,
poor, brutish, and a “race we must suppose to have no other goal, but being foremost” (Hobbes,
1651 p. xxx).

I demonstrate in the first place, that the state of men without
civil society (which state we may properly call the state of nature)
is nothing else but a mere war of all against all; and in that war all
men have equal right unto all things; Next, that all men as soon as
they arrive to understanding of this hateful condition, do desire
(even nature itself compelling them) to be freed from this misery.
(Hobbes, 1651 p. xviii)

Hobbes’ war of everyman against everyman resonated and took root in the newly forming views
of the political economy. His observations on the state of nature at conflict with itself were
prevalent in the behavior of monarchs of his time, who used conquest and domination to wage
perpetual war in Europe and the colonies. Hobbes’ philosophies captured the spiritual shift away
from a benevolent view of god, towards an imperial view of god. Hobbes theory articulated the
culture of imperialism that came to dominate the political economy, and that put man at war with
nature, god, and himself.

16

Hobbes’ philosophy detached humankind spirituality from nature by changing the
worldview. Rather than using spirituality or intuition to understand nature, rational thought was
used to measure and define nature. Hobbes’ ideas resonated with his scientific contemporaries
who were trying to separate god from science and define nature. The early founders of Western
science, including Galileo Galilee and René Descartes, discovered mathematical alignments in
physics and astronomy, and subsequently reframed the concept of nature as a Cosmic Machine,
where god acted as an omniscient mechanic-mathematician (Worster, 1994). By reducing god
and nature to the sum of their parts, the metaphor of “machine” with observable, detachable, and
replaceable parts, gave science a framework for organizing, understanding, and championing the
natural world without the mystery of god. Aspects of nature that did not fit into the mechanical
framework of science (spiritual experiences) were simply ignored or abandoned. Christian
philosophy reinforced the mechanical view of nature by denying non-human entities a soul or
spirit. For example, René Descartes, 17th century developer of the Cartesian XYZ coordinate
system, declared animals were no more than machines incapable of pain or pleasure, and not
suited for emotional investment (Worster, 1994). This Imperial ethic towards nature helped to
remove barriers to unrestrained economic exploitation against animals and the living world.
As imperialism grew to dominate the worldview of economics, trade, and science, some
naturalists attempted to reconcile the divide between the growing mechanical view of nature and
god by offering alternatives, or more often, by blending the Imperial and Arcadian ethic together.
One philosopher who stayed true to the Arcadian ethic was Henry More, a graduate of
Cambridge University and a contemporary of René Descartes. More opposed Descartes’
calculated view of nature and instead drew his inspiration and theories from Plato’s Anima Mundi,
which is Latin for the pure, ethereal spirit that makes up “the world soul” (Jacob, 1987). More
argued against the mechanical view of nature, declaring that a “Spirit of Nature” occupied a
fourth, spatially energetic sphere between humans, god, and nature and could not be predicted
like clockwork (More, 1659). This fourth sphere housed the immaterial workings of nature not

17

addressed by Descartes’ three-dimensional Cartesian mathematic model, which only measured
length, width, and height in the physical realm of nature. More’s arguments were easily
debatable, non-observable, and too complicated to quantify. Therefore, the mechanical metaphor
triumphed and helped to further separate the concepts of god from nature.
As new philosophical debates took place in the political economy and scientific circles, an
explosion in technological innovation gave rise to an unprecedented industrial revolution.
Increased wealth in the economy created a new “capital” class of individuals that put forth the
ideas of freedom and the pursuit of self-interest in global trade.

2.3

Classical Liberalism

By the 18th century Europe’s elite merchant class grew rich in capital from global trade
and began a social renaissance by voicing opposition to monarchs and despotic rulers. Bankers
and trade manufactures were resentful of their exclusion from political privilege and frustrated by
political incompetence (Korten, 1999). At that time, trade and commerce were restricted to all but
the crown’s chartered corporations, who hired merchant marines to serve the sole interest of
kings. Trade ships acted as paramilitaries and resource-extracting businesses. Up-and-coming
merchants challenged inefficient state enterprises and argued that the self-interested behaviors of
individuals (merchants) would create a larger common good than the state (monarchs) in global
trade. Consequently, a doctrine for classical liberalism burgeoned, calling for the limitation of
state power in trade affairs in order to allow individuals more self-determined choices. Therefore,
classical economic theory emerged as “a constriction of political authority, to create the largest
possible space for the self-determined action of individuals” (Heilbroner, 1985, p. 79).
Following the general theory of mercantile doctrine, classical liberalism went further to
establish rules and governance over global finance and trade that heavily restricted the unfettered
influence of the aristocracy in Europe. This provided the capital class in several European nations

18

a long-sought victory in political and economic rights. Merchants who controlled and managed
resources and capital flows were able to set clear legal constraints on the power of the state to
violate the private space or property of individuals. The state acquiesced in order to benefit from
the growing function of trade:

Save for unusual circumstances, the state lost its command over the labor
or materials, or even the money, by which it traditionally assembled its
secular, religious, or military might. Thus even though the state retained
the ultimate weaponry of rule and the authority of awe, it became
dependent on the operation of its self-created republic for the
nourishment of revenues. The power to tax may be the power to destroy,
but the ability to tax presupposes the existence of a working economy. It
is for this reason that the regime of capital is the dominant active
influence in the normal relationship between the two realms, and it is
why the state is normally its obliging servant. Self-interest, not weakness
drives the state to support and advance the accumulation of capital.
(Heilbroner, 1985, p. 89-90)

During this era, the state and capital class grew into a codependent relationship. Each needed the
other in order to execute, protect, and further its personal interests in the global trading system.
Although the policies of classical liberalism were successful at earning the elite merchant
class political rights by challenging aristocratic control over trade, those benefits and freedoms
were not extended to the working class, women, or indigenous people. Under classical liberalism,
which subsequently became later known as capitalism, merchants and tradesman formalized the
legal framework of imperialism into the management of trade in order to advance their individual
economic goals, resulting in sustained harm to the environment, and the people of foreign
colonies.

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2.4

The Theory of A Market Economy

Around the time that the capital class won hard-fought economic rights in England from
the aristocracy, another type of political revolution challenged Great Britain in the American
colonies. It was the American colonists who, after a grass-roots military uprising against Great
Britain, claimed political independence from its imperial rule. Members of the American
Continental Congress signed the Declaration of Independence in 1776, the same year an 18th
century English philosopher named Adam Smith published his book, An Inquiry into the Nature and
Causes of The Wealth of Nations. Both events occurring in 1776 altered history and the theory of the
political economy. First, the new country of America set out to become a land of individual
freedoms protected from despotic and aristocratic rule by creating a political system of elected
officials governed by the people, for the people. Secondly, Adam Smith offered new theories for a
market economy that challenged classical liberalism and monopolistic control over trade by both
monarchs (governments) and merchants (corporations).

Political œconomy, considered as a branch of the science of a
statesman or legislator, proposes two distinct objects: first, to provide a
plentiful revenue or subsistence for the people, or more properly to
enable them to provide such a revenue or subsistence for themselves;
and secondly, to supply the state or commonwealth with a revenue
sufficient for the public services. It proposes to enrich both the people
and the sovereign. (Smith, 1776, p. 42)

Adam Smith was foremost a philosopher. He was the chair of moral philosophy at the
University of Glasgow in England and had become an instantaneous sensation after publication of
his book, The Theory of Moral Sentiments in (1759). Throughout his career, Smith’s economic
theories were influenced by philosophers before him including John Locke, Dave Hume, Francois
Quesnay, Benjamin Franklin, and hundreds of others he mentions in The Wealth of Nations. This
book, considered a masterpiece across diverse fields, is an amalgamation of philosophical theory

20

not only on economics, but also on social and political behavior. During the twelve years it took to
write The Wealth of Nations, Smith incorporated history, psychology, and sociology into a new
philosophy of the political economy based on market economics and individual freedom. Smith’s
economic vision was a blueprint for social and economic reorganization towards greater wealth
for the whole of a nation state. Smith was concerned with building what he called a “great
society.” Although Smith’s book addressed social philosophy, it embodied the Imperial ethic
towards nature, and addressed the environment as no more than stock in a storehouse awaiting
man’s industrial ingenuity.
For Smith, wealth was synonymous with money, and he brilliantly laid out a vision for
how money should operate in banking, the division of labor, pricing for market commodities,
capital flows, commerce treaties, and colonies. In Smith’s market economy, trade would take
place between multiple producers and multiple consumers in local markets where buyers and
sellers could meet freely to exchange goods and services based on personal needs and interests.
Smith assumed that under the market system the self-interested choices of many individuals in the
market would produce optimal societal benefits. Smith explained that, in order to prevent the selfinterest of avaricious men from damaging society and the system, competition between many
producers and consumers (that were too small to influence the market price) would provide the
market with its own self-regulating force known as the invisible hand. However, Smith warned that
the market economy could only obtain optimum societal benefits under certain pre-existing
conditions summarized here:

•
•
•
•
•

buyers and sellers must be too small to influence the market price;
complete information must be available to all participants and there can be
no trade secrets;
sellers must bear the full cost of the products they sell and pass them on in the
sale price;
investment capital must remain within national borders and trade between
countries must be balanced;
savings must be invested in the creation of productive capital. (from Korten,
1999, p. 38).

21

Smith’s market theory for the political economy has always been more of a theoretical construct
than a practical reality, even in his day. Because the conditions for optimally efficient markets do
not truly exist, and never did, market failures8 occur. When failures do occur, Smith saw the role
of the state as one to correct market failures in order to maintain the integrity of the system.
Theoretically, corrections in the market were assumed to bring back a balance of reciprocating
benefits between producers and consumers. However, correcting the imbalance of negative
externalities in the market caused by environmental pollution would not be addressed by the state
until the late 20th century.
Adam Smith wrote with clear disdain for unrestricted power in the hands of either large
monarchs or large corporations. He saw them both as instruments for suppressing competitive
forces in the market. Smith described the chartered corporation as an entity that attempted to
restrict free competition in order to prevent a reduction in the price of its goods or an increase in
the cost of its wages (Smith, 1776). Smith also criticized monarchies for their protection of capital
interests. “Civil government, so far as it is instituted for the security of property, is in reality
instituted for the defense of the rich against the poor, or of those who have some property against
those who have none at all” (Smith, 1776, p. 155). Smith stated that he believed government was
responsible to provide all citizens with protection and justice, not just those with money. He also
described the legitimate role of government as an entity charged to protect against violence and
invasion of foreign nations and to erect and maintain public institutions and public works that
were advantageous to a great society.
Smith strongly influenced the new government of the United States of America, which
aligned its political economy in part with Smith’s theories for a market economy as it crafted a
federalist governance system. However, over the decades the growing American capitalist class

A market failure is when a market, left to itself, does not allocate resources efficiently. Failures
include negative externalities, non-competitive market structure, imperfect information and public
goods. Negative externalities occur when an individual or firm making a decision does not have to
pay the full cost of that decision, and it is externalized to society as a whole.

8

22

exploited Smith’s theories for its own use in expanding elite corporate empires. Smith became the
champion of the capital class, who claimed that Smith supported unregulated free trade by
allowing the invisible hand of the free market to guide the economy, rather than the government.

2.4.2

Casting A Shadow Over the Political Economy

Four decades after Smith’s work, David Ricardo, a successful stock trader, began to
outline a theory on market economics based on his own observations of divisive factions in the
market. Ricardo opposed Smith’s theoretical framework of one, united economic family that
provided mutually beneficial results to producers and consumers. Ricardo saw two factions
dividing England: the rising industrial capitalists who led the factory revolution, and the old
landownership aristocracy and who looked down on those “new money” capitalists, who
demanded more government representation and social prestige. Ricardo’s great contribution to
the study of political economy was in exposing the monetary relationships between owners,
capital, and workers. Ricardo explained that while the interests of merchants were irrevocably
opposed to the interests of their landlords due to rents, he pointed out that the interests of both
landlords and merchants were hostile to those of workers, formally setting forth those ideas in his
Principles of Political Economy in (1817). He revealed that unearned gains in landowner rent as well
as the profit imperative of merchants tended to reduce worker wages. Ricardo’s observations
helped to explain capitalism’s antagonism towards workers and eventually led to the theory of
comparative advantage, which compared input factors of production and encouraged countries to
specialize in products they could produce at the lowest price. Ricardo’s theory of comparative
advantage explained how trade in the North (industrial) and South (agricultural) progressed with
disparity under global economic development.
A critic of Ricardo’s, Fredrick List, called comparative advantage a doctrine of the
dominant, where those who were being dominated could expect to derive little advantage from

23

the economic exchange. In his (1841) work, The National System of Political Economy, List argued that
instead of allowing new economies to be dominated by wealthy, established industrial powers,
governments should instead protect infant industries in order to strengthen the future
development of their own economies. List promoted a nationalist political economy, with strong
government regulation. This was adopted in several countries in Europe, including Germany.
Although List’s theories prevailed in the economic development of some European countries, his
doctrines were not espoused or accepted by classical liberal economists. Ricardo, rather than List,
became the dominant doctrine of the political economy due to the rule of imperialism. As
economic integration advanced through global trade, the Imperial ethic came to dominate the
policies of classical liberalism.
A contemporary critic and good friend of David Ricardo was another great economist
and clergyman named Thomas Robert Malthus. In 1810, Malthus taught economics at the East
India Company and was the first economic authority to comprehend the vital statistics of the
planet’s spherical empire as it related to population growth and resource depletion. Malthus
estimated that population growth would continue to rise and eventually threaten to exhaust
agricultural and resource production. His theory multiplied human population at a geometric
(exponential) rate of gain, while increasing life-support production at an arithmetic (linear) rate of
gain. This was a compelling theory for that time, when most classical economists such as Ricardo
argued that population growth was related to increases in wealth. Malthus saw two possibilities for
the fate of humans. First was human destruction through war or disease. Second was human
survival through the social ability to manage population growth and resource extraction. Malthus
was the first to introduce this new ecological dimension into the study of the political economy.
Although Malthus’ work identified that the Earth was a finite closed-system sphere, most political
economists and scientists of the time did not comprehend the possibility of exhausting the world’s
resources to the current point of mass extinction. Therefore, classical economists did not
incorporate tools, plan for, or adopt models designed to measure the monetary costs of population

24

growth in relation to natural resource exhaustion over time. Nonetheless, Malthus cast a shadow
over the political economy and both he and Ricardo shifted economic philosophy from Smith’s
optimistic view of a market system, to a pessimistic calculation of rationalized behavior and
scarcity in the future.

2.4.3

Scientific Revolutions in the Understanding of Nature

The writings of Malthus and Hobbes subsequently influenced the historical works of
Charles Darwin, an English geologist who profoundly impacted science, spirituality, and the
political economy, with his theories on evolution in, The Origin of Species by Means of Natural Selection.
Published in (1859), Darwin put forth revolutionary ideas about the origins of life by arguing that
life on Earth had evolved over time to become attuned with its environment by a process of
evolutionary “natural selection,” in which only the strongest species survived in a competitive
struggle for existence. Darwin’s observations of nature were deeply at odds with the Christian
story about the origins of life and further helped to separate science from god.
Darwin developed his ideas in part during a five-year voyage that took him around the
coast of South America, Australia, and the horn of Africa. Darwin’s journey was to survey and
study geology and biology. During his journey, Darwin came into contact with the raw forces of
nature and the wild, which he found to be hostile and violent. In his studies of fossils he saw
extinction and conflict, leading him to wonder how such a gloomy world could exist. Darwin felt
fear and anxiety as he observed a constant state of competition for resources taking place in both
the human and natural world. On his voyage he was surrounded by imperial wars raging along
the South American coast against “savage” native peoples. He watched and listened with terror to
the screams of tortured salves in Brazil and the genocidal wars in Argentina (Worster, 1994).
Darwin’s exposure to war, violence, and imperial conquest had a lasting impact on the
development and framework of his ecological model, which described the world as a brutal place

25

of individualistic competition, where each species was vying to seize its place in the economy of
nature. Darwin’s ideas were written in the context of his age, reflecting his own cultural and
moral understanding.
Darwin’s ideas were accepted almost immediately by his peers in England resulting in a
scientific revolution that drew most of its criticism from the Church. Until Darwin, scientists could
not express their views independent from god or moral human values. Darwin’s work won the
right for scientists to trust their own eyes and to form their own beliefs based on open trial and
honest evidence, free from political and religious persecution (Sears, 1950). In effect, Darwin
created a new mandate for science where only observable facts could be measured as evidence.
Darwin had both Imperial and Arcadian viewpoints, causing him to be somewhat of an
outsider in the modern scientific community. Unlike many of his English scientific peers he was
biocentric, which meant that he expressed a deep regard for the interconnected whole of nature,
as well as a general fondness and respect towards animals. He did not adopt the static or
mechanical view of nature; rather he saw nature as an unfinished, growing, and innovative force
in which “plants and animals are bound together by a web of complex relations”(Darwin, 1859,
p. 90). Darwin believed no individual species could survive independent of the web of life,
including humans. Despite some contradictions, Darwin was able to articulate for science that the
human species was involved in an interdependent relationship and kinship with nature.
Although modest and sympathetic toward life, Darwin believed in progress and was not
able to escape his formal training in English philosophy. Civilization, to Darwin, was a blessing
for the world and would replace savagery. He accepted that the strongest race would come to
dominate and drive out inferior races. Darwin’s “survival of the fittest” resonated with English
society and it quickly found its way into political economic theory. Consequently, “the survival of
the fittest” became a metaphor that was used by industrialists, scientists, economists, and public
figures, to rationalize their imperial expansion over the natural world.

26

2.5

American Capitalism

After a violent revolution to overcome colonial oppression, the founding fathers of the
United States of America created a new form of government which, along with rejecting
monarchy, attempted to subordinate private, capital power to public, state power under
democratically elected governments. As a struggling young nation, America wanted respect,
autonomy, and economic independence from European aristocracy and corporations. However,
as the American economy grew, its corporations began to model the Imperial ethic of their
European counterparts. James Madison warned in his Federalist, No. X paper written in 1787 of the
violence and danger caused by strong factions and for the need to break-up such power so as not
to harm the rights of citizens (Madison, 1787). Later in 1816, Thomas Jefferson was quoted as
saying, “I hope we shall crush in its birth the aristocracy of our moneyed corporations, which dare
already to challenge our government to a trial of strength and bid defiance to the laws of our
country” (Jefferson, 1816).
Despite the admonitions of early politicians, American state and capital interests quickly
adopted European methods of imperial conquest and war to extract natural resources from land
occupied by Native American tribes, resulting in genocide against native people and sustained
harm to the environment. As the US political economy developed under classical liberalism it
became dominated by capital interests and given the name capitalism in the late 19th century. US
laws were written in a fashion that favored the individual’s right to accumulate wealth and private
property, thereby improving the rights of the capitalist class. Despite the United States
Constitution’s articles on equality and freedom for all, the early US government was exclusively
developed for the benefit of male European-American property owners and businessmen, and
excluded women, foreign slaves, and native people from the privileges of citizenship.
The American capitalist system became one of expansionism where getting rich was a
matter of cunning and ingenuity in the market, more than birthright and privilege. The capitalist

27

system transformed society by rapidly pioneering new markets and investing in technology.
Expansionism towards the West allowed US corporations to grow large in wealth and power by
obtaining land, mining metals, and clear cutting forests. Land expansion was facilitated in
partnership with the US government and military, which used war to fuel the growing economy.
Raw natural resources such as forests were extracted at a rapid rate and used to build cities,
factories, furniture, and commodities for trade.
American writer and early field naturalist Henry David Thoreau was one of the first
natural scientists to study the effects of wide scale forest clear-cutting in Massachusetts. He
observed violent ecological change as a result of economic development that claimed over 60% of
the original forest cover by the mid 19th century. Consequently he noted, that as the forest
vanished so did its inhabitants, including the hawk, eagle, turkey, and squirrel. Thoreau claimed
that, due to the rapid exploitation of forests, no animal could escape the hunter’s gun. He detailed
the necessary interdependent relationships of wild species in the evolution of forest succession.
Thoreau advocated for a forest management strategy that imitated the same planting patterns as
nature in order to ensure a healthy, perpetual woodland crop. In an early step towards
conservation, Thoreau suggested that each town should preserve a primitive forest for common
possession, education, and recreation, where no ax would fall and nature’s own economy could
function (Thoreau, 1854).
Thoreau belonged to the Arcadian tradition of ecological thought, although he accepted
the scientific outlook on nature used by contemporaries such as Charles Darwin, and hoped it
could aid in the restoration of clear-cut forests. Thoreau was also biocentric, rejecting what he
called man-worship, or the idea that man had the right to violently mistreat nature. Thoreau did
not accept the mechanical view of nature and believed that man should learn to find balance with
the natural order, rather than overthrow and transform it (Worster, 1994). Thoreau helped to
develop the Arcadian ethic into a modern ecological philosophy and restore man’s relationship
with nature. Thoreau advocated for a confluence between the spirit and matter in science, and he

28

hoped that scientists could be united with nature, rather than seeing it just as a commodity to
divide and conquer.

2.5.2

The Rise of Corporate Power and American Empire

In the United States, the political economy developed under two different philosophies of
leadership portrayed by the politics of two American Founding Fathers, Thomas Jefferson
(democracy) and Alexander Hamilton (plutocracy). Both parties had close ties with US corporate
interests. However, Thomas Jefferson had suspicion and disdain for corporations, especially
bankers who sought concentrations of economic and political power (Johnson and Kwak, 2010).
Jefferson, the author of the Declaration of Independence, believed in an agrarian society where
limited political and economic power would be balanced by a strong middle class of artisans who
owned the land and tools they needed to derive their livelihood. He was a strong proponent of
individual liberty and feared that the American system might be corrupted by the elite class and
cause deep divides in society along class lines. Although he was a slave owner, Jefferson had faith
in ordinary people and was a leading voice of democracy, individual rights, and decentralized
power.
Jefferson was opposed by Alexander Hamilton, who argued that the US government
needed to take a strong and central role in fostering economic development by providing
corporations with the credit they needed to expand US enterprise. Hamilton had clear suspicion
and disdain for ordinary people. He believed that the elite class had better judgment to rule and
therefore should be given a permanent share of government, and be appointed to positions for life
(Zinn, 1999). Hamilton supported policies that helped concentrate power and wealth into elite
hands, which he thought could lead a strong America to imperial greatness (Zinn, 1999; Korten,
2006). As the first US Secretary of the Treasury under George Washington, Hamilton successfully
crafted legislation to create the first Bank of the United States. Jefferson opposed the bank

29

because of his fear that the bank could gain leverage over the federal government, but he did not
prevail. Hamilton promoted other financial reforms along with the bank that proved to be very
successful in creating a well-functioning financial system in the early development of the United
States. By the time Jefferson was elected in 1800, Hamilton had created the first truly competitive
banking system with over 75 banks flourishing in a stable political and economic environment
(Rousseau and Sylla, 2005).
Hamilton’s bank was the first in a historical succession of public institutions that were run
by private interests for the purpose of creating private wealth for corporations guaranteed by
public assets backed by the US government. In 1811, when the charter for first Bank of the
United States expired, the second Bank of the United States was created and granted a 22-year
charter under James Madison. When the second charter expired in 1832, Andrew Jackson, a
strong believer in democracy, presidential power, and an agrarian republic, shared Jefferson’s
distrust for big-city bankers. He saw the national bank as a powerful rival to the federal
government and therefore did not renew its charter on political grounds. The bank had by then
gained a monopoly control over the government’s finances and was issuing paper money to the
masses. By Jackson’s account, the bank was distorting the economy at the expense of the common
people (Johnson and Kwak, 2010). Jackson saw that private interests of the day were using the
bank to hold the economy accountable to their own political ends, which mostly favored large
corporate factions at the expense of the people. Jackson effectively disbanded the bank and
implemented Jefferson’s vision of a decentralized economic system. Disbanding the bank’s charter
weakened the potential for the centralization of power and wealth in the banking sector. The US
would not have another central bank until the creation of the Federal Reserve System in 1913.
Despite Jackson disbanding the central banking system in the United States, the
competitive finance atmosphere continued to grow and prosper. With financing available, an
industrial revolution of free enterprise flourished in the 19th century. US corporations grew
rapidly in size, wealth, economic power, and elite status, which infiltrated the political system at

30

all levels. By the end of the Civil War in 1865, the US Congress openly supported plutocratic
policies serving the welfare of large capitalist interests. Abraham Lincoln saw the rise of corporate
influence in politics and expressed his concern in a to letter to Col. William F. Elkins in 1864,
stating:

I see in the near future a crisis approaching that unnerves me and
causes me to tremble for the safety of my country. As a result of the
war, corporations have been enthroned and an era of corruption in
high places will follow, and the money power of the country will
endeavor to prolong its reign until all wealth is aggregated in a few
hands, and the Republic is destroyed. (Lincoln, 1864)

In the post-Civil War years, the US government handed out subsides to businesses and set up
tariff laws to give trade protections to US corporations (Horwitz, 1976). Corporate businessmen
such as John D. Rockefeller, Andrew Carnegie, and James Mellon became notoriously known as
robber barons for the amount of gold, land, and public resources they transferred from public
ownership to private corporate ownership. In an overt display of partnership, most fortune
building by US corporations was done legally with the collaboration of the government through
charters and courts. For example, over 100 million acres of land were given free of charge to the
railroad companies by Congress under the law of eminent domain. In 1862 the Homestead Act, a
federal law designed to give freehold title of up to 160 acres of undeveloped land to citizens that
would occupy and work it, was used by financial speculators in the stock market to obtain 50
million acres of public land for private gain at minimal cost (Zinn, 1999). Corporations took
advantage of the (literally) dirt-cheap resources that the government was “selling” to shrewdly
build empires, choking out foreign competition, maintaining high prices, and keeping wages low
to maximize profit.
Eventually, the US corporations gained enough influence and political power to win legal
rights under the US Constitution. In less than one hundred years after the signing of the US

31

Constitution, corporate power won a victory in 1886 in the Supreme Court decision Santa Clara
County vs. Southern Pacific Railroad, which allowed corporations to enjoy the same rights and
protections extended to all citizens under the 14th amendment (Danaher, 2001).
In the United States, capitalists went forth unrestricted to profit from the colonization of
the western frontier during the time known as the Gilded Age. American capitalists benefited
from land and rapid resource extraction taken forcibly from the Native Americans and the free or
low-wage labor of African-Americans, poor whites, women, and children. Capitalists created a
modern industrial economy by rewarding workers differently by race, sex, national origin, and
social class in such a way as to create separate levels of oppression, “a skillful terracing to stabilize
the pyramid of wealth” (Zinn, 1999 p. 253). The US government used poor white rural class
families as buffers and paramilitaries, providing incentives to settlers for owning land and
personalizing the war against Native Americans.
By the end of the 19th century, American expansion had a strong presence overseas and
grew into an empire. The US State Department had engaged in 103 military interventions into
the affairs of foreign countries to protect American capital interests in Argentina, Nicaragua,
Japan, Hawaii, and China (Rusk, 1962). At the turn of the 20th century the American Empire rose
to the helm of global trade.
The global battle for property and resources brought corruption and devastation to many
cultures around the world. The American and European empires raced to gain control of colonies
and fought over who would own what land and resources. Mapmakers and armies carved up the
new world using fear and intimidation to force privatization of resources and labor:

Between 1870 and 1898 Britain added 4 million square miles and 88
million people to its empire; France gained nearly the same area of
territory, with 40 million souls attached; Germany won a million
miles and 16 million colonials; Belgium took 900,000 miles and 30
million people; even Portugal joined the race with 800,000 miles of
new lands and 9 million inhabitants…the colonies were now the

32

proletariat’s proletariat. No wonder imperialism was a popular
policy. (Heilbroner, 1999, p. 192)

Throughout the 19th century, capitalist growth was successful because it continued to obtain
cheap labor, land, and resources from colonies. Capitalists continued to intentionally organize
and implement trade policies that supported institutionalized oppression and stratification based
on race, gender, wealth, and privilege. This led to massive backlash and uprisings by the poor and
working class in imperial states, especially in Europe, spawning theories on socialism and
communism as alternatives to the capitalist model of the political economy.

2.6

The People’s Revolt: Socialist Movements

Ideas about socialism as a philosophy of political economic theory date back to Plato’s
Republic, written in (360 BC). Socialism emerged in the early 19th century in England and France
as a reaction to the excessive poverty and inequality prevalent throughout Europe. Unstable living
conditions from the enclosure of the commons (forests and pastures) for the industrial revolution’s
production system caused widespread socioeconomic unrest. Rural peasants and workers were
often forced off their lands and into urban slum dwellings that were plagued with disease,
malnutrition, crime, and pests. Consequently spontaneous uprisings from the proletarian class
challenged autocratic rulers of wealth and power in Germany, Prague, Italy, and France, and
began winning battles against corrupt and complacent monarchs.
In response to the proletarian uprisings, Louis Napoleon employed his National Guard to
subdue crowds to the tune of ten thousand causalities, while Belgium abolished the right to
assembly altogether. Nobility in Europe had no sympathy for the proletariat, and many rulers
reflected the violent actions of Nicholas I of Russia, who was called a cornerstone of despotism in

33

Europe by French historian Alexis de Tocqueville. Therefore, due to a lack of organization,
European proletariat revolutions were often unsuccessful and mercilessly crushed.
Socialism advocated for egalitarian distribution of wealth and against private property,
although theories being put forth at the time varied. European social philosopher Saint-Simon
advocated for state-controlled production and distribution while Robert Owen and Charles
Fourier advocated for small, decentralized, communal communities (Wallerstein, 1974). Social
commentary grew and new forms of socialism arose, including communism.
Karl Marx and Friedrich Engels distinguished themselves from other forms of socialist
theorists by forming a doctrine that articulated the class struggle between the proletariat class and
the bourgeois capitalist class. Engels was a socially concerned businessman from Manchester who
wrote a condemning verdict on the factory conditions of industrial slums in, The Condition of the
Working Class in England (1844). Engels defined the proletariat as a class in society that lived
entirely from the sale of its labor, drawing no profit from any kind of capital. He argued that
English economists were only apologists for the established order. Engels’ work caught the
attention of Karl Marx, who was the editor for a radical philosophical magazine in Paris.
Together, through great intellectual debate, they advanced the theory of dialectical materialism,
which detailed the material forces of growth and development in society and the economy
throughout human history.
Marx and Engels were concerned with the material aspects of humanity and nature.
They fully accepted Malthus and Darwin and believed that science was the only way to know
truth about matter. They considered matter itself as the beginning and ending of reality and
therefore described the world through economic materialism rather than through a more
biocentric perspective. Marx and Engel were able to link the changing production system of
economics from feudalism, under the rudimentary agricultural systems, to industrial capitalism
under the factory system. The pair collaborated on what became known as the Communist Manifesto
in 1848, which described capitalism’s material effect on the social community. They asserted that

34

the disorder caused by capitalism’s volatile economic cycles and social unraveling would
eventually replace itself with equilibrium. This post-capitalist society would reach a steady state of
established relations between nature, man, and justice that would lead to a classless utopia based
on common ownership of the means of production (Marx and Engels, 1848). The inefficient and
wasteful nature of capitalist production coupled with its arbitrary economic boom and bust cycles,
they asserted, would result in the self-destruction of capitalism at the hands of revolution and
social chaos.
The crisis was built into the system which was chaotic in its nature, in
which only the very rich were secure. It [capitalism] was a system of
periodic crisis – 1837, 1857, 1873, [and later: 1893, 1907, 1919, 1929] –
that wiped out small businesses and brought cold, hunger and death to
working people while the fortunes of the Astor’s, Vanderbilt’s,
Rockefeller’s, Morgan’s, kept growing through war and peace, crisis and
recovery. (Zinn, 1999, p. 264)
Marx and Engels believed that capitalists would breed their own successors, socialists, who would
rationally plan out production. Although Marx’s ideas did not come to full fruition, they were
powerfully influential in several proletarian revolutions, including the overthrow of the Tsar in
Russia by Vladimir Ilyitch Oulianov (Lenin) in 19179 and the rise to power of the Communist
Party in China in 1949.
In the United States, there were also exploding socialist movements as a response to
egregious corporate abuses against labor by American capitalists. Journalist and political
economist Henry George wrote on issues affecting the working class in his best-selling book,
Progress and Poverty (1881).
This association of poverty with progress is the great enigma of our
times… There is a vague but general feeling of disappointment; an
increased bitterness among the working classes; a widespread feeling
of unrest and brooding revolution.…The political economy has been
degraded and shackled; her truths dislocated; her harmonies ignored;
the word she would utter gagged in her mouth, and her protest
In 1918, the Russian Social Democratic Labor Party (known as the Bolsheviks) lead by Vladimir
Lenin changed its name to the Communist Party.

9

35

against wrong turned into an endorsement of injustice. (George, 1881
p. 357 and 503)
Under the capitalist industrial system, living and working conditions in cities such as New York
and Philadelphia matched their horrific counterparts in Europe. Slums were flooded with poverty
and hunger and alive with rats, spreading typhus and tuberculosis. People were cut off from
nature and access to land. Poor and immigrant classes began to rise up in protest of desolate
working conditions and inequitable plutocratic government policies favoring capitalist interests.
Women, who were brought into the work force because of the Civil War, were among the
first to organize a union and strike against long hours, exploitative wages, and dangerous factory
conditions. African-American workers, who won their freedom from slavery in 1863 under
Lincoln’s Emancipation Proclamation, also organized against capitalists but were often excluded
from white unions. Nonetheless, membership for unions grew everywhere and, by 1872, the
National Labor Union became a federation of all unions around the country.
Worker strikes and protests were met with violence, force, jail, and murder. Labor
organizers were targeted, beaten, and often treated ruthlessly by the US judicial system. Workers
revolted against the ill treatment of the system by writing decrees, claiming independence and by
seeking a different form of political and economic organization. In 1876 the Negro unions
formally denounced the Republican Party and one group of German socialists wrote this
declaration of independence, delivered in Chicago July 4, 1876:

The present system has enabled capitalists to make laws in their own
interests to the injury and oppression of the workers. It has made the
name of democracy, for which our forefathers fought and died, a
mockery and a shadow, by giving the property a disproportionate
amount of representation and control over Legislation. It has enabled
capitalists…to secure government aid, inland grants and money
loans, to selfish railroads…It has allowed the capitalists, as a class, to
appropriate annually 5/6 of the entire production of the country…It
has therefore prevented mankind from fulfilling their natural
destinies on earth…crushed out ambition…has shortened human
life, destroyed morals and fostered crime, corrupted judges, ministers,

36

and statesmen, shattered confidence, love and honor among men,
and made life a selfish, merciless struggle for existence instead of a
noble and generous struggle for perfection. (Foner, 1976)

Such condemning declarations against the capitalist class and its corporations were
widespread in both the US and Europe at the turn of the 20th century. As dissent against the
established order escalated, protection of private property required more force, subversion, and
control over information. Media propaganda was written to emphasize a strong sense of
patriotism, national unity, and duty. Social movements won some victories in the US, such as
outlawing slavery and, later in 1920, women won the right to vote, however most often social
movements met with political defeat. In Congress the American two-party governance system of
Republicans and Democrats became corrupt and, in industry after industry, shrewd and efficient
businessmen built empires by exploiting labor and resources, suppressing competition with high
tariffs, maintaining artificially high prices, and using government subsidies to collect what became
known as corporate welfare.

2.7

20th Century Imperialism

In the early 20th century, war and imperialism escalated around the world. Europe
erupted into World War I and the imperial ambitions of Japan and Germany resulted in a Second
World War. In the United States, corporations merged and consolidated, and thereby gained
direct political control over the agencies that intended to regulate them. This gave rise to an
extreme form of laissez-faire10 capitalism under a neoclassical model of classical liberalism11 that
10The

laissez-faire school of thought holds a pro-business view that capitalism is best left to its own
devices and that the market will dispense with inefficiencies in a more deliberate and quick manner
than a legislating body. The belief is that less government interference in private economic
decisions such as pricing, production, and distribution of goods and services makes for a better
economy.
11 Neoclassical economics emerged in the late 19th century and groups a number of schools of
thought. Although economists take different approaches to neoclassical economics, there are three

37

allowed for the deregulation and privatization of markets throughout the economy. As a result,
extreme volatility in the market system and egregious abuses of power by corporate factions
prevailed. An unregulated stock market, fed by highly leveraged, borrowed money, brought
widespread economic speculation and corruption, driving up the stock market in the 1920s until it
finally crashed in 1929, resulting in the Great Depression.
Leading up to the Great Depression, corporations began centralizing their economic
control by merging into industrial trusts, allowing monopoly control and concentrated financial
power. For example, in the early 20th century J.P. Morgan played a central role in rapidly
transforming the business landscape. His financial empire handled as high as 40% of the total
capital flows in American industry (Morris, 2005). In 1901, when Theodore Roosevelt was
appointed president after the assassination of McKinley, he began to challenge the power of large
corporations because he, like Jefferson, believed that dominant private interests were bad for
democracy and economic prosperity. He began “trust busting” and used the Sherman Antitrust
Act of 1890 and the Supreme Court to bust up J.P. Morgan’s Northern Securities Company,
among others. Roosevelt instilled the belief that monopoly trusts were bad for commerce. Later,
Woodrow Wilson broke up J.D. Rockefeller’s Standard Oil Company in 1911 (Hofstadter, 1948).
Even though trusts were broken up to disband large concentrations of economic power, this did
little to break up the wealth and political purchasing power that these large corporations had.
Trust busting did not prevent the “Panic of 1907” which was a bank crisis that nearly
brought down the financial system when industrial and financial corporations were caught in a
corrupt stock market scheme that caused a run on the banks. J.P. Morgan stepped in to act as the
central bank due to the government void (for a crisis that Morgan had helped to create), and
ultimately decided which banks were insolvent and should fail, and which banks should receive a
$25 million dollar bailout from the US government (Morris, 2005). The Panic of 1907
fundamental assumptions: 1) people have rational preferences with outcomes that can be identified
and assigned a value; 2) individuals maximize utility and firms maximize profits; 3) people act
independently on the basis of full and relevant information.

38

demonstrated the risks of an American economy run by concentrated corporate power, a lightly
regulated financial system, and no central bank. In 1913 Woodrow Wilson attempted to correct
the financial oligarchy of investment bankers that had come to gain considerable economic power
by creating the Federal Reserve Act of 1913. However, the banking corporations saw to it that the
Federal Reserve remained a private bank designed to bailout the private sector with public funds
when financial crises occurred. Consequently, plutocracy continued to prevent the US Congress
from regulating corporations or acting on behalf of the people to correct market failures. In fact,
policy went the opposite way, towards further deregulation in the 1920s and, as a result of the lack
of oversight, the worst financial crisis in American history to date took place in 1929.

2.7.2

Environmentalism in the Age of Imperialism

At the turn of the 20th century and leading up to the Great Depression, imperialist war
continued on the American frontier against the environment. The disappearing forests and
animals that Henry Thoreau lamented in the mid-19th century had all but vanished within 50
years. This did not escape the notice of John Muir, a writer, activist, and founder of the Sierra
Club. Muir vehemently denounced the extraction and commercialization of nature, and wrote
extensively on man’s spiritual interconnectedness with the natural world. Muir represented the
Arcadian ethic towards nature and advanced the notion of simple preservation. He lobbied the
US Congress and Roosevelt extensively for a national parks bill. Muir believed nature should be
preserved in its wild state without domesticated animals or people. Muir lobbied against large
dam projects in California and was successful in protecting the Sierra Valley by pressuring
Congress into the creation of Yosemite National Park in 1899. Muir’s writings were well
respected and very moving. As an Arcadian naturalist, he wrote with deep regard for the
archetypal oneness between all living creatures on Earth. He is considered, by some, to be the
founding father of the environmental movement.

39

Theodore Roosevelt was moved by Muir’s sentiments. He had been a progressive
political candidate who had run on the promise of providing resource conservation to the rapidly
disappearing forests. However, the Progressive Party strongly supported the Western scientific
method for natural resource conservation. In 1905, the United States government, through the
formation of the Bureau of the Biological Survey, constructed a universal method to exterminate
animals that they considered “evil” varmints and predators, almost entirely killing off mountain
loins, grizzly bears, coyotes, the gray wolf, and the great bison that roamed the prairies (Worster,
1994). Wolves, coyotes and big cats were despised and received no sympathy from the US
government, which considered them devilish outlaws and murders. Man’s imperial dominance
over its predators led to millions and millions of animals being systematically killed with cyanide
guns, airplane sharpshooters, and lethal poisons (Olson, 1971). Resource management and
conservation in the early 20th century saw no proper place for large predator animals and those
they considered vermin.
Progressives at the time were dedicated to reorganizing nature in a way that fit their own
outlook, protecting the nation’s economy rather than the natural economy. Progressives saw
public land in dire need of scientific management in order that it would be useful in turning a
profit. This model of conservation emerged under the leadership of Gifford Pinchot, who
organized the Forest Service under Roosevelt in 1905. Pinchot was convinced that science was
the tool by which man could learn how to improve nature. He was concerned with long-term
management of resources for sustained economic profit and promoted the idea of tree farming.
Ignoring the environmental complications associated with the loss of forest habitat, Pinchot
brought scientific agricultural methods to the management of the public lands such as forests,
promoting efficiency and productivity in resource management. This philosophy also led to game
preserves where seed stock could be held in good health for reproduction and for sport hunting.
By the end of Roosevelt’s term, his administration had managed to put over 230 million acres of
land under conservation, including game preserves, national forests, and wildlife refugees.

40

Pinchot’s view of managing nature was soon opposed by those within the Bureau. Aldo
Leopold, an early supporter of strict predator elimination and public land management,
subsequently turned into a critic of the Progressive conservation movement. As a result Leopold
had a lasting impact on the rise in ecological consciousness. Leopold began to question the moral
and economic practicality of the scientific approach to resource management and conservation.
His first book, Game Management (1933), took on an agronomic perspective, identifying practical
limitations to resource management under a general economic approach to nature. This book
was accepted immediately by his peers, after which he became widely known as the Father of
Wilderness Management. Although he advocated for a “light touch” rather than an artificial
reorganization of nature, it was not until 10 years later that he fully embraced Muir’s Arcadian
ethic towards preservation and a balanced relationship between man and nature.
In Leopold’s later work, he abandoned the Imperial ethic towards nature and adopted a
biocentric and communitarian philosophy that challenged the dominant economic attitude
toward land use. His greatest work, A Sand County Almanac (1949), was written after Leopold had
retreated to the Wisconsin countryside, where he spent many years immersed in nature, reflecting
on its interdependent relationships. His work was published shortly after his accidental death in a
local brush fire. Leopold there concluded:
“We abuse land because we regard it as a commodity belonging to us.
When we see land as a community to which we belong, we may begin to
use it with love and respect. There is no other way for land to survive the
impact of mechanized man…that land is a community is the basic
concept of ecology, but that land is to be loved and respected is an
extension of ethics.” (Leopold, 1949 pg. viii)
Leopold blended a naturalist approach to science and ethics in order to articulate a highly
sophisticated understanding of ecological relationships. His writings helped to usher a new age of
ecological thought into scientific study. Leopold expressed the value of the whole of nature, and a
harmony that existed between diverse functions in the natural world. Leopold became entirely

41

disenchanted and disgusted with the greed of the world, and described modern society as a
hypochondriac, so obsessed with its own economic health, that it lost the capacity to remain
healthy (Leopold, 1949). Like Gilbert White, Henry Thoreau, and John Muir before him, Aldo
Leopold inspired a new generation of ecological scientists including Rachael Carson, who
challenged the Imperial ethic of the industrialized approach to resource management and
brought new public awareness to the vulnerability of human and ecological systems.
Despite the growth of ecological awareness, the traditional Imperial ethic towards land
and resource management remained dominant. Consequently, science and industry forged ahead
in the 20th century with unprecedented manipulation of nature that encouraged the widespread
growth of factory farms, industrialized agriculture and chemical inputs, massive resource
extraction, and sustained exterminations of wild animals. As a result, ecological imbalance in
communities across the United States began to show signs of massive pollution, reproductive
disturbances, and the extinction of a large number of species. Imbalance was also acutely felt by
human society in the US and abroad. Within the first half of the 20th century, the policies of
imperialism helped to fuel the fires of global financial collapse and two World Wars.
During the final stages of the WWII, the US dropped two of its all-powerful atomic
bombs on Japan, which resulted in unprecedented death, destruction, pollution, and human
suffering. The use of the atomic bomb gave rise to environmental concern about the limits and
uses of modern technology including the moral implications of playing “god.” This new moral
awareness was called environmentalism, and it aimed to use ecology to restrain untamed scientific
domination over nature (Worster, 1994). Environmentalism brought awareness to the scientific
community regarding the interdependency between man and nature, which furthered the concept
of the web of life. However, the post-war scientific community largely ignored environmental
concerns. Instead it saw its place as the creator of endless new chemicals and market technologies
that would improve humanity. After the war, new chemical blends and products made with crude
petroleum were commercialized and used in a widespread manner for everyday household

42

cleaners, fertilizers, packaging, plastics, building products, and industrial elements. It would not
be for another half century until the scientific community would concede that many such
inventions were hazardous to human health and the environment.

2.8

The Collapse and Rebirth of the Political Economy

During the early 20th century Western nations were plagued with war and economic
hardship that subsequently led to a rebirth in the political economy. The rebirth was profound
and brought more equity into global trade, however it was not enough to extract imperialism
from the system. It began with the Great Depression, which caused the US government to
intervene on behalf of the public to correct market failures and redistribute wealth. In 1933,
Franklin D. Roosevelt was elected president on the promise of a new social contract with America
called the New Deal. Like Jefferson, Jackson and T. Roosevelt before him, F. D. Roosevelt
opposed a small minority of private interests and feared that it would undermine both the
economy and the political system. Roosevelt believed in democracy and unabashedly sought to
shift the balance of power between capital and labor. Therefore Roosevelt’s New Deal
implemented government spending to create jobs and support better working conditions and
social services for workers. Business and financial markets were regulated, monopolies were
aggressively broken up, and employment programs with worker’s benefits were established. In the
first year Roosevelt was elected President, he passed the Banking Act of 1933, which separated
commercial banking from investment banking, set up the Federal Deposit Insurance Corporation
(FDIC), and regulated banks under the Securities and Exchange Commission (SEC). As a result,
for the next 60 years, Roosevelt managed to protect consumers, weaken corporate power, and
stabilize the banking industry.
After almost a decade of slow global economic growth, the United States was drawn into
World War II in 1941 to fight against Nazi Germany and imperialist Japan. At the time, many

43

Americans went to work producing goods for the war effort, which led to economic expansion
and a full economic recovery in the United States by the end of the war in 1945. After the Second
World War and the defeat of the Nazis in Germany, the United States won economic and
political power. Europe and Japan were devastated by war and their infrastructure was in ruins
from bombings, allowing the United States to gain a strong economic advantage in key industries.
Consequently, the US took the leadership role in helping to reestablish the global trading system.
The United States and its allies determined that a unified law of trade that adopted a
model of “controlled capitalism” would best facilitate a global economic recovery and prevent
unexpected and volatile changes in the market that could lead to war or global financial collapse.
The new contemporary model for global trade marked an end to the era of overt imperialist
conquest, and the birth of a new era of economic imperialism, facilitated through international
trade agreements. Trade agreements allowed economic integration to be more lawful,
predictable, and accountable. Under the direction of the United States government, a new global
trade and finance system became formalized under the world’s first global governance
institutions. These institutions became known as the Bretton Woods Institutions, which included
the World Bank, the International Monetary Fund, and the World Trade Organization (formally
known as GATT). These institutions were inherently plutocratic and were counter-balanced only
by one competing model of democratic world governance known as the United Nations. The new
world governance system marked a new era of economic integration described here as
contemporary globalization. Contemporary globalization unfolded under three distinct phases
described in the following chapters.

44

CHAPTER 3: Contemporary Globalization: Phase 1 (1945-1971)
3.1 The Founding Fathers of Contemporary Globalization

The founders of the post-World War II global trade system sought to stabilize a world
economy devastated by two World Wars and widespread financial collapse. The United States
and its global allies recognized that the laissez-faire model of neoclassical liberalism created a
volatile market system, plagued with blatant abuses of power by government and corporate
factions. It was decided that a new model for the political economy was appropriate in which the
state took a vital role in the function of the market. Therefore, as the first phase of contemporary
globalization developed, nation states agreed to adopt regulation, governance, and controls over
the movement of capital in world markets in order to protect the legitimacy of market capitalism,
the well-being of citizens, and the stability of the global trading system (Macpherson, 1977).
At the time, British economist John Maynard Keynes was an author of numerous political
economy theories that fundamentally influenced the foundations of modern macroeconomics. His
work criticized neoclassical economics and instead suggested interventionist policies that used
government monetary policy and spending to help eliminate cyclical recessions and economic
booms. He claimed private capital would not invest in production, and that would eventually lead
to a recession. Keynes saw employment as a function of aggregate supply and demand, where full
employment was only possible if governments ran a deficit when the economy was slowing.
Franklin Roosevelt experimented with Keynes’ theories in an attempt to keep the budget
balanced and implement his New Deal. The success of the American economy under Keynes’
models made Roosevelt a believer, and shortly afterwards Keynesian economics were adopted by
Western nations under new institutions of global governance and global trade.

45

3.2

Designing the Institutions for the Global Political Economy

In July of 1944 during a meeting in Bretton Woods, New Hampshire, the United States
and its allies finalized agreements for the general governance and infrastructure of a new global
trade and finance system. The Bretton Woods meetings produced three powerful institutions
including the International Bank for Reconstruction and Development (World Bank), the
International Monetary Fund (IMF), and the General Agreement on Tariff and Trade (GATT).
These three global bodies became known as the Bretton Woods Institutions (BWIs), which under
Keynesian economic policies supported regulated business transactions and restricted movement
of capital in global financial trade.
The World Bank was commissioned to stimulate overall economic development and
growth, with a focus initially on war-torn economies. The World Bank offered long-term, lowinterest loans to Europe for “reconstruction”12 and later for Third World13 “development”
(Meltzer, 2002). The International Monetary Fund became operational as a public financial
institution to promote international monetary cooperation and oversee an orderly exchange rate
system between complying countries. It established fixed exchange rates based on the US dollar
and US gold reserves. The IMF mandate was to maintain currency stability and foster world
trade.
The GATT agreement was originally introduced as the International Trade
Organization (ITO), a governance body created for implementing global trade policy under a
The US government decided on granting (instead of loaning) money for the post-war
reconstruction of infrastructure in Europe. The US Marshall plan transferred $41.3 billion dollars
in funds to rebuild European countries.
13 The "worlds of development" concept originated with Louis Irving Horowitz. Horowitz
distinguishes between groups of countries that share similar patterns of socio-economic
development. The criteria used to differentiate between countries include: the nature of the
dominant economic system (i.e., "capitalist" vs. "socialist", "open" vs. "closed"); the nature of the
dominant political system (esp. in terms of their degree of participatory democracy); degree of
urbanization; and, the role of the military in national life. The third world includes those countries
of Central and South America, Africa, and Asia. The first world refers to Western capitalistic
countries of America and Western Europe. The second world referred to state controlled
economies such as the Soviet Union (taken from Horowitz, 1972).
12

46

laissez-faire agenda. Ideas for the ITO date back to WWII discussions between the US and
Britain that suggested all non-tariff barriers should be abolished and all tariffs reduced through
international negotiations (Dam, 1970). Less industrialized countries opposed the free trade
liberalization agenda in the ITO and demanded special charter provisions for trade including the
flexibility to use tariffs and protective barriers for new industries. The Third World recognized
that many of the new rules for economic integration in the world market sought to expand the
reach of capitalism into untapped markets and commodities in developing nations. By the end of
the negotiations, even the US Congress would not ratify the entire ITO agreement and signatory
countries instead adopted the General Agreement on Tariff and Trade. GATT came into effect
in January of 1948 as an interim step to the ITO with some special charter provisions for less
industrialized countries. GATT remained in effect until the 1995 when it was replaced by a
laissez-faire model for global trade under the World Trade Organization (WTO).

3.3 The United Nations

In 1945, representatives from 50 countries met in San Francisco at the first United
Nations Conference on International Organization to draw up the UN Charter. The Charter was
ratified on October 24, 1945 after it was signed by a majority of the attendees including China,
France, the Soviet Union, Britain, and the United States. The UN was created as a democratic
governance institution for preserving international peace and collective security through
international economic and social cooperation. The UN created a global congressional platform
for governments to negotiate and cooperate on international agreements for economic
development, global security, and social equity. Subsequently, the United Nations developed
international agreements on the environment, global health, and protection for women and
children.

47

“The purposes of the United Nations, as set forth in the Charter, are to
maintain international peace and security; to develop friendly relations
among nations; to cooperate in solving international economic, social,
cultural and humanitarian problems and in promoting respect for human
rights and fundamental freedoms; and to be a center for harmonizing the
actions of nations in attaining these ends.” (UN Charter, 1945)

Similar to the Bretton Woods Institutions, the UN has an extensive network of its own global
governance institutions. The UN is divided into six principle administrative bodies including the
UN General Assembly,14 UN Economic and Social Council (UNESCO),15 UN Security
Council,16 UN Secretariat, UN Trusteeship Council, and the International Court of Justice.
Under its core framework the UN has been subsequently responsible for creating international
institutions such as the World Health Organization (WHO), the UN Development Program
(UNPD), the UN Environmental Program (UNEP), and the UN Children’s Fund (UNICEF).
Originally, the Bretton Woods Institutions were under the oversight of the United
Nations. However in 1948, after GATT came into effect, the IMF and World Bank became
independent from the direct oversight of the UN council. Consequently, a clear separation
between two very different global governance agendas emerged. The BWIs adopted the
plutocratic mission of advancing global capitalism in economic development. The UN was less
concerned with protecting capitalist interests and evolved by pursuing an inclusive democratic
policy and research agenda giving each country one equal vote in the general assembly. Unlike
the BWIs, the UN provided a platform for social organizations and less developed countries to

The only UN body in which all members are represented, the Assembly serves as a forum for
members to launch initiatives on international questions of peace, economic progress, and human
rights. It can initiate studies, make recommendations, develop and codify international law,
promote human rights and further international economic, social, cultural, and educational
programs.
15 The UN body that is a vehicle for cooperative economic and social dialogue. It coordinates
special agencies and functional commissions.
16 The Security Council votes on peace and security issues and is the most powerful UN body. It
has five permanent members (US, UK, Russia, China and France) and 10 elected members (2 year
terms). Each permanent member has the power to veto any resolution. A single blocking vote
outweighs any majority.
14

48

lobby governments in the creation of democratic international law. The UN was quickly
marginalized from influencing the BWIs because many of their socioeconomic policies and
agreements were often at odds with those in GATT. The UN had no enforcement power or
direct legal ability to govern individual nations and therefore, as the UN and the Bretton Woods
Institutions developed, they became subdominant and dominant in association. The UN took on
a subdominant governance role by urging countries to voluntarily comply with non-enforceable
social and environmental agreements. The BWIs on the other hand took on a dominant role in
global governance by creating binding and enforceable (by US military power) international trade
agreements to encourage capitalist market growth. UN agreements often contradicted the BWIs,
and therefore countries were prevented from ratifying UN treaties due to their BWI obligations.
The Bretton Woods policies prevailed throughout the 20th century allowing profit-driven
corporations to gain power and ultimately direct world governance. Rather than democracy and
socioeconomic justice advocated by the UN, global governance under the BWIs was dominated
by plutocracy and economic imperialism.

3.4

Development and Dependency Theory

In the post-colonial development era, the BWIs asserted that industrialized nations in the
North needed increased access to global resources and markets in the South in order to have
enough export surplus to maintain full employment at home. Therefore, it was considered a
necessity for global capitalism to formally open markets and privatize resources from the Third
World (Sachs, 1996). The US and its European allies used the BWIs to gain economic control
over cheap labor and natural resources from former colonies by using market privatization,
foreign direct investment, and debt financing. This primarily benefited Northern governments
and corporations. As a result, some critics have called post-colonial development policy a form of
neocolonialism or economic imperialism.

49

The massive efforts to develop the Third World in years since World
War II were not motivated by purely philanthropic considerations (such
as raising living standards) but by the need to bring the Third World into
the orbit of the Western trading system in order to create an everexpanding market for our goods and services and a source of cheap labor
and raw materials for our industries. This has also been the goal of
colonialism especially during its last phase [capitalism], which started in
the 1870s. For that reason, there is a striking continuity between the
colonial era and the era of development, both in the methods used to
achieve their common goal and in the social and ecological consequences
of applying them… Development is just a word for what Marxists called
imperialism and what we can loosely refer to as colonialism – A more
familiar and less loaded term. (Goldsmith, 1996 p. 256)

The founders of the Bretton Woods Institutions adopted development theory as a central
strategy by claiming that global interdependence, based on a strong economic development
model, would greatly reduce the need for wars. The BWIs commissioned numerous studies on the
benefits of development for underdeveloped nations. Economic development became the
accepted solution for Third World countries to rise out of poverty by promising wealth and
prosperity though market privatization.
In the quest to rationalize the South’s underdevelopment some economists blamed
traditionalism or population growth for the reason the South failed to economically develop. In
general, economists in the North believed that all Southern economies needed to do was to adopt
the market-based policies of the North to set them on the path of growth and prosperity.
Therefore, although development theorists differed on economic schools of thought, they agreed
that market capitalism would be beneficial to all (Ferraro, 1996). Therefore, mainstream
development theory became the task of Northern economists who believed that the “South’s
problems could be rationally assessed and technically managed with the aid of Western guidance”
(Brohman, 1996, p. 9). Development theory advocated the South industrialize by reorganizing
low-productivity commerce, with decreasing returns in agriculture sectors, to high-productivity

50

commerce, with increasing returns in mostly industrial sectors. Development theory and
Keynesian economic models were transferred to the economies of the Third World through the
BWIs, and subsequently became known as modernization theory17 (Brohman, 1996).
Concurrent with the expansion of development theory was the emergence of dependency
theory,18 first articulated by the Director of the United Nations Economic Commission for Latin
America, (ECLA) Raul Prebisch. Prebisch was troubled that industrialization did not necessarily
lead to growth in poorer countries. Indeed, his studies showed that the prescriptions of
development theory had negative consequences poorer countries, such as poverty and loss of
economic autonomy from Northern states and corporate interests (Ferraro, 1996).
Prebisch’s explanation for this occurrence was that poorer countries exported primarily
raw materials, which were processed in rich countries and then exported back and sold as higherpriced commodities.19 This created a negative surplus that could not be corrected because poorer
countries could not earn enough export surplus from primary commodities to afford to import
foreign goods. To correct this imbalance, Prebisch stressed the importance for developing nations
of growth through internal reforms, to escape from dependence on external help from large
financial institutions such as the World Bank.
An alternative economic model for development that emerged from dependency theory
was called, Import Substitution Industrialization (ISI). ISI sought to strengthen domestic industries in
developing nations as a key strategy for sustaining growth. ISI sought to replace goods that were
typically imported with similar goods produced by local industries. This was believed to be the

Modernization theory is a socioeconomic theory within development theory that focuses on the
positive role that developed nations play in helping to provide technical assistance and facilitation
for the modernization of underdeveloped nations.
18 Dependency theory emerged from structural economics and was popularized in the 1950s as a
group of social science theories (Prebisch; Singer; Frank; Baran) suggesting that poor
underdeveloped states of the periphery (Third World, South) are exploited by wealthy developed
nations of the centre (First World, North), in order to sustain economic growth and remain
wealthy.
19 Post-colonial trade infrastructure for Southern countries continued to follow the patterns of the
colonial agro-export model, in which Southern countries provided cheap labor and natural
resources for manufacturing and production abroad.
17

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best strategy to improve the health of the national economy and reduce dependency on aid from
the North. Poorer countries sought to sell their products on the world market and earn foreign
exchange reserves. The bulk of their income would not be used to buy goods from abroad, rather
it would be reinvested in the domestic economy. In theory, the ISI model would help achieve
more rapid self-sustaining growth and promote economic diversification while still attracting
foreign investment and concessions for capital (Brohman, 1996).
ISI models had a high level of state involvement in creating and stimulating domestic
industry. Eventually, those state sponsored industries attracted investment from foreign
corporations who desired to improve their access to local markets and circumvent trade barriers
for privately held foreign companies. In many cases foreign investors were resistant and defiant
towards state regulations that required corporations to reinvestment profits locally, share
ownership with nationals, and abide by local employment laws. Disputes arose, which led to
distrust between US foreign investors and governments in developing nations.
Northern economists in the BWIs challenged the veracity of the ISI approach and
portrayed ISI as a protectionist model promoted by populist and nationalist governments of the
South. The irony of the ISI model was that economists who traditionally supported ending ISI
protectionist policies, engaged in supporting ISI models that were friendly to foreign capital
interests. In many countries foreign-owned corporations received substantial subsidies from
individual governments and dominated ISI sectors. Consequently, the US government and its
corporate interests played a large role in advising and shaping ISI policies in countries such as the
Philippines, Turkey, Argentina, India, Brazil, and Mexico. In some cases US corporations were
able to ensure that they did not lose foreign markets to domestic competition while gaining
preferential access to protected markets, and excluding other foreign competitors.
In summary, during the first phase of contemporary globalization the BWIs influenced
both the post-colonial development model and the ISI development model. Each pattern for

52

economic growth promoted the spread of free market capitalism around the world, ostensibly in
the name of freedom, democracy, and to benefit the world’s poor.

3.5

Establishing the New World Order

In the post-WWII years the US military contracted with a highly sophisticated group of
corporate trade and industrial partners. The US federal government funded the military’s
corporate associates through a variety of grants, contracts, and subsidies to deploy weapons, build
infrastructure, and maintain services for the US Defense Department. In addition, the US State
Department assisted the US Defense Department and its corporate associates in gaining contracts
overseas to build bridges, utilities, dams, and roads. With the help of the Bretton Woods
Institutions, large loans taken out by governments overseas to build infrastructure benefited
American capital interests because funds were directed back to US corporations and defense
contractors.20
The US military played the role of global enforcer of US capital interests in trade. First
and foremost, the US was successful in building a capitalist empire because of the political and
economic pressure it used during trade negotiations to protect foreign investment from being
“expropriated” by governments who wished to “nationalize” foreign owned assets. Developing
nations (many ex-colonies) which did attempt to expropriate resources and redistribute them in a
socialist manner were labeled “communist” and often thwarted by US covert military operations
through the US Central Intelligence Agency (CIA). Therefore, the United States primarily used
trade agreements and debt to gain control of a country’s assets rather than direct military

In the (2004) autobiography by John Perkins, Confessions of an Economic Hitman, Perkins admits to
falsifying economic projections to the World Bank (from1963-1981) in order to win financial
contracts in Indonesia, Ecuador, Columbia, and Panama as the chief economist for an engineering
and consulting firm named MAIN. Perkins details his working relationship with the World Bank
and the culture of using false information to obtain funding that would ultimately profit US
contractors and lenders.

20

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occupation and violent government overthrows. However, US military intervention was used
openly as a last-resort for non-complying countries (Perkins, 2004).
In one example in 1954, the United Fruit Company (UFCO) (a US company now known
as Chiquita) sought intervention from the US State Department to protect “its” assets (idle land)
from being expropriated by a newly elected socialist government in Guatemala. Although the
Arbenz government offered fair compensation for the UFCO land (80% of which was not in
production), the US military subsequently mounted an operation in Guatemala,21 and overthrew
the democratically elected President, defending its actions on the conviction that he was a
communist.
“Washington officials did view the UFCO problem as another, indeed
critical, piece of evidence that Arbenz was coming under communist
influence. As late as April 1954, that evidence had to rest not on
Guatemala’s support of international communism – for there was no
convincing proof of that—but on its treatment of private property inside
the country…Guatemalans precisely defined the confrontation as being
over the question of who was to determine the future use of their own
property.” (Lafeber, 1984, p. 54)
The US State Department had no real proof of communism in Guatemala so they devised a
communist analogy that became known as Patterson’s Duck Test. In the post-WWII era of the Cold
War paranoia, passing the duck test was all the legitimacy the US needed to send its military into
war for the protection of its corporations in the free market.
“Suppose you see a bird walking around in a farm yard. This bird has no
label that says “duck.” But the bird certainly looks like a duck. Also, he
goes to the pond and you notice that he swims like a duck. Then he
opens his beak and quacks like a duck. Well, by this time you have

21

“The revolt itself was based on top-secret operations and maximum use of psychological
warfare. The CIA chose Carlos Enrique Castillo Armas, armed his rudimentary group, staged
them in Honduras, and prepared covert air cover in Panama. Castillo moved 6 miles inside the
Guatemalan border and stopped. The CIA set up a radio transmitter in the jungle and
broadcasted reports to Guatemala City that exaggerated the strength and success of the rebels.
Arbenz responded by having a blackout. The Guatemalan Army yielded, and Arbenz was out of
power because few people wanted to risk supporting him.” (taken from Immerman, 1983 p. 163)

54

probably reached the conclusion that the bird is a duck, whether he’s
wearing a label or not.” (Immerman and Bowie, 1998 p. 102)

Fear and power drove the US government to try and eradicate communism from the planet.
Rogue communist nations and state-controlled economies with socialist agendas threatened the
foundational legitimacy and power of capitalist markets on a global scale. Between the Truman
and Eisenhower administrations, the United States Congress passed a law that mandated a fight
against communism via federal legislation NSC-68 and NSC-141, which committed the United
States to be the protector of the free world against the communists (Immerman and Bowie, 1998).
In what became an infamous imperial pattern, the US Department of Defense, US State
Department, and the CIA went on to conduct hundreds of both clandestine and open military
operations to stop communism and expand free market ideology. This included the failed
attempts to overthrow Fidel Castro of Cuba (in the Bay of Pigs Invasion of 1961) and the
government of North Vietnam (between 1963 and1975). Notorious leaders such as National
Security Advisor and US Secretary of State Henry Kissinger ordered clandestine bombings in
Cambodia and funded the overthrow of Chile’s democratically elected government in 1973. The
United States funded far-right military dictatorships in Latin America and elsewhere that
supported US interests, helping them to obtain weapons and launch campaigns of torture,
disappearances, and violence to suppress resistance (Hitchens, 2001).
As the business of war grew, so did capitalist ties to government contracts. Both
corporations and the military gained immense lobbying power in Washington DC. In his
foreboding 1960 farewell speech, former 4-star general and US President, Dwight D. Eisenhower
admonished:

“Until the latest of our world conflicts, the United States had no
armaments industry…But now we can no longer risk emergency
improvisation of national defense; we have been compelled to create a
permanent armaments industry of vast proportions…We annually spend

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on military security more than the net income of all United States
corporations…In the councils of government, we must guard against the
acquisition of unwarranted influence, whether sought or unsought, by the
military industrial complex. The potential for the disastrous rise of
misplaced power exists and will persist.” (Eisenhower, 1960 p. 1035-1040)

Dwight Eisenhower’s warnings would turn out to be a harbinger for decades to come. He coined
the term “military industrial complex,” which refers to the relationship between the US military,
private defense contractors, and associated corporate and political interests (Kurth, 1999). This
iron triangle held influence over US policy and the direction of the Bretton Woods Institutions.
The military industrial complex changed the landscape of business and the political economy,
moving it away from controlled capitalism and back towards laissez-faire capitalism.

3.6 Power to the People

In the first phase of contemporary globalization, the democratic ideals of Franklin
Roosevelt created a period of unprecedented prosperity and growth for the labor class in the
United States. The American political model was democratic pluralism, “a system of governance
based on a pragmatic, non-ideological, institutional balance among the forces of government,
market, and civil society” (Korten 1996, p. 184). In general, governments were strong, legitimate,
and responding to the interest of working class people, represented by labor unions and civil
society groups.
The rapid growth of the middle-class in America was unique and due in part to
Roosevelt’s policies and to the dominant role that the US played in production for the global
economy after WWII. US industries, many supported by government contracts, had little
competition from companies in Europe and Japan who were struggling to rebuild their economies
after wartime devastation. Redistribution of wealth through higher incomes for the American
work force drove consumerism, leading to further expansion of the consumer market. For the first

56

time in US history, the average US worker was able to earn enough to buy a home, a car, and
other luxury goods.
As corporations grew in wealth and power from access to foreign resources, the need for
high-paid, American, industrial labor declined. Corporations resented giving benefits to workers
in the US when developing countries offered cheaper labor and weak regulations. Workers, who
found job security in the economic boom cycle of the post-war years under the first phase of
contemporary globalization, met with downsizing, union busting, outsourcing, recession, and war
in the second phase.
During the post-war years the US pluralist system allowed for great increases in living
standards and social rights. Civil society groups grew in number and began influencing politics,
making strong political advancements in the 1960s for African-Americans in the civil rights
movement, and for women in the feminist movements. African-Americans won the end of
segregation and the right to vote. Feminist’s movements fought for social equality including equal
rights and compensation with men in the work place. A sexual revolution and counter culture
movement erupted as the youth generation sought alternatives to war, industrialization, and
consumerism. Most importantly was the awakening of the environmental movement, as scientists
and activists began articulating the widespread, adverse effects of global capitalism and
industrialization on human health and the world’s natural resources.

3.7

Environmental Awakening

In 1962, scientist Rachael Carson published her book Silent Spring, which popularized
awareness about the effects of industrial chemicals in the natural environment. Carson exposed
the fact that the most widespread post-WWII agricultural pesticide, DDT, was causing an
unhealthy biological chain of concentrated pollution in water, soil, and living species. Many of the
producers of industrial chemicals, including Monsanto (PCBs) and DuPont (CFCs and other

57

chlorine/dioxin products) were being funded by taxpayer’s money and through government
subsidies to the military industrial complex. Carson’s book was revolutionary because it
challenged Western science’s Imperial ethic towards nature, including the ability of governmentfunded science to keep citizens safe (Worster, 1994).
Poetically and scientifically, Carson elucidated that nature was vulnerable to human
intervention and by extension humans were vulnerable to nature. Carson popularized the field of
ecology by illustrating and reaffirming the interdependence of the web of life:

“For each of us, as for the robin in Michigan, or the salmon in the
Miramichi, this is a problem of ecology, of interrelationships, of
interdependence. We poison the caddis flies in the stream and the
salmon runs dwindle and die. . . . We spray our elms and following
springs are silent of robin song, not because we sprayed the robins
directly but because the poison traveled, step by step, through the
now familiar elm leaf -earthworm-robin cycle. These are matters of
record, observable, part of the visible world around us. They reflect
the web of life-or death-that scientists know as ecology.” (Carson,
1962, p. 189)

Carson’s book received worldwide notoriety and planted the seed for an international
environmental movement. It took almost a decade for a movement to build, but by the early
1970s US politicians and international organizations such as the United Nations began
responding by protecting the ecology of living systems worldwide.
Until the 1960s, not many US environmental laws were past. The Refuse Act of 1899 was
one of the only 19th century laws that passed which required individuals to get a permit before
dumping waste into navigable waters (which was largely ignored). In 1948 the Water Pollution
Control Act was passed to assist local authorities in building sewage treatment plants. In 1945 the
Atomic Energy Act established a general regulatory structure for the construction, use, and
disposal of wastes in nuclear power plants and nuclear weapons facilities. In the mid-1960s
another handful of environmental laws was established, dealing primarily with public land

58

management and conservation, such as the Wilderness Act of 1964, the Land and Water
Conservation Fund Act of 1964, and the Wild and Scenic Rivers Act of 1968 (Vig and Kraft,
2000). In 1963 legislation was passed to set pollution abatement standards. Due to popular
demand and the momentum of the world’s first Earth Day on April 22, 1970, the United States
government took action to create new environmental laws, making it a global leader in protecting
natural resources. This included the establishment of the Environmental Protection Agency (EPA)
in 1970 to support an unprecedented decade of legislation covering water and air pollution
control, pesticide regulation, endangered species protection, control of hazardous and toxic
chemicals, ocean and coastline protection, better stewardship of public lands, and the creation of
“superfund” money for toxic waste clean up. Rachel Carson’s book had a huge impact on the
passage of these regulations, bringing scientific credibility and awareness to policy makers.
Environmental regulation was abhorred by the business community, which fought
aggressively to discredit protecting nature from commercial interests. Corporations threatened by
environmental laws launched venomous campaigns against environmentalists, stigmatizing them
as “extremists” who were trying to take away jobs from workers and ruin the economy.
Corporations did not want to pay to clean up pollution or have any restrictions placed on their
ability to extract cheap natural resources.
In the Third World, the adoption of pro-capitalist development models led to rapid
exploitation of natural resources through the agro-export model of trade, causing widespread
environmental degradation and industrial pollution.
“The specific ways in which Third World states have contributed to
environmental degradation through policy incentives is now well
documented…[and] include the use of low or non-existent land rental
fees, royalties and corporate income taxes, subsidized loans to promote
unsustainable logging, cattle ranching, or agriculture.” (Bryant and
Bailey, 1997 p. 58)

59

While limited environmental laws were put in place in the early 1970s in some First World
countries, international efforts where difficult to mandate and counter to corporate interests.
Consequently, discussions on environmental regulation in global trade were intentionally
excluded from the Bretton Woods Institutions and would be dealt with almost entirely through
the United Nations, beginning with the 1972 Human Development conference in Stockholm,
Sweden.

3.8

Conclusion: The End of the Post-WWII Era

The first phase of contemporary globalization was successful in devising a new centralized
governance model for global trade and finance under the Bretton Woods Institutions. However,
those controls over capital flows that helped the post-WWII global economy prosper, began
phasing out in the early 1970s with the plateau of corporate profits, global recession, and the slow
absorption of US products abroad due to a rise in global competition. By the end of the first phase
of contemporary globalization, serious political, environmental, and social unrest boiled to the
surface in the US as citizens tried to assert their rights and regulate the negative by-products of
the capitalist economy. Keynesian economics grew marginalized as the US business community
lobbied policy makers for financial deregulation and freer access to overseas markets in order to
keep their competitive advantage over European and Japanese counterparts. As the second phase
of contemporary globalization began, US corporations started moving overseas where labor and
environmental regulations were scarce and resources were cheap and abundant (Bello, 1994). By
the 1970s, the global economy had emerged from its controlled, Keynesian, post-WWII economic
boom, into a period of global slow down and recession where the United States used its power
and influence over the Bretton Woods Institutions to deregulate international trade agreements
and ultimately restrict international laws to protect the environment.

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CHAPTER 4: Contemporary Globalization: Phase 2 (1971-1989)
4.1

Dismantling Controlled Capitalism and the Rise of Neoliberalism

The postwar order, which seemed so permanent in the good years of the 1950’s and 1960’s, could not go
on forever. Our leaders recognized America’s economic dominance immediately following the war as an unusual
situation, and the postwar plan for reconstruction and development was a deliberate effort to bring the world economy
back into a stable balance. As balance was gradually achieved, there was less and less need for the United States to
bear the full responsibility for keeping the world economy growing. Unfortunately, the same quality of statesmanship
that went into creating the postwar order was not available for the task of replacing it with more equitable
arrangements.
~ Alice Rivlin, Reviving the American Dream

In the second phase of contemporary globalization the United States continued to
operate at the helm of global governance. Beginning with the discontinuation of the gold standard
in 1971,22 the US government, and subsequently the Bretton Woods Institutions, philosophically
began the switch from Keynesian controlled models of classical liberalism to laissez-faire
neoliberal models based on neoclassical theories of classical liberalism. The United States used its
influence to persuade major banks, the BWIs, and international development institutions to
remove tariff barriers to global commerce and allow increased privatization, thereby diminishing
government spending and the state’s role in regulating resources and trade. This shift in the
political economy had serious consequences for the environment because it allowed unrestricted
and unregulated extraction and consumption of natural resources to grow at an accelerated rate.
Deregulation in the US market lead to the unraveling of America’s social contract that
was started by the New Deal. Reform policies were enacted to increase corporate welfare and
decrease social democracy and planning by drastically reducing tax rates on the rich and cutting
social spending on the poor. The government aided corporate efforts to weaken unions in order to

Going off the gold standard and giving up fixed exchange rates constituted momentous steps in
the history of international economics. President Richard Nixon and his advisors decided to close
the US gold standard exchange, which dated back to the Roosevelt administration, at $35 dollars
an ounce. As inflation rose, it became clear that the US did not have enough gold to cover its
debts. It was decided on August 15, 1971, and formalized through the BWIs, that the US would
no longer exchange dollars for gold.

22

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drive down wages and benefits in the name of competition. At the same time, the government
helped to remove restrictions on corporate mergers and acquisitions and allowed greater
concentrations of market share and wealth. Many US corporations embarked on moving largescale production and manufacturing overseas, which resulted in stagflation and millions of
Americans losing their livelihoods. Political analysts predicted that old factory jobs would be
replaced by jobs in technology and computers. However, those jobs came slowly and too late for
many local and regional communities that were economically devastated by the closing of
factories. Recession consumed the 1970s and represented yet another economic bust cycle of
capitalist trade that was plagued with inflation, environmental degradation, social unrest, and
war.
Overseas, the US military and CIA continued to engage in imperial clandestine
operations to promote US capitalism, including selling weapons to militant groups who would
overthrow communist and socialist governments. In 1973, the Chilean military violently
overthrew the democratically elected government of Chile after being sold weapons by US
companies23 and receiving political support from US Secretary of State Henry Kissinger.24
Subsequently, Chile was the first Latin American nation to adopt neoliberal policies, after which
the IMF became involved in encouraging Bolivia, Mexico, and later Argentina to adopt
neoliberal policies (Brohman, 1996). In Africa, Ghana was the first to attempt market

In a notorious example of US corporate influence in the sovereign political affairs of Chile, the
International Telephone and Telegraph (ITT) corporation offered the US Central Intelligence
Agency $1 million to interfere in the Chilean national elections by financing a campaign to defeat
presidential candidate Salvador Allende. The offer was refused and Allende was democratically
elected. “ITT continued to lobby the US government and other US corporations to promote
opposition to Allende through economic pressure including the cutoff of credit and aid and
support of Allende’s political rivals. After copper mines in Chile owned by the firms Kennecott and
Ancaconda were nationalized, the US government took a series of steps based largely on the
recommendations of ITT to subvert Allende” (Greer and Singh, 1996, p.8).
24 Henry Kissinger served as both National Security Advisor and Secretary of State to the Nixon
Administration. Kissinger is both praised and despised. He is a recognized war criminal by a
number of professionals and academics for his political role in masterminding events that lead to
the murder of millions of innocent civilians in Cambodia, East Timor and Chile (Hitchens, 2001).
Conversely, Kissinger is depicted as a foreign policy genius and was awarded the Nobel Peace
Prize in 1973 for bringing an “end” to the Vietnam War.
23

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liberalization, followed by Kenya and Nigeria. In Asia, only a few countries, such as Turkey and
Indonesia, quickly adopted neoliberal polices, while most countries moved slowly and hesitantly
toward opening their markets. Consequently, the practice of economic imperialism grew rapidly
under the implementation of laissez-faire global capitalism. This provoked a response from less
developed countries in the Third World to band together and fight for a more democratic and
just model of global trade.

4.2

The New International Economic Order

In the early 1970s, leading Third World governments engaged in a collaborative dialogue
to discuss the limitations of First-World-imposed development theory. Irrespective of their
political ideology, they sought to form an alliance to create an alternative development framework
for better global redistribution of wealth and economic power for the developing world. There
was a strong rhetoric of solidarity between developing nations who felt that their
“underdevelopment” was due to their historically disadvantaged economic position under
colonialism. The organized group of governments was called the New International Economic
Order (NIEO) and their charter was adopted by a special session of the United Nations General
Assembly in 1974 (UN General Assembly Resolution 3201, 1974).
NIEO sought to enact fundamental change in North-South relations. NIEO sought
mutual respect in economic affairs, autonomy from neocolonial powers, and increased benefits
from global trade. Developing nations resented being marginalized in the global economy with
foreign interests controlling their resources. They sought to change their traditional role as
dependent producers of cheap primary goods for rich Northern consumers.
The victory of the North Vietnamese in the war against the United States and price
increases in oil by the Organization of Petroleum Exporting Countries (OPEC) inspired
developing nations to create their own cartels and protection over industries. At that time many

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developing nations were promoting the ISI model, which had its own shortcomings due to
economic and historical factors. For example, rapid industrialization proved to be enormously
capital intensive and ISI strategies used more foreign exchange to buy imported technologies
from the North than it was able to generate in revenue from selling its finished goods (Bryant and
Bailey, 1997). In addition, Southern “substitute” industries were not able to compete with
established Northern industries in the world market and lost revenue, which further distorted
their balance of payments to foreign banks.
In the1970s, neoliberal economists in the North began attacking the ISI model of
development and pushing for more deregulation and privatization of markets. The BWIs and
other Northern financial institutions made foreign aid contingent on liberalization policies. The
BWIs discouraged growth in the ISI model and instead promoted the philosophy of privatization
over protectionism. NIEO was not cohesive enough to find leverage to challenge Northern
governments and financial institutions that demanded free market reform. Therefore, the South
remained subjugated to the policy will of the North in the neoliberal global model for
international trade.

4.3

The Impact of the Oil Crisis

In 1973, the Arab oil-exporting countries vying to demonstrate their power to Western
nations and to protest the state of Israel, began to slow production of oil in 5% increments while
also increasing oil prices 70% worldwide (Tugwell, 1988). Billions of dollars generated from
inflated oil prices flooded international banks and created an enormous surplus of private capital.
With so much incoming capital to manage, private banks began offering loans to developing
countries for economic development projects with few, if any, conditions. Many developing
countries preferred to take advantage of this seemingly endless supply of private capital rather

64

than take direct development loans from the IMF and World Bank, which were riddled with
conditions for opening markets to deregulation.
Most capital projects in developing nations required expensive northern technologies and
contractors in order to be carried out. Projects included large dams, power plants, highways,
utilities, buildings, mining, and logging. Such lending was often plagued with corruption and
exacerbated environmental degradation in the South because it promoted increased resource
extraction (Bryant and Bailey, 1997). Despite the rise in productivity and export goods in
developing nations, a global recession put a hold on the ability of the United States, and other
large markets, to absorb imports from abroad. This had a detrimental ripple effect for many
developing economies that had no buyers for the goods they had produced with borrowed money.
Rising inflation in the global economy, coupled with widespread financial corruption in both the
North and South made it impossible for Third World governments to service their debts to
private banks. Consequently, a spiraling debt crisis began.

4.4

The Third World Debt Crisis

Towards the end of the 1970s, private capital dried up for developing countries as private
banks faced mounting Third World debt, exacerbated by double-digit inflation and a global
recession. Both private lenders and Third World governments found themselves in a true
economic crisis, as default seemed imminent. The favorable lending status given to developing
economies by private banks abruptly ended and was replaced with panic that their default could
create a systemic collapse for the entire international financial community (Bryant and Bailey,
1997). Suddenly, the IMF and the World Bank found their lending position rapidly elevated to
priority lender and “middle man” between developing economies on the brink of default and
private banks ill-equipped to handle the situation. As developing countries found themselves

65

heavily in debt to private banks and cut off from further private loans, they were forced to turn to
the IMF and World Bank for assistance.
In response to the debt crisis, the IMF (traditionally focused on short-term stabilization
measures) and the World Bank (concerned with longer-term adjustment and project lending)
collaborated in support of Structural Adjustment Programs and Loans (SAPs and SALs) in 1982.
Consequently, the debt crisis culminated into a mandate that required structural adjustment
programs for Third World countries that wished to receive future money and technical support
for development from Northern international financial institutions. Previously, banks had no
recourse except to keep lending to indebted countries under high uncertainty and high interest
rates, purportedly to avoid large-scale default in the global economy. SAPs were designed to help
indebted countries make their interest payments to private banks and avoid default, while
simultaneously reforming the economy to help them to pay off debt. Consequently, SAPs became
the decisive factor in restoring lending creditability to developing countries by ensuring private
lenders they would be repaid (Brohman, 1996).
“An immediate objective of the stabilization and adjustment programs
was to rescue the Northern financial interests which had become
overexposed to the Third World. To accomplish this, the World Bank
and IMF became the lynchpin of a strategy that involved providing
compliant Third World debtors with billions of dollars in quickdisbursing SAL or standby loans which would then be transferred as
interest payments to the coffers of the private banks.” (Bello, 1994 p. 67)

The Third World’s enormous external debts, compounded by high interest, perpetuated its
reliance on external capital from Northern international financial institutions. Dependency forced
SAP countries to implement the neoliberal mandate of the IMF and World Bank. This type of
economic imperialism led to economic instability, rapid environmental degradation, poverty, and
a lessening of state legitimacy.

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Environmental degradation in the Third World resulted from the conditions placed on it
by the Bretton Woods Institutions (Bryant and Bailey, 1997). SAPs exacerbated the South’s
traditional role as primary resource extractor and agricultural exporter in order to repay
compounding interest debt to private banks. Vulnerable to volatility in raw commodity prices,
many developing countries under SAPs continued to struggle to meet the payment requirements
on their debt, which continued to grow exponentially. For example, in Ghana the economy
suffered from flat export sales and inexorably rising imports, which led its deficit to rise from US
$43 billion in 1986, to $229 billion in 1990 (Bello, 1994, p. 61).
The IMF had an infamous solution for debt service, which required indebted countries to
“produce more” output for export at devalued prices and “consume less” imports. However, this
mantra for increased exports did not, in practice, create wealth or development in many
countries.
“Cote d’Ivoire has increased its exports (from $3 billion in 1980 to $5
billion in 1995). However, Cote d’Ivoire’s GDP has remained stagnant
(the same $10 billion in 1995 as it was in1980) and their external debt has
skyrocketed (from $7 billion to $19 billion over the same period). Cote
d’Ivoire is largely dependent on exports of primary commodities like
coffee and cocoa yet, during the 1980s, the world prices for these
products collapsed. Cote d’Ivoire had to increase the volume of its
exports to earn the same amount of revenue.” (Friends of the Earth,
2001, p. 17)
Countries were told by the IMF to sell more and more primary resources, at devalued prices, to
pay for higher and higher interest payments on their debt. This had serious consequences on the
natural resources of developing nations. SAP loans had no policies to provide environmental
stewardship or resource management. Rather, SAPs made it difficult for nations to protect their
natural resources by defining environmental protection as a non-tariff barrier to trade and
restricting it. As a result of ever increasing debt, environmental quality and social stability
decreased as poverty and hardship increased.

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4.5

Economic Imperialism: The Race To The Bottom

The BWIs received direction from the administration in Washington DC and worked to
implement US interests worldwide. The BWIs aggressively targeted non-market economies and
used SAP loans and international trade agreements to require compliance with neoliberal policies.
This form of economic imperialism advanced the financial interests of the North.
“Robert McNamara’s [US Secretary of Defense] greatest and most
sinister contribution to history was to jockey the World Bank into
becoming an agent of global empire on a scale never before
witnessed…His advocacy of “aggressive leadership” became a hallmark
not only of government managers but also of corporate executives. It
formed the basis of a new philosophical approach to teaching
management at the nation’s top business schools, and it ultimately led
to a new breed of CEOs who would spearhead the rush to global
empire.” (Perkins, 2004, p. 79)
Consequently, many Third World economies lost control over the structure of their domestic
markets and were forced to privatize public enterprises, limit state regulation, and open up their
economies to foreign investment and corporate control (Lissakers, 1991). Therefore, the BWIs
played a primary role in reorganizing entire nation states away from domestic state control and
towards private ownership.
“Under structural adjustment, the IMF and World Bank do not merely
supervise individual sectors of the economy as in the past (such as
agriculture and social services by the Bank and external trade by the
Fund). They now manage each and every country entirely. They
approve annual national budgets, foreign exchange budgets, post their
representatives to the various banks, Ministries of Finance and Trade of
independent countries, approve monetary, trade and fiscal policies and
give clearance certificates before countries can negotiate with other
foreign lending agencies.” (Singh, 1992, p. 8)
Neoliberal reforms were designed to ensure that the maximum revenue possible was directed
towards loan and interest repayment. For example, in Mexico:

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“Capital expenditures as a percentage of total government expenditures
dropped from 19.3 per cent in 1982 to 4.4 per cent in 1988, while
interest payments on the country’s domestic and foreign debt rose from
19 to 57 per cent of total government expenditures during the same
period…Thus, as a percentage of Mexico’s exports of goods and services,
debt service payments averaged a high of 55 per cent between 1982 and
1988…some 7-11 per cent of GDP each year.” (Bello, 1994, p. 39)

Reforms were presented to indebted countries on a take-it-or-leave-it basis (Brohman, 1996).
Indebted countries adopted Northern policies under a fear of non-compliance, which would mean
economic sanctions, trade embargos, and in some cases, military intervention.
In addition to reducing protections on the environment, neoliberalism sought to remove
other non-tariff barriers to trade such as government regulation, minimum wages, employment
benefits, worker safety, public health care services, and public transportation. This began what is
known as, “the race to the bottom” in which many developing nations competed with each other
for foreign capital investment by promising better liberalization concessions to corporations
(Tonelson, 2002). In many cases, such as in Latin America, SAPs took away the state’s autonomy
to control development while concurrently advancing the growing ownership and power of
corporations, granting them more authority to set trade and finance policies in the global
marketplace. As a result, Latin America experienced de-industrialization under SAP programs.
The United Nations called the mid-1980s through 1990s the “lost decade for development”(UN
Human Development Report, 2003). The UN also reported, “since the early 1980s the world
economy has been characterized by rising inequality and slow growth” (UNCTAD, 1997, p. 57).
Therefore, the research and findings of the UN on neoliberalism contradicted the BWIs promises.
Nonetheless, the UN had no global enforcement power to stand up to the advancement of global
capitalism under the BWIs.
Historical and sociocultural factors played a decisive role in how individual countries
were managed under SAPs. Powerful groups in the state and corporate arena, both foreign and
domestic, played an important role in shaping political and economic outcomes. Those regions

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most devastated by SAPs were ex-colonies including Latin America, Africa, and India. However,
there was another handful of Asian countries in Southeast Asia that underwent industrialization
and economic lending from the BWIs during the second phase of contemporary globalization,
with a very different outcome.

4.6

Asian Tigers: Newly Industrialized Countries

The development experience in Latin American and Africa in the 1980s and 1990s
varied significantly from that of a small group of countries in South-East Asia during the same
era. These countries, known as the Newly Industrialized Countries (NIC),25 outpaced their
counterparts in Latin America, India, and Africa, and grew rapidly towards First World status by
adopting manufacturing and technology-led exports. Neoliberal economists have consistently
credited laissez-faire policies as the key to the economic success of the NICs, claiming that
liberalization is “alive and well, and working particularly effectively in East Asian countries”
(Bhagwati, 2004, p. 38). However, close examination shows that NICs did not adopt
neoliberalism or laissez-faire market liberalization as promoted by the Bretton Woods Institutions.
Rather, they were given more flexible trade and lending terms for geopolitical reasons, that
allowed for the state to play a key role in economic development.
Traditional neoliberal policies for SAPs included the elimination of protections on
international trade, removal of controls on exchange rates, overall deregulation of the financial
sector, privatization of state enterprises, de-unionization, specialization according to comparative
advantage, elimination of various regulatory mechanisms, and a minimalist role for the state in
economic development. Conversely, in NIC countries, the state played a key role in regulating

“The original Asian NICs are the Four Tigers of Hong Kong, Singapore, South Korea, and
Taiwan. In addition, a number of other Asian countries (i.e., Indonesia, Malaysia, Sri Lanka,
Thailand, Turkey) have recently been given the status of NICs in much of the development
literature” (Brohman, 1996 p. 81).

25

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trade and economic policy, advocating for import-substitution strategies that included strong state
economic intervention, protection for infant industries, and temporary dissociation of their
economies from international competition during the initial industrialization phase (Brohman,
1996).
The successful element of the NIC development strategy was that it had strong publicprivate cooperation, in which the state played a centralized and legitimate role in opening market
sectors. The state often employed the technical expertise for entire industries in fields such as
engineering and transportation. The state used a mixed model of protecting and nurturing
specific domestic industries while opening up other industries for competition in the global
market. NICs fundamentally differed from the experience of other Southern countries during the
same period under SAPs, who saw a weakening of state participation in job creation, market
policy, and social infrastructure.
NICs historically differ from other developing countries because they were influenced by
Japanese investment and economic policy, which emphasized mercantilism, export-led
industrialization, and strong state autonomy. “Some $15 billion worth of Japanese investment
rushed into the region between 1985 and 1990” (Bello, 1994, p. 34).
“The ‘Gang of Four’…[presents] evidence of Japan’s revolutionary
impact…Japan serves as a model…[and] is a basic source of training
for the leaders of many of these countries…The NICs use government
even more explicitly than does Japan in economic planning and
guidance. One would have to say that all except Hong Kong have a
more centrally directed pattern of economic growth than Japan,
although they would tend to see themselves as basically market, rather
than planned, economies.” (Abegglen, 1980, p. 97)
NICs had strong state programs that helped to expedite the process of technological and
structural change in both urban and rural areas. The government of Taiwan for example, linked
urban industrialization and rural development by charging equal energy rates in rural and urban
areas, and establishing rural industries such as export processing zones and bonded factories

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(Ranis and Stewart, 1993). In practice, the government played a key role in fostering
competitiveness, growth, and funding infrastructure in NICs. This varied significantly from
neoliberal theory, which attempted to restrict government from economic development and
planning.
The NIC countries helped to expand their exports by having an educated workforce in
both the urban and rural areas. NICs supported primary and secondary levels of education,
emphasizing programs in science, engineering, and technical expertise, and demonstrating a deep
commitment to enhance human resources among all classes. This led to economic development
and strong returns in technology sectors such as computers and electronics. In contrast, SAP
countries in Latin America, Africa, and India cut back on social spending, which decreased public
funding for education and other basic social infrastructure. Consequently, many citizens in these
countries were not able to acquire practical literacy and other basic skills needed to broaden their
economic participation.
For strategic reasons, the NICs received favorable trade terms from the United States
during the Cold War, in an effort to keep communism out of most of Southeast Asia. It is
estimated that exports from South Korea, Taiwan, and Hong Kong were given an average 1215% trade barrier suppression over countries in Latin America (Leamer, 1983). NICs continued
to experience trade preferences until the late 1980s, when growth in their economies began to
threaten US trade interests. Subsequently, the US pressured Korea and others to liberalize their
investment, trade, and production practices.
After the Cold War ended, preferential treatment to NICs began to be dismantled. In
1988, the US Treasury Department went on the offensive26 and accused Taiwan and South
Korea of manipulating their exchange rates to gain unfair advantage in international trade

The US used the Omnibus Trade and Competitiveness Act of 1988 to pressure NICS to
voluntarily restrict exports or face anti-dumping suits. This Act also removed NICs from the
General Systems Preferences (GPS) status. GSP extends preferential tariff treatment to imports
from Third World countries in order to assist their development.

26

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(Noland, 1992). The United States Department of Commerce and the US Trade Representative
began seeking retaliatory action against NICs for unfair trade practices, demanding market
liberalization in sectors such as agriculture, telecommunications, maritime industry, financial
services, cosmetics, and government procurement (US Department of Commerce, 1992). One
after the other, tariff and non-tariff barriers came down in NIC economies and quotas were
instituted.
“The US trade offensive was eminently successful, with South Korea’s
trade surplus with the United States of US $9.5 billion in 1987, turning
into a deficit of $335 million in 1991. Korea was the United States’ prime
target; indeed, given Korea’s lack of retaliatory clout, the US treated it
far more harshly than Japan, which had the capacity to hit back
effectively.” (Bello, 1994, p. 80)
Harsh demands on NICs were targeted at shrinking the advantages these countries had gained in
key industries. The US corporate strategy was to gain market dominance by ending NIC statesupported competition and intervention in the global market. Corporate-driven global adjustment
took place in the NICs through US bilateral trade agreements in the late 1980s and early 1990s.
By the beginning of the third phase of contemporary globalization the NICs had been
“resubordinated” to Northern interests in the global economy, not through debt, but through the
liberalization of their markets under international trade agreements. The US and the Bretton
Woods Institutions were successful in using both the tools of debt and international trade
agreements to move the political economy towards laissez-faire, free market global capitalism.

4.6.2

NICs and the Environment

Rapid industrialization caused pollution and environmental damage in NIC countries. In
the race to industrialize, governments saw environmental regulation as a luxury. They took the
position of growing their economy first, and cleaning up later when they were rich enough to

73

afford it (Bello, 1994). This led to overall poor management and neglect of the environment in
most NIC countries. To fuel growth, forests were logged for lumber and land plowed for
agriculture, while dams and roads were built for transportation and electricity. Pressure from
rural areas for wood use in cooking and heating also contributed to deforestation. Urbanization
produced air and water pollution from fossil fuel combustion and industrial wastes, while
construction devoured land and caused landslide-related problems such as erosion that clogged
waterways. Shrimp farming along the coastal lines of many countries, including Thailand,
destroyed mangrove habitats and agricultural land by flooding areas with salt water and leaving
behind antibiotic-laden run-off. Tourism moved into areas previously untouched by development
and brought hotels and golf courses that required heavy use of water and pesticides.
Public pressure from activist groups and non-governmental organizations began to build
in the 1980s and NIC governments responded by developing legitimate environmental agencies.
For the most part however, the government was hesitant to place any restrictions on revenuegenerating industries and, therefore, environmental agencies were primarily administrative and
promoted merit-based incentives. Most environmental management took place behind the scenes.
“Industry's role in the East Asian model of environmental management includes regular
consultation between industry associations and government outside the public eye, with assured
confidentiality” (World Bank, 2007). This non-transparent approach remained dominant between
the government and industry and slowed environmental progress. Therefore, despite having a
strong public role in economic development, governments did not institute strong environmental
policy or regulation.

4.7

The Partnership between the BWIs and Corporations

The ascension of global capitalism was expedited through a familiar relationship between
the capital interests of corporations and the institutions of global governance. Historically, capital

74

interests exerted a dominant influence in the affairs of varying political economies except for in
times of internal conflict or external war (Heilbroner, 1985). Accordingly, when the post-WWII
years of regulated international commerce ended, Northern governments naturally began to
advance the interests of capital again. This was especially evident under SAPs.
In the second phase of contemporary globalization, corporate entities grew past national
and multinational boundaries to even greater size, wealth, and market share, and became known
as Transnational Corporations (TNCs). TNCs played a principal role in promoting neoliberal
policy for deregulation of the global economy, using heavy government lobbying as a means to
participate in policy development. Joint policy making was encouraged by organizations such as
the Trilateral Commission, the Council on Foreign Relations, and the Bilderberg group, which
brought business and government elites together repeatedly to discuss world affairs. The World
Economic Forum remains to this day one the most publicized annual meeting of corporate and
government elites to share ideas, build coalitions, and make deals behind closed doors.
Collaboration between the BWIs and TNC elites brought about the neoliberal takeover of the
global trading system. This is not a surprising conclusion, since it is the nature of capital to
accumulate wealth and centralize (Heilbroner, 1985).
Most importantly, TNCs were successful in forming relationships with the BWIs because
they had the support of the administration of US President Ronald Reagan. Elected in 1981,
Reagan began the international rollout of neoliberalism by loosening market regulation for
corporations in the US, allowing them to centralize, gain more power, and lobby the US
government to impose their will through the Bretton Woods Institutions.

4.8

Downsizing the American Dream: Reaganomics

The implementation of neoliberal policy worldwide began under the leadership of US
President Roland Reagan and the Prime Minster of Britain, Margaret Thatcher. Both leaders

75

were known for their orthodox belief in laissez-faire market economics. Paradoxically, the Reagan
administration implemented heavy protectionist measures domestically for US corporations that
closed American markets off to competitors. He also poured huge amounts of public subsidy
money into industries such as automobiles, petroleum, and resource extraction (Chomsky, 2002).
Chomsky quotes US Secretary of the Treasury James Baker at a business audience in 1987 saying
that Ronald Reagan, “has granted more relief to U.S. industry than any of his predecessors in
more than half a century” (Chomsky, 2002). Chomsky goes further to argue that Reagan
provided more protectionist import relief to industry than all of his predecessors combined.
“Reaganomics”27 was the term used for Reagan Administration domestic and foreign
economic policies espousing a pro-market, pro-business agenda by shifting the tax base28 away
from corporations and onto citizens (Greenstein and Barancik, 1990). Reagan hypocritically
espoused the virtues of laissez-faire market economics to the rest of the world while practicing
protectionism at home. His policies epitomized the axiom, “do what I say, not what I do.” This
became the distinguishing policy mark in North-South relations. In Great Britain, Margaret
Thatcher coined the phrase “There is No Alternative” (TINA) to neoliberalism. Neoliberalism
was seen as the “way” and, one-by-one, nation states (via SAPs and trade agreements) fell in line
with what became known as the “Washington Consensus.”29 Thus, neoliberalism rose to become
the dominant global trade model by the end of the 1980s.

The economic policies of Ronald Reagan began in 1981 and combined the theories of
monetarism, supply-side tax cuts, and domestic budget cutting. The goal was to reduce the size of
the federal government, to stimulate economic growth, and to increase American military
strength. Monetarism is a conservative economic theory that holds that inflation occurs when too
much money is chasing too few goods. Since the federal government has the power to create
money, it should increase the money supply at a rate about equal to the growth in the economy's
productivity; beyond that, it should leave matters alone and let the free market operate. This
theory is strongly associated with Milton Friedman.
28 The Economic Recovery Tax Act of 1981, the Tax Equity and Fiscal Responsibility Act of 1982
and the Social Security Amendments of 1983 reduced personal taxes by US$117 billion but led to
an increase in social security taxes. As a result, the tax share of the top 1% of the population fell by
14%, while that of the bottom 10% rose by 28%.
29
The term “Washington Consensus” was coined by John Williamson of the Institute for
International Economics in 1989. It describes the conventional wisdom at the US Treasury
Department, the World Bank and the International Monetary Fund on policy reforms for
27

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Domestically, the Reagan Administration renounced the social contract with America by
slashing government budgets and social spending, while concurrently giving enormous subsidies
to support corporate welfare and the military. Workers in the United States lost their footing in
unions and labor negotiations as corporations moved manufacturing jobs abroad in search of
lower labor costs. The Reagan Administration assisted the corporate quest for lower wages by
supporting the break up unions and deregulating labor laws. During the Reagan era, relations
between labor and corporate management were marked by aggressive union busting, prevention
of unionization through “right-to-work laws,” replacement of full-time workers with part-time
workers, wage and benefit “give-backs” under threat of plant closure, and increased out-sourcing
of work.30
“We’ve always seen aggressive management in many industries. What’s
different now is that a number of companies who for most of the last 40
years operated on the basis of a certain social contract are redefining the
terms of that contract. It isn’t just a back-alley machine shop with 200
workers going after its union. It’s AT&T violating seniority rules. It’s
Caterpillar threatening to replace its work force … Public companies that
would have shunned these tactics a decade ago are now using them.”
(Phillips, 1993, p. 173-174)
Global recession in the 1970s made labor more vulnerable to corporate take-backs. Corporations
complained that American wages were too high and production needed to be moved abroad to
stay competitive (Morris, 1996). Neoliberals claimed that moving manufacturing jobs abroad
would be good for Americans because those old jobs would be replaced with better, high-paying
jobs of the future. Neoliberal economists argued that the “service economy,” rather than a

economic development. The Washington Consensus has become synonymous with market
fundamentalism, globally applied.
30 The American experience varied significantly from Japanese labor-management relations as well
as from policies in some countries in Europe, such as Germany. The Japanese preferred to slow
work, rather than hire and fire workers. The Germans rewarded workers for increased
productivity, actively investing in their employees long-term and retraining them to stay
competitive. The United States corporate system was not as willing, efficient or as flexible as the
Japanese planned economy or the German social economy. In Japan, increased technological
productivity and automation has risen hand-in-hand with wages, whereas in the United States this
correlation was opposite showing a downward trend in wages (Thurow, 1992 p. 157).

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productive manufacturing economy, was a higher stage of capitalist development. While the US
did retrain workers for some higher-paying computer and technology jobs, most of the displaced
American labor force moved towards low-value-added services and lower-paying, less meaningful
work. Some 58% of the 8 million new jobs created during the 1980s paid less than $11,611 for a
family of four (Enriquez, 1992).
Thus, by the end of the 1980s, 60% of the population in America had the lowest share of
total income ever recorded (Thurow, 1992). By 1988, American workers were working longer
hours, for less real income than they did in 1970. “Between 1979 and 1989 the hourly wages of 80
per cent of the workforce declined, with the wage of the typical (or median) worker falling by
nearly 5 per cent in real terms” (Bello, 1994, p. 92).
It was not just labor that the Reagan Administration attacked. He also launched a
political war on environmentalists and made those working to protect the Earth enemies of free
market capitalism. Anger boiled in the blood of many Americans who lost their jobs during the
Reagan years and environmental activists were an easy target for blame. Environmentalists were
often pitted against workers in a struggle between conservation and livelihood, and blamed for the
need to outsource jobs. Reagan’s record on the environment showed his absolute disdain for
environmental regulation and he chose to give short-term relief to industry by rolling back the
important environmental regulations that had begun in the early 1970s (Vig and Kraft, 2000).
Reagan helped to reverse institutionalized environmental laws and protections through
sharp budget cuts and the elimination or restructuring of many offices, particularly the
Environmental Protection Agency (EPA). The authority of the EPA was significantly weakened
during this time (Vig and Kraft, 2000). Reagan even removed solar panels from the White House
roof. The good news is that there was some legislative progress made despite an overall decline.31
Although policy gridlock kept legislation on many key environmental issues slow to non-existent,
31Resource

Conservation and Recovery Act (1984), the Superfund Amendments and
Reauthorization Act (SARA) (1986), Safe Drinking Water Act (1986), and Clean Water Act
amendment (1987).

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compared with the first phase of contemporary globalization Americans were becoming more
aware of environmental pollution and cutting back on overall industrial pollutants such as lead,
sulfur dioxide, heavy particulate matter, and carbon dioxide. Due to the lack of governmental
leadership in the US and other countries, many non-governmental organizations such as John
Muir’s Sierra Club began to take action and demand environmental policy be taken up on the
global governance scale to protect the Earth’s essential ecosystems.

4.9

Environmentalism on the Rise in World Politics

As globalization and industrialization expanded rapidly all over the globe, environmental
activism grew and began to play a more significant role in political economy. To coordinate the
growing concerns of environmental destruction worldwide, the United Nations held a conference
on the Human Environment. It was the first international policy meeting on the environment and
took place in 1972 in Stockholm, Sweden. The meeting spawned an array of policy debates and
global movements for social change including transnational activist groups such as Greenpeace
and Amnesty International. The agendas for the meeting between the North and the South
differed. Northern countries focused mainly on limits to growth facing the international economy
including the world’s population, poverty, and the global “tragedy of the commons” (Conca and
Dabelko, 1998). On the other hand, countries from the Third World asserted that poverty and
environmental destruction were results of the political economy. These main themes discussed at
the Stockholm conference shaped the subsequent political strategies devised by governments,
corporations, and environmentalists over the coming decades.
In the 1980s, NGOs and civil society organizations notably emerged as legitimate
research, activist, and policy advocacy groups. For example, Greenpeace and the Sierra Club
became increasingly successful in their outreach and subsequently grew to have large operating
budgets and the resources needed to challenge environmental destruction worldwide. Strategies to

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influence legislative action varied. Some organizations lobbied governments while others
performed direct action stunts against polluting corporations to gain media attention and shame
them into changing their practices. These groups played an important role by highlighting
pressing environmental issues that were being ignored by the Bretton Woods Institutions. Nongovernmental organizations gained credibility and expertise for handling local-to-global issues
that the state proved ill-equipped and unwilling to address (Wapner, 1996). This movement was
known as World Civic Politics and it brought legitimacy and purpose to NGOs on the global
political stage.
“World civic politics does not privilege the state and is thus
fundamentally different from statism, supra-statism and sub-statism. The
state is the central, but by no means the only, fact of global political life.
World civic politics works underneath, above and around the state to
bring about widespread change. Its approach to global environmental
governance rests on the view that the state system alone cannot solve our
environmental woes…political effort must enlist nonstate mechanisms
which operate in tandem with state activities.” (Wapner, 1996, p. 13)
Beginning in Stockholm, many civil society organizations found a voice and lobbying platform
within the United Nations. By the mid-1980s, NGOs in the North had come to adopt the South’s
view that environmental degradation could not be separated from the political economy. As a
follow-up to the Stockholm conference, in 1987 the UN World Commission on Environment and
Development brought together civil society organizations and governments from around the
world to discuss creating a policy confluence between the political economy and the environment.
The UN produced the Brundtland report, which advocated for “sustainable development” and
defined it for the first time in history:
“Sustainable development, which implies meeting the needs of the
present without compromising the ability of future generations to meet
heir own needs, should become a central guiding principle of the United
Nations, governments and private institutions, organizations an
enterprises.” (World Commission on Environment and Development,
1987)

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Despite the mounting evidence of widespread environmental degradation linked to economic
development patterns, the 1987 Brundtland report was not enough to convince the rising
neoliberal political economy that environmental regulation and stewardship were essential
elements of global trade. Conclusions from the Brundtland report did not become incorporated
into the BWI policies. However, they did herald a more serious effort to address global
environmental problems five years later in 1992 at the UN Earth Summit in Rio de Janeiro,
Brazil.




4.10

Conclusion: The Rise of Global Capitalism

As the second phase of contemporary globalization ended, a majority of the political
economy moved away from Keynesian economics and towards neoliberal trade and finance
liberalization. In general, this era was marked by a decline in American wages, the rapid growth
in US corporate power and influence, and the rise of environmental activism. The defining shift
between the second and third phase of contemporary globalization came in 1989, when
communism fell in Eastern Europe and traditional communist countries began privatizing their
markets and adopting the Washington Consensus of laissez-faire free trade.
With new power, legitimacy, and technology, transnational corporations took control of
the Bretton Woods Institutions in the post-1989 years, most commonly referred to as the era of
globalization. The third phase of contemporary globalization has had the greatest scale of impact
on the political economy and the environment because the deregulation of international trade and
finance led to fundamental changes in national sovereignty, caused widespread economic
collapse, and exacerbated global environmental destruction to the point of mass extinction.

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CHAPTER 5: Contemporary Globalization: Phase 3 (1989- Present)
5.1

The Triumph of Neoliberal Globalization

The word “globalization” is most commonly associated with the neoliberal model of the
political economy in the years subsequent to 1989, referred to in this work as the third phase of
contemporary globalization. Globalization is known as an objective and subjective process of
economic integration that is not, “an outcome or a condition, but rather a process that the world
is currently experiencing” (Gordon, 2001, p. 10). The International Monetary Fund describes it
as “a historical process, the result of…increasing integration of economies around the world,
particularly through trade and financial flows” (IMF, 2000). This historical process can be traced
back to the first global trading system of colonialism.
Author and journalist Thomas Friedman used the analogy in his book, The Lexus and The
Olive Tree (2000), that the 1989 collapse of the Berlin Wall and the defeat of communism in
Eastern Europe marked the “death” of state-controlled economic models and the ultimate
“triumph” of private-controlled market capitalism on a global scale. Friedman used the metaphor
that until 1989 most countries still had “walls” up around their economies, which took the form of
protections on domestic industry (tariffs) and environmental regulations (non-tariffs). From 19711989 those walls began to come down as deregulation policies spread throughout markets
worldwide (Friedman, 2000). By 1989, the Bretton Woods Institutions advocated for plutocratic
corporate governance, allowing corporations to organize monopoly and oligopoly private control
over natural resources, production, and distribution systems. With increasingly centralized capital
control over the world’s resources, the third phase of globalization became a corporate-controlled
laissez-faire model of deregulated international trade and finance, that promised markets would
best provide prosperity, growth, and efficiency when individuals were left unrestricted to pursue
their own self-interests. Thus, in the third phase of globalization many corporations continued to
enjoy the privilege of open access and use of natural resources, despite the mounting scientific

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evidence that the Earth’s support systems were collapsing. Corporations gained control of the
media, the message, and ultimately the political economy through the Bretton Woods Institutions.

5.2

The Sword of Global Capitalism

In the quest by global capitalists to gain absolute advantage over the world’s resources,
the General Agreement on Tariffs and Trade (GATT) began to morph and take on an aggressive
approach to free trade. At the 1994 Uruguay Round meeting of GATT32 the members voted to
replace GATT with the World Trade Organization (WTO), a neoliberal resurrection of the
original post-WWII International Trade Organization. On January 1, 1995, the WTO became
the unified global trade body designed to facilitate trade between approximately 153 nation states
worldwide under new, far-reaching laws and enforcement.
The WTO’s passage came on the heels of the Untied States’ 1994 trilateral, free-trade
agreement with Mexico and Canada known as North American Free Trade Agreement
(NAFTA). Both NAFTA and the WTO took up the corporations’ avaricious pursuit of profits by
lifting its sword against laws that governed health care, water, energy, banking, natural resources,
and labor (International Institute for Sustainable Development and World Wildlife Fund, 2001).
NAFTA and the WTO gave corporations unprecedented new rights to challenge existing national
laws in foreign countries (e.g. health, safety, labor, and environmental laws), claiming that such
laws were a form of “expropriation of profits” from their businesses. NAFTA and the WTO
provided a platform for corporations to challenge the very sovereignty of a country’s right to
stand by its own laws and institutions by setting up a non-transparent dispute system to challenge
the local laws of nation states.

GATT went through eight previous rounds including Geneva (1947), Annecy (1948), Torquay
(1950), Geneva (1956), Dillon (1960-61), Kennedy (1965-67), Tokyo (1973-79), and Uruguay
(1986-94). The Uruguay Round resulted in the Marrakesh Agreement that established the WTO.

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5.3

When Corporations Attack: NAFTA’s Secret Tribunals

The US Congress weakened US sovereignty in 1994 when it signed the NAFTA
agreement and subsequently the World Trade Organization into law. From the neoliberal
perspective, both agreements created a freetrade zone predicted to harmonize trade and make it
more efficient and prosperous for everyone. On the other hand, critics argued that NAFTA (and
subsequently the WTO) granted new rights to private corporations that weakened the rights of
citizens and the environment, most notably through its controversial Investor-to-State Dispute
Law. For example, under Chapter 11 in NAFTA, a private dispute court was set up as a tribunal
panel to decide investor-to-state disputes. It consists of three anonymous trade lawyers who listen
to both plaintiff and defendant (corporate vs. state) arguments in a non-transparent, closed-door
hearing. In the United States, a federal court approval is required to launch a claim and no public
comment is available for the case. Decisions have no public appeal process and they are
considered final and enforced by the BWIs. Chapter 11 was written ostensibly to protect
corporations if foreign governments tried to seize their property. However, after NAFTA was
enacted, corporations immediately began using Chapter 11 to draw first blood against restrictive
environmental laws and regulations. In fact, almost two-thirds of all trade disputes brought
against nation states under NAFTA have been a direct challenge to existing social or
environmental laws in the name of expropriation (Public Citizen, 2001). According to Public
Citizen, only 2 of the first 15 cases brought before NAFTA tribunals actually had to do with
property expropriation. The WTO followed a very similar judicial dispute system.
The intent of Chapter 11 from the perspective of trade officials “is to facilitate the flow of
investment among the parties by imposing limitations upon the capacity of a host government to
impose discriminatory or market distorting measures upon such investments or investors”
(Dymond and Hart, 2002, p. 42). Chapter 11 outlines such market distortions as non-tariff
barriers to trade, highlighting trade restrictions in four main areas, including minimum

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international standards, performance requirement prohibitions, most-favored-nation treatment,
and prohibition on expropriation.

5.3.2

Minimum International Standards

Previously, the US federalist system granted states the right to adopt stricter laws than
those set forth at the federal level. Conversely, NAFTA subjugates member states to the lowest
common denominator of international standards. Local, state, and federal regulations that exceed
minimum international standards of treatment in Article 1105 of NAFTA are in danger of feeling
the investors’ sword. Penalties for non-compliance with minimum international standards require
compensation to corporations whose profits have been expropriated (IISD and WWF, 2001). This
greatly stifles a government’s ability to protect environmental, health, and safety standards
without fear of retaliation from investors. For example, in 2001 the Canadian corporation
Methanex filed a claim against the US government for a ban that the state of California had
placed on the gasoline additive MTBE, a methanol-based source of octane, because of its link to
neurological dysfunctions in humans.
“Methanex contended that a California Executive Order and the
regulations banning MTBE expropriated parts of its investments in the
United States in violation of Article 1110, denied it fair and equitable
treatment in accordance with international law in violation of Article
1105, and denied it national treatment in violation of Article 1102.
Methanex claimed damages of $970 million.” (US Department of State,
2005)
After four years of deliberation and extreme outcry from civil society, the case was finally
dismissed by the tribunal court in favor of the United States, which required Mehtanex to pay US
legal fees totaling $4 million dollars.
“The Methanex arbitral tribunal has set an important precedent by
recognizing its powers to accept submissions from civil society…The

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millions of dollars likely spent by the United States in defending itself
from Methanex’s unwarranted claims further amplify the threats posed
by the NAFTA Chapter 11 model to legitimate environmental and
health measures, especially in the developing world.” (Center for
International Environmental Law, 2004)
Although the United States had the resources to fight Methanex’s attack on California’s right to
ban the MTBE additive, before the NAFTA agreement was ratified a foreign corporation could
never have taken such legal action against a US law. Poorer countries may not have the resources
to fight corporate attacks on their laws, and may not have the same ability to protect against the
sword of NAFTA.

5.3.3

Performance Requirement Prohibitions

Prohibitions on performance requirements seek to restrict the ability of governments to
impose conditions on the production or investment choices of foreign investors. This policy asserts
that investors should be able to make production choices that maximize their economic efficiency
and profits irrespective of any negative externalities. Under the Chapter 11, investor-to-state
dispute settlement process, foreign investors are able to seek US taxpayer compensation for lost
business profits due to regulations that exceed the least trade-restrictive means of production
under international standards. This means that things like quotas, local taxes, import/export
provisions, and other performance requirement prohibitions described in Article 1106, are now
considered violations of NAFTA and likely to meet the investors sword (Public Citizen, 2001). For
example in 2002 a company called Corn Products International filed a claim against Mexico,
asserting that its tax on high fructose corn syrup adversely impacted its business and violated
national treatment obligations under Article 1102, the prohibition on performance requirements
in Article 1106, and the prohibition on indirect expropriation in Article 1110 of NAFTA. In this
lawsuit Corn Products International sought damages in excess of $325 million from the Mexican

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government (US Department of State, 2005). Therefore, in effect, Chapter11 allows corporations
to challenge a wide range of laws they consider protectionist measures in other states.

5.3.4

Most Favored Nation and National Treatment

Before NAFTA, international trade and investment agreements between countries
ensured that foreign investors would receive the same treatment (tariff measures) as domestic
firms and products under the national treatment principle. Similarly, the most favored nation law
stated that if a trade concession was granted to one country, it must be granted to all member
countries of the same agreement. However, under current Chapter 11 Articles 1102-1103, foreign
investors are now granted greater investment rights than domestic companies and public citizens
(Public Citizen, 2001). Through investor-to-state disputes, foreign investors may challenge host
countries’ domestic laws and collect compensation if it is found that the host country laws are in
violation of minimum international standards. Domestic firms and citizens, however, do not have
the same right or access to challenge their own domestic laws or have them settled in a nontransparent tribunal court. Arbitrations brought before tribunals often site Article 1102 in
addition to other grievances.

5.3.5

Prohibition on Expropriation

Chapter 11 provisions on expropriation have been the most controversial and heavily
debated issue within NAFTA because of the way that NAFTA tribunals have been defining what
is legally considered expropriation. Under GATT a clause defining a nation state’s police powers
allowed for governments to enact non-discriminatory regulatory action to protect public goods
such as the environment, human health, and other public welfare issues. Precedents set under

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GATT have always interpreted non-discriminatory action (such as environmental regulation) to
fall outside the scope of expropriation disputes.
Notwithstanding this established precedent, Article 1110 of NAFTA’s Chapter 11 uses
language relating to the police powers of a nation state that is similar to GATT, but is now being
interpreted differently under the dispute settlement method of tribunals. The tribunal panel under
NAFTA, which is non-transparent and non-accountable to the public, has ignored past
precedents and is now determining the definition of expropriation by the “scale of impact” that
such government police powers have on foreign investors and their profits. NAFTA expropriation
cases have ruled that, regardless of the purpose of the police power, compensation must be paid to
a foreign investor if a law or regulation has shown “significant (monetary) impact.”
A similar secret tribunal dispute settlement and set of laws has spread to an international
scale under the powerful Bretton Wood Institutions and the WTO. As the WTO came to power,
NAFTA turned out to be a forerunner for what was to come.

5.4

The World Trade Organization

The WTO was established on January 1, 1995 to replace GATT as a new, enforceable
global trade body. Unlike GATT, the WTO extends far beyond mere commerce and trade
matters such as quotas and tariffs. It sets up a trade administrative body to implement entirely
new provisions on goods and services including health care, banking, education, environmental
regulation, and how local tax dollars get spent (Wallach and Sforza, 1999).
The rules and regulations set forth in the WTO define the neoliberal agenda for
centralized, corporate-managed trade. Corporate elite and trade ministers from 153 member
nations agree to meet every two years to discuss policy33 and approve binding agreements such as

Meetings have been held in Uruguay (1994), Singapore (1996), Seattle (1999), Doha (2001),
Cancun (2003), Hong Kong (2005), and Geneva (2009). At an interim meeting in 2006, it was

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the Trade Related Intellectual Property Rights (TRIPS), the Agreement on Agriculture (AOA),
General Agreement on Trade and Services (GATS), and the General Agreement on Services and
Trade Related Investment Measures (TRIMs). Overall, the WTO has 17 binding agreements that
limit regulation in the global economy and dictate trade on everything from subsidies
governments can give green industries to what parameters dictate how health-care systems are
managed. For example, the agreement on Trade Related Intellectual Property (TRIPs)
strengthens protections on all forms of patents and requires WTO members to recognize the
standards of intellectual property rights in First World countries. This primarily benefits the
pharmaceutical industry and allows private pharmaceutical corporations the right to collect
royalties over patented medicines, even in very poor countries. It also allows patent holders to
block generic production of medicines by granting property rights and exclusive patents to
corporate monopolies over such resources. In many cases, pharmaceutical companies have
secured patents over plants and plant processes originally taken from indigenous peoples in the
Third World, in what is known as biopiracy. This has caused a worldwide debate over the
legitimacy of Eurocentric patent systems and the denial of generic drugs to the developing world
for life-threatening illness such as the AIDS virus (Mgbeoji, 2006). In a paradoxical twist of the
free market system, it is actually the patent itself that is protectionist by nature and prevents the
free flow of information, causing medicines to sell at prices far above marginal costs and
reasonable profit (Baker and Weisbrot, 2002).
The quest for corporate control over essential human resources did not stop with
intellectual property rights over medicines. The Agreement on Agriculture permits centralized
corporate control over seeds, genetically modified organisms (GMOs), and agrochemicals, all of
which threaten the safety of the global food supply (Shiva, 2002). Consequently the AOA has led
to the centralized, monopoly ownership of the global food production and distribution system.
decided to suspend the 2007 meeting after failure in 2005 to agree on the Doha round of
agreements. In 2009, a scaled-back meeting of ministers met to hold open discussions and consult
on the final agenda for the Doha Development Agenda.

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From seed production to the supermarket shelf, an elite handful of corporations now designs what
we eat and has won the rights to restrict public labeling and information about its “intellectual
property,” including GMO and cloned processes in food production.
With the help of the WTO and the AOA, a single US agrochemical and biotechnology
firm known as Monsanto now controls 41% of the global seed market in commercial maize seed
and 25% of the world market in soybean seeds. Overall, Monsanto accounts for 23% of the
worldwide proprietary seed market. The top 3 seed companies (Monsanto, DuPont, Syngenta)
together account for 47% of the total global seed market (Organic Consumers Association, 2009).
By 2004, 88% of the total area planted worldwide in genetically modified seeds came from
Monsanto (Action Group on Erosion, Technology and Concentration, 2005). Scientific evidence
showing that monocultures of GMO food are unhealthy for the environment and human
consumption has been largely marginalized in the mainstream media and has not slowed the
widespread planting or consumption of GMO proprietary crops.
Global monopoly control over resources such as seeds has caused backlash because a
centralized seed distribution system threatens food security by decreasing diverse strains of seed
provided free from nature. The diversity of nature is instead replaced with monocultures of
engineered seeds that cost large sums of money and require large sums of expensive and
poisonous chemical inputs. Seed patents further remove a millennium of farmer rights to save
seed by making it an intellectual property crime (Shiva, 2002). GMO seeds from corporations like
Monsanto spread and pollute adjacent farmer’s crops through crossbreeding. New trade laws
under the AOA allow Monsanto to sue those same neighboring farmers if their seeds are
contaminated by, and therefore carrying, the patented Monsanto gene without a license.
Taking patenting one step further than intellectual property, the General Agreement on
Trade and Services (GATS) expands trade into environmental goods and services, by allowing
corporate privatization of global common resources such as water. The state assists in
privatization of resources by restricting public access and securing control for corporate monopoly

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ownership through the brokering of private contracts. The process is further enforced by
structural adjustment loans from the IMF and World Bank that provide governments funding to
privatize resources. With the help of the Bretton Woods Institutions, three private French
corporations known as Suez, RWE and Veolia (previously Vivendi), gained control over more
than half of the world’s water supply through management, leasing contracts, and asset sales over
water. Rather than improving the water supply, many studies have shown that private control of
water for profit has caused rate hikes, inadequate service (or non-service to poor), harm to natural
resources, pollution, and poverty in many countries around the world including the US and
Canada (Shiva, 2002; Barlow and Clarke, 2002). In some cases, the result of corporate
privatization of water has led to massive political instability, cultural insecurity, and
socioeconomic unrest. In 2005, for example, water privatization in Bolivia led to increased water
costs, consuming one-third of the poor's income and causing nation-wide riots that ended in
police shootings and violence against citizens. Political instability then mounted into a people’s
revolution, which led to the presidential election of Evo Morales, the first indigenous leader of
Bolivia in 470 years since the Spanish conquest. Since his election in 2006, Morales has been an
active critic of neoliberalism and US capitalism stating:

“The worst enemy of humanity is U.S. capitalism. That is what
provokes uprisings like our own, a rebellion against a system, against a
neoliberal model, which is the representation of a savage capitalism. If
the entire world doesn't acknowledge this reality, that nation states are
not providing even minimally for health, education, and nourishment,
then each day the most fundamental human rights are being violated.”
(Evo Morales, 2006)

The WTO as a global governance institution embodies legislative, judicial, and executive
powers all in one. The consolidation of those three powers is inherently non-democratic. The least
democratic branch in the WTO, is its judicial system. The WTO tribunal system mirrors
NAFTA’s Chapter 11 and gives corporations a private courtroom to challenge local and state

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laws not in compliance with WTO rules. Similar to NAFTA, a closed-door panel of 3-5 private
trade lawyers, chosen on a case-by-case basis to hold non-public hearings, decides disputes, and
subsequently presents their findings as the judgment. A one-time, internal appeal process can be
sent to the Appellate Body, which is a non-elected, standing body of jurists who ensure WTO
consistency and who provide a final and immediate ruling.
The imperial sword of the WTO dispute system has a global reach and threatens
countless sovereign laws around the world designed to benefit local business, workers, and the
environment. If a country’s laws fail to comply with WTO rules, they can be subject to indefinite
trade sanctions until they change their laws to meet WTO guidelines. For example, in 2002 the
US changed its dolphin-safe label for tuna to include “tuna caught with deadly purse seine nets
and dolphin encirclement” after the US was defeated in a WTO ruling from Mexico. The WTO
also ruled against the US Endangered Species Act that protected sea turtles from getting killed in
shrimpers’ nets (Public Citizen, 2001). The WTO dispute system enforces government
compliance with laissez-faire trade rules under its agreements and requires nations to change their
domestic laws if found guilty (hence altering their national sovereignty), to be in line with the
corporate agenda.

5.4.2

Global Backlash and The Rise of the G-20

By 1999, a worldwide resistance to the policies of the WTO had mounted in both the
North and South. The agenda of the WTO was exposed as a corporate-managed model of
economic imperialism over the entire planet. On November 30, 1999, over 50,000 protestors
successfully shut down the WTO ministerial meetings in Seattle, Washington. Subsequently,
every BWI meeting across the world became plagued with massive street protests and internal
objection and defiance from the governments of developing countries.

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The policy agenda and decision-making power within the WTO is primarily in the hands
of the North (US, Canada, Europe, Japan). Developing countries have been marginalized and
bullied (with threats of economic sanctions and loss of international aid) into accepting free trade
policies that primarily benefit Northern interests.34 In fact, the BWIs have been criticized for the
narrow accounting of their economic assumptions that have led to false projections about the side
effects and consequences of liberalization and tariff reduction in developing nations.35 The South
was promised economic benefits under the WTO, especially in areas such as agriculture and
textiles. However those promises have not materialized,36 resulting in a backlash from the
governments of developing countries.
After the 1999 WTO shutdown in Seattle, developing countries began to directly resist
the WTO at the next Ministerial meeting in 2001. At that meeting, the George W. Bush

“Each part of the Uruguay Round negotiations [and subsequent WTO ministerial] was held
among a small group of countries, in a highly non-transparent process known as the ‘Green Room’
negotiations, in which the developed countries confronted a few leading developing country
opponents and applied pressure on them to yield. Since relatively few developing countries were
invited to the Green Room meetings, the developed countries enjoyed a level of participation and
influence far greater than their share of membership” (Third World Network and UNDP, 2001 p.
24).
35 In many developing countries, tariff revenue accounts for 10-20 percent of government revenue,
and in some cases considerably more. If tariffs are reduced or eliminated, these countries will have
to impose large increases in other taxes in order to keep their budgets in line. The effect of these
tax increases, as well as the costs and problems associated with collecting taxes from other sources,
are generally ignored in economic models that project gains from eliminating trade barriers.
Developing countries will also suffer loss in textiles and agriculture. First, some countries will be
hurt by the elimination of quotas that now allow them to sell a fixed amount of exports at a price
that exceeds the competitive market price. Second, trade liberalization changes the relative prices of
various goods, and some countries will find that their export prices fall relative to the price of
imports (the "terms-of-trade" effect). Third, some developing countries currently benefit from access
to cheap, subsidized agricultural exports from the rich countries. If barriers to agricultural imports
are removed too quickly, it can lead to large-scale displacement of the rural population. Standard
economic models implicitly assume that people are re-employed in other sectors of the economy,
but rapid import liberalization can lead to substantial unemployment and underemployment, as
well as dangerous levels of social and economic instability (Baker and Weisbrot, 2002).
36 Non-adherence to timelines and targets by many Northern countries has denied benefits to
Southern countries. In the case of agriculture, the US was mandated by the WTO to phase out
agriculture subsidies by 1999. The US did not phase out subsidies but, rather, increased them. In
2000, the US Congress paid 24 billion dollars in farm and “ad hoc” subsidies. The limit for farm
subsidy spending in the WTO Agreement on Agriculture (AOA) is 19.1 billion. This trend has
continued in the US, Europe, and Japan and was the main issue surrounding the 2003 Cancun
and 2005 Hong Kong round failure to adopt the Doha round of agreements (Jones, 2001; Becker
2001).
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Administration led a push for the Doha Round of talks that sought to further constrain a nation’s
ability to control domestic regulation and further deregulate the financial sector. Developing
countries began to push back and refused to negotiate the Doha Round until their demands for
the removal of Northern subsidies for agriculture and textiles were addressed.
In 2003, the WTO met for the Cancun Round of talks, where Northern countries
expected to finalize the Doha Round of agreements. Instead, the North was meet with even
stronger resistance by the emergence of a new, powerful group of countries called the G-20. The
G-20 (later the G-22) was made up of rapidly developing nations including 3 of the 4 mature
developing economies known as the BRIC countries - Brazil, (Russia), India and China. The G20 came together in 2003 as a counter balance to Northern influence at the WTO and included
Argentina, Belize, Brazil, Chile, China, Colombia, Costa Rica, Cuba, Ecuador, El Salvador,
Guatemala, India, Mexico, Pakistan, Paraguay, Peru, Philippines, South Africa, Thailand, and
Venezuela (G-22 also included Egypt and Kenya). The G-22 proved to be a formidable
challenger, demanding Northern liberalization of agriculture, textiles, and other protected
industries before further negotiations on the 2001 Doha Round agreements could take place. Due
to fundamental disagreements, talks collapsed in 2003 and could not be revived in the Hong
Kong Round of 2005. The 2007 Rounds were cancelled and in 2009 the WTO met at a scaledback meeting to continue to discuss the Doha Round of agreements. In place of the Doha Round,
the US engaged in multilateral trade agreements such as the Free Trade Agreement of the
Americas (FTAA), the Central America Free Trade Agreement (CAFTA), and numerous bilateral
trade agreements designed after NAFTA and the WTO to achieve its free trade goals.
The WTO policies have continued to create a series of crises for both the environment
and the economy. The good news is that, due to the power struggle within the WTO, the balance
of power in international relations and negotiations has shifted to be more inclusive of developing
countries. An extension of the G-8 began meeting in 1999 to bring together the industrialized
countries and developing countries to discuss key issues in the global economy. This group is also

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coincidentally known as the G-20. In addition to the G-8 countries (France, Germany, Italy,
Japan, United States, United Kingdom, Canada, and Russia) the G-20 now meets annually and
includes Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South
Africa, Korea, and Turkey. The hope is that the G-20 will change the direction of the political
economy to be more inclusive of a democratic and balanced agenda in world politics and global
trade.

5.5

The Environmental Crisis: Neoliberalism and the Environment

In the third phase of contemporary globalization, the environmental perils of corporatemanaged, deregulated global trade began to show their true costs on long-term global economic
security by undermining the very elements that create a livable habitat for humans to operate an
economy within. Without any ecology, how can there be any economy?
What is particularly egregious about the blind pursuit of profit over the general protection
of the planet is that policy leaders at the Bretton Woods Institutions have empirical scientific
evidence that neoliberal economic policies and practices are responsible for the destruction of the
global commons (oceans, forests, atmosphere, biodiversity). Corporations unfortunately have not
taken any responsibility or leadership within the WTO to properly manage the world’s resources.
As early as 1972, the United Nations began making the case for protecting vital ecological systems
and reducing human impact on the planet at the first UN international conference on the Human
Environment. The UN developed the concept of sustainable development in 1987 and again, in
1992, the case for the environment was made resoundingly clear by the United Nations in its
biggest stand against corporate globalization in the global political arena to date. The 1992,
United Nations Conference on Environment and Development addressed the interwoven issues
of environmental degradation, socioeconomic conditions, and economic development. Under the
flag of the UN, the global community, including scientists, government, economists, and NGOs,

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came together to declare that deregulated, unrestricted global capitalism was the fundamental
root of environmental devastation worldwide.

5.5.2

The Earth Summit 1992: Making A Stand for the Environment

In 1992, the United Nations Conference on Environment and Development met in Rio
de Janeiro, Brazil to address a number of global development and environmental crises that
fundamentally challenged the policies of the BWI. Termed the “Earth Summit.” after its global
focus, the Rio conference brought to light the increasing link between political economy, poverty,
and environmental destruction. It became widely accepted at the UN that, in order to address the
global environmental crisis, socioeconomic and political factors would also need to be addressed.
Many stakeholder groups felt that the new model of sustainable development, which balanced the
needs of the political economy with the needs of society and the environment, must be
implemented for generations to come.
A strong sense of urgency at the Earth Summit brought together heads of state, business
leaders, and civil society groups to negotiate a progressive framework for a balanced approach to
sustainable development called Agenda 21. In Rio, Northern countries came to the negotiating
table with primarily an environmental agenda, while Southern countries came to the table with
primarily a socioeconomic agenda (Sachs, 1996). Southern countries argued they could not
protect their environment until they had increased economic and political control over their
resources. The Earth Summit became a debate over a wide range of issues, including Third
World debt, the rate of natural resource extraction, intellectual property rights, global warming,
and trade liberalization. There was a feeling of collective stewardship towards tackling the global
environmental crisis. That feeling for the most part, however, did not translate into direct change
in global trade relations or corporate behavior towards the environment.

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The driving theme of sustainable development meant something different to everyone.
After Rio, sustainable development became an ambiguous buzzword. It was one that was often
misused and manipulated. Businesses used it to justify growth, some environmentalists called it an
oxymoron, and governments largely dismissed it because it was completely out of touch with their
financial obligations for liberalization practices under the BWIs (Daly, 1996). Throughout the
1990s, some signatory countries such as Sweden and Norway took Agenda 21 seriously and
became leaders in the sustainable development movement. However, many Northern
governments, even those who had signed, fell short on their promises to transfer technology to
developing nations and clean up environmentally. In the end, the United States did not sign
Agenda 21’s voluntary action plan and the Bretton Woods Institutions did not adopt sustainable
development practices.
Rather than adopt the United Nation’s Agenda 21 in 1992, the BWIs formulated
NAFTA (1994) and the WTO (1995), which became the antithesis of environmental protection
and limits to growth, deliberately leaving such protections out. Ten years later, the United
Nations World Summit on Sustainable Development (WSSD) met in South Africa in August 2002
and it was clear that Agenda 21 and the concept of sustainable development had become seriously
undermined.

5.5.3

2002: Why did Sustainable Development Fail?

In the mid 1990s, NAFTA and the WTO emerged as a direct challenge to Agenda 21 by
placing business rights over human rights and economic interests over environmental protection.
Free trade agreements were enforceable and backed by the power of the US military and BWIs
that made it difficult for many governments and businesses to realistically implement Agenda 21.
“The enforcement mechanisms of the WTO are so powerful and broad that, in effect, the trade

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and finance agenda it promotes trumps the influence and policies of institutions outside of the
Bretton Woods system” (IFG, 2002 pg. 8). This is especially true for the United Nations.
In 2002, the WSSD exposed the inability of governments to take action towards
sustainable development because of their obligations under the WTO. The United States
delegates insisted that the world could only reach sustainable development through unregulated
market-based approaches. The representative from the US State Department at the WSSD,
Jonathan Margolis, publicly took the position that a treaty should not set timelines or targets for
environmental achievements, because they are “useless.”37 The US government declared that the
best way to achieve sustainable development was through voluntary and unregulated action. This
position contrasts with the US position on targets and timelines in other international negotiations
such as the WTO. It also undermines the United Nations, and the role it plays in the global arena
(Greenpeace, 2002). The WSSD conference ended with a bitter feeling of cynicism and defeat.
The Arcadian ethic that surrounded the 1992 Earth Summit was nowhere to be found at the
2002 summit. Rather, the Imperial ethic of corporate-controlled globalization was in full view.
The environmental crisis grew worse throughout the first decade of the 21st century, even
as some strides toward sustainable development were made by both governments and
corporations. For example, to tackle climate change, in 1997 the UN Convention on Climate
Change (UNCCC) adopted the Kyoto Protocol, which set targets for 37 industrialized countries
to reduce four major greenhouse gases (methane, carbon dioxide, nitrous oxide and sulfur) by 5%
below 1990 levels over the five-year period 2008-2012. To fight global warming, over 187
countries signed on to the treaty that eventually brought it into enforcement in 2005. In 2010, the
United States remains one of the only nations in the entire world who has not ratified the Kyoto
Protocol. The refusal of the US to ratify the global climate treaty and take responsibility for over

Personal interview with Jonathan Margolis, head of the US State Department delegation,
WSSD, 2002. The US held firm with disingenuous explanations for why setting no goals was
better than setting goals. The US position on this issue was believed by delegates to be an
intentional tactic to undermine the outcome of the agreement.

37

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150 years of industrialized pollution is another illustration of how a corporate-controlled political
economy in the US prevents progressive change that is essential to human survival. In the wake of
one of the worst environmental crises in US history, the 2010 oil spill in the Gulf of Mexico, the
US remains slow to regulate oil companies and their greenhouse gas emissions, or adopt a
comprehensive national clean energy agenda. This could be construed as further evidence that,
under the neoliberal economic model, modern governments lack the power and the will to protect
social democracy, regulate corporations, and make key decisions.
In December 2009, the UNCCC met again as a follow-up to the 1997 Kyoto Protocol
accord with the intent to create a new treaty that would set timeframes and targets for reducing
greenhouse gases beyond 2012, when the Kyoto Protocol expires. For many, the conference was
another failure and an all-time low for the environment because no binding agreements or
meaningful legislation for tackling global warming were achieved. As a result, many corporations
postponed action and investment towards climate initiatives due to uncertainty in the marketplace
and absence of regulation.
Nearly 20 years after the initial urgency of the 1992 Earth Summit, the lack of
meaningful legislation, political will, and economic policy towards environmental protection has
led to insurmountable and irreversible environmental crises including climate change, global mass
extinction, and high-toxicity levels of pollution in air, soil, and water. Simply put, neoliberalism
and its global institutions have failed to protect the fundamental systems that support life on
planet Earth. This is not only true for the environment, but it is also true for civil society and the
economy. In addition to the cause-and-effect relationship between neoliberalism and the global
environmental crisis, neoliberalism has also caused a global financial crisis due to the same laissezfaire approach to economic regulation that was applied to environmental regulation.

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5.6

The Financial Crisis: The Costs of Trade Liberalization

Neoliberal economists have long promised that the benefits of free trade and liberalized
market economies include a rise in living standards, reduced poverty, faster economic growth,
and increased access to markets (IMF, 2001). In one finding by World Bank economists, the
benefits of trade liberalization were expected to exceed the costs by more than a factor of 10 for
developing countries (Matusz and Tarr, 1999). Despite the BWIs’ ostensible belief in free trade
and deregulated markets as the key to economic prosperity for everyone, leading economists have
made no clear determination on the correlation between trade liberalization and subsequent
economic growth due to its empirical variation (Third World Network and UNDP, 2001). The
one correlation that can be made however, is that finance liberalization led to the worst economic
crisis in the global trading system since the Great Depression.
The deregulation of the financial system began in the US in the late 1970s and was
expedited in the 1980s under Reaganomics. Deregulation was further implemented under the
William J. Clinton Administration and executed at a global level in 1995 under the General
Agreement on Trade and Services (GATS) of the WTO. GATS introduced the American-style of
deregulation to the “services sector” of global trade and removed government controls and
restrictions over foreign investment banks and financial services. Critics claim that GATS
"restricted the ability of governments to change the regulatory structure in ways which support
financial stability, economic growth, and the welfare of vulnerable consumers and investors”
(Stiglitz, 2009). Critics recognized that financial liberalization stood to benefit big banks with
economies of scale from the North, who used the advent of deregulated finance in the United
States (and Europe) to grow in size, wealth, and power.
Financial deregulation began in the second phase of contemporary globalization, when
banking morphed from a “safe and boring” industry stereotyped by low-risk and conservative
lending, to an exciting new frontier that allowed deregulated financial gambling, ever larger bank

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mergers, and corporate influence that grew to dominate the US political system (Johnson and
Kwak, 2010). The constraints of Depression-era banking loosened due to the broader trend of
deregulation and the emergence of academic finance. Academic finance was a university
movement in which economic scholars developed new mathematical models for pricing financial
assets and separating and hedging risks in the market (Fox, 2009). By 1980, statistical models on
optimal capital structure helped corporations take on increasing debt in order to leverage
expected returns. Wall Street used academic models to make financial gains in the economy. As a
result, investment firms began to hire math scholars in large numbers to analyze financial models
in the market place and subsequently maximize profits. Many of the brightest scholars in math
and engineering were recruited away from work in the productive economy to make large sums of
money for Wall Street’s virtual economy.
Wall Street used academic models determine small discrepancies in market pricing (that
technically should not exist). By betting that those discrepancies would disappear, investors often
made certain money. The Black-Scholes Model of 1973 became one of the most famous
academic models used it finance. It helped corporations price options and develop investment
instruments (Black & Scholes, 1973). This led to the modern derivatives market, after which
Fischer Black and Mryon Scholes were awarded the Nobel Prize in 1997 for their work.
Derivatives are zero-sum, non-tangible transactions that allow bets on the value of other assets
such as bonds, currencies, or stocks. Derivatives create customized contracts between two parties
who place a bet on the future rise or fall in the value of another asset (Johnson and Kwak, 2010).
This market mechanism proved extremely helpful to corporations trying to manage financial and
operational risk. Derivates (often called “swaps”) were used in currency and interest rate trading
to help create predictability, much like an agriculture futures market guarantees prices to farmers.
However, in subsequent quests for profit, derivatives grew more and more complex into
uncharted areas such as betting that a company would default on its credit, or that the divorce
rates would rise. Deregulation allowed the derivates traders to create a shadow market, where

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firms could “hide” derivative investments by keeping them off balance sheet reports.
During the banking years, from the 1930s until 1980, profits in the financial sector grew
at the same rate as profits in non-financial sectors. However, from 1980 to 2005, as deregulation
dismantled fixed commissions on rates and transactions, profits in the financial industry grew
rapidly, at 800%, while non-financial sectors grew by 250% (Johnson and Kwak, 2010).
Deregulation allowed commerce and investment to develop arcane financial products, hedge
funds, and transactions that allowed them to make millions upon millions in transaction fees
alone. The financial sector grew in total assets from $2.9 trillion (125% of GDP) in 1978 to over
$36 trillion (260% of GDP) in 2007. The derivatives market (which was accounted for separately,
not regulated, and largely kept off the bank balance sheets of financial firms) grew from zero (nonexistent) in 1978 to a market value of over $33 trillion in 2008, over twice the US GDP (Bank for
International Settlements, 2009). By the turn of the 21st century, the financial sector had managed
to dismantle the regulatory system that was put in place in the 1930s.
Deregulation accelerated in the 1980’s beginning with the elimination of Regulation Q of
the 1933 Banking Act that had set ceilings on savings account interest rates, enabling banks to
compete for deposits by paying higher interest rates. In 1982, Congress lifted additional
restrictions on savings and loans under the Garn-St. Germian Act, which authorized adjustable
mortgage rates and lifted restrictions on loan-to-value ratios for lending. This ultimately led to the
Savings and Loan Crisis, in which over 2,000 banks failed between 1985 and 1992 (Geisst, 2004).
In 1984, the Secondary Mortgage Market Enhancement Act gave rise to Mortgage Backed
Securities (MBS), which allowed investment banks to buy up essentially any mortgage, pool them
together and then sell them in slices with varying levels of risk. This form of securitization was
made even easier in 1986, when the Tax Reform Act created tax advantages that benefited
investment banks by clearing restrictions on stock market trading, resulting in other forms of
securitization (e.g. credit cards, student loans, car loans) (Geisst, 2004). During the years of the
S&L crisis, deregulation slowed down significantly. It picked up again in 1994, when restrictions

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between interstate banking were eliminated and laws were enacted to bring the US financial
system in line with NAFTA and the WTO. Banks began buying up other banks and merging into
larger corporate conglomerates. In 1999, the Gramm-Leach-Bliley Act dealt the final blow to
Depression-era regulation when it demolished the Glass-Steagall Act of 1933 that separated
commercial and investment banking, allowing traditional commercial banks to speculate with
consumer’s savings and pension funds. Senator Gramm was also the author of the Commodity
Futures Modernization Act of 2000, which prohibited federal regulation over derivatives and
helped to reduce the fees that financial institutions had to pay to the Securities Exchange
Commission.
All of this led to increased fervor in the market place and the “financialization” of the
economy, in which the amount of wealth and transactions generated in the virtual economy grew
to dominate and trump the health and well being of the traditional, productive economy.
Financial deregulation eventually led to a lost decade in the 2000’s for Americans, in which a joy
ride up in the stock market, a bubble in the housing market, and extreme greed in the financial
sector resulted in zero net gains for personal savings, family incomes, and job creation between
1999 and 2009.

5.6.2

2000s: The Lost Decade and the Great Recession

In the United States, the first decade of the new century showed no signs of slowing down
the trend of deregulation. After a peak in the rise of the stock market due to a technology bubble
in 1999, a short mild recession in 2000-2001 followed. However, debt rather than savings fueled
the 2001 market recovery, by allowing cheap credit from China to flood US markets, making it
easy to buy everything from new cars to new homes. The George W. Bush administration also
used debt to fund two preemptive wars in Afghanistan and Iraq. By the end of two presidential
terms, Bush had saddled the nation with more debt than all past presidents combined.

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Bush further deregulated the financial sector by reducing loan-to-value ratios for
residential and commercial lending to zero. Interest rates dropped to an all time low and the
minimum requirements for receiving a loan became loosened or non-existent. Speculation in the
housing market rose rapidly, causing an asset bubble in the United States that spread overseas.
Real estate values skyrocketed everywhere and in some areas appreciated over 100% in less than
5 years.
Consequently, the deregulation of the financial sector led to a subprime mortgage crisis,
in which low-income buyers with no verifiable income were targeted and given unrealistic loans
and terms to buy houses at inflated prices that could only be repaid if the market kept rising.
Those mortgages were then wrapped into Mortgage Backed Securities (MBS) and sold, allowing
investment banks to pass the risk of default downstream. Downstream investors where not aware
that they had purchased a high-risk toxic asset (subprime mortgage) because there was no
transparency that such mortgage risk was being sliced up and hidden inside top-rate securities.
This made it difficult for clients to understand what they were buying and virtually impossible for
them to accurately determine value. When the risk finally began to surface in 2007 because of
mortgage defaults from declining prices and foreclosures, the result was the collapse of a housing
bubble larger than any in recorded American history. Thus, 2007 marked the beginning of the
Great Recession.
The primary leader at the US Treasury that approved the lending climate that took place
in the 2000s, and helped in the crusade of deregulation throughout the 1990s, was the President
of the Federal Reserve Bank from 1987-2006, Alan Greenspan. Greenspan played a key role in
helping banks expand loopholes and relax rules that enforced separation between banking and
securities operations within a single bank. The Federal Reserve took an official position not to
regulate new Wall Street financial products such as derivatives. The Fed also chose not to
properly police the new Wild West of mortgage lending that led to the Great Recession.
Greenspan supported the Washington consensus that markets alone could rely on self-regulation

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to prevent fraud and excessive risk-taking (Johnson and Kwak, 2010).
In 2007, less than a year after Alan Greenspan left his nearly 20 years at the Fed, signs
that the economy was in trouble began to show. The housing market started slowing down as
prices reached unsustainable levels. Rumors began to spread that many of the big investment
banks (which had merged into mega-banks and investment firms in the 1990s), were so overleveraged that they were close to insolvent. However, the consensus inside of Washington
remained that, regardless of the risk, and despite the evidence, complex financial products and
unregulated financial markets at large were still good for America. Even as scandals broke and
evidence came to light that the system was destructive to economic stability, the financial sector
was not reigned in due to its ability to infiltrate deep into the halls of government, through
campaign financing, lobbying, and its ability to place people in key regulatory positions in the US
government. As a result, a collective failure to oversee and regulate the excesses of Wall Street led
to the worst stock market crash since the Great Depression in October of 2008.
The Great Recession began in 2007 but it was not until March of 2008 that the financial
system began to clearly unravel. Bear Sterns, a large global investment bank and securities
brokerage, went bankrupt due to over exposure to toxic assets in the derivatives market.
Subsequently, Bear Sterns was bought for less than 10 cents on the dollar by J.P. Morgan Chase,
who also bought Washington Mutual when it went under. Similar mergers happened between
Merrill Lynch and Bank of America. Then, in early September, bad loans began to overwhelm
Fannie Mae and Freddie Mac and the US government had to step in with a bailout of taxpayer
money and renationalized the two mortgage institutions (which had been privatized in the late
1960s). It was not until mid-September 2008, however, that the crisis became global, when the
fourth largest global investment bank in the US, Lehman Brothers, went bankrupt as a result of
bad property investments and over exposure to MBS and other toxic assets known as
Collateralized Debt Obligations (CDO). It turned out that Lehman was borrowing money at a
leveraged rate of 1 actual dollar to 44 borrowed dollars (Smith, 2009). On September 15, 2008

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Lehman filed for bankruptcy and individual shares fell from $85 dollars to $0.03 cents. Lehman
Brothers was the largest bankruptcy in all of history. It set off a chain reaction of bank failures and
mergers that caused market shock on a global scale. The crisis culminated in a 10-day stock
market crash in October 2008 in which stocks and pensions in the Dow Jones Index dropped
22%. By March of 2009 the stock market had fallen 40% from its peak to below 10,000 points.
This was the first time since 1999 that the market dipped below 10,000 points, effectively erasing
an entire decade worth of stock market gains. Credit markets shut down, liquidity dried up, and a
wave of layoffs began.
In order to save the economy from a second Great Depression the US Federal Reserve
Bank agreed to rescue several more major banks from bankruptcy. No one knew how many toxic
assets each bank had on the books, but they were all connected like a string of dominos and it was
believed that another huge bank failure could cause them all to fall. The government decided to
spend an astounding $700 billion dollars in taxpayer money to buy the toxic assets that these
banks had on their books. Instead of negotiating a deal to write down the toxic debt, the US
government paid 100 cents on the dollar to rescue the very banks that caused the financial crisis.
The US government then began to bail out a number of other non-bank corporations such as
AIG and General Motors. The total number of dollars that went towards bailing out the financial
system was estimated at $23.7 trillion dollars, over 150% of the US GDP (Office of the Special
Inspector General for the Troubled Asset Relief Program [TARP], 2009). This amount of debt
was effectively transferred from private sector balance sheets of global corporations, to the public
sector (the taxpayer) in the United States. Subsequently, many state governments in the United
States came close to bankruptcy and had to implement extreme cuts in spending on social services
and infrastructure. Incredulously, despite the crisis and government bailout, no reforms were put
into place to correct the financial system or to reign in the investment banks from causing a future
crisis. As a result, the very banks that caused the financial crisis emerged in 2009 to be larger (due
to mergers), more profitable, and more powerful than ever. In 2009, business was back to normal

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when banks paid the highest bonuses on record to top executives despite taking the government
bailout money. In 2010, corporations broke 2009 bonus records by paying 4-5% more than 2009
bonuses. (Gandel, 2010). Banks were able to do this because the US government put no
conditions on the bailout money such as not using it to pay bonuses. The bailout was essentially a
blank check that resulted in no firings, no arrests, and no repercussions for Wall Street’s wild
casino gambling behavior that wrecked the entire global financial system.
By 2010, over 5 million people had lost their jobs and the unemployment rate reached
10.1% in the US and, in some adjusted estimates, up to 17% (US Bureau of Labor Statistics,
2010). The job growth rate between 2000-2009 was determined to be 0% for the entire decade.
No previous decade since the 1940s had ever experienced job growth less than 20%. The annual
growth rate was also lower in the 2000s than any other decade since 1930. The median household
income fell from $52,587 in 1999 to $50,303 in 2008 (US Bureau of Economic Analysis, 2009;
US Census Bureau, 2008).
At the same time that Wall Street received hundreds of billions of dollars in bailout
money, homeowners and Main Street received almost no money from the US government to bail
them out. Programs to help homeowners out of bad mortgages were scarce and credit was not
available for refinancing residential homes due to declining values. As a result, foreclosure rates
began soaring as the market rapidly declined. Contraction in the economy increased and many
small companies went out of business or had to lay off workers because consumer retail sales fell
and the government offered little support to help access much needed capital.
In addition to the negative savings and job growth rates, the 2000s were a lost decade for
economic planning and development. In the United States, the housing market turned out to be a
house of cards. The gamble ended up costing Americans a lost decade of investment in the
productive economy as well as subsequent decades of lost opportunities. This was because the
housing bubble caused cheap money to be misallocated towards real estate development in
suburban subdivisions across the desert or towards mega-mansions that still stand vacant today,

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rather than towards factories for workers, city infrastructure, or capital start-up money for clean
technologies.
The 2000s were also a lost decade for culture. Many of the brightest minds of the youth
generation in the 2000s went on to fight George Bush’s imperial “War on Terror” in both
Afghanistan (2001) and Iraq (2003) after two planes crashed into the World Trade Center in New
York on September 11th 2001. The attacks of 9/11 caused both trade towers to collapse and killed
over 3000 people. The attacks prompted fervent patriotism in the US and helped the Bush
Administration push through a number of questionable laws including the suspension of habeas
corpus and a preemptive war with the Middle East. After invading Afghanistan in 2001, in 2010
Afghanistan became the longest war in US history, second to the Vietnam War. The financial
cost of the Afghanistan and Iraq wars, also financed by taxpayers, is expected to reach $1.09
trillion by the end of the 2010 fiscal year (National Priorities Project, 2010). This brings the total,
publicly held national debt of the year 2010 to $13.6 trillion dollars, or 94% of the current US
GDP.
The laissez-faire approach to global trade under the neoliberal political economy has led
to soaring corporate profits on the one hand, and ecological destruction and financial ruin for
society on the other hand. Under this political economy, the South experienced deindustrialization in the 1980s, the NICs experienced crisis in the 1990s, and the North
experienced a lost decade of development in the 2000s. In order to correct the fundamental
dysfunction that has arisen from the laissez-faire approach to the political economy, policy
reforms that can restore stability and integrity to the global trade and financial systems must be
implemented, along with environmental policies, into the WTO. Currently, the presidential
administration of Barack Obama has been tasked to reform the financial sector in the United
States. However, nearly two years after the crisis, no meaningful reform in the political economy
has taken place and it remains to be seen whether any reform will be enacted by the US or the
WTO.

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5.7

Conclusion: The Time of the Turning

The third phase of contemporary globalization began in 1989 and is close to the end of its
era in 2010. Some analysts may argue that the 2008 stock market crash ended the era but,
because no meaningful regulations or reforms at the national or global level have taken place, the
phase of neoliberalism has not officially ended. This era will be known as a time of corporatemanaged, international, deregulated trade, where absolute greed led to both financial and
ecological collapse.
In 2010, the Earth is not the planet it used to be. Unfortunately, we did not “win the
fight” or have the political will to “save the Earth.” According to author Bill McKibbin, in his
book Eaarth (2010), we no longer live on a pristine, abundant planet. Earth has transformed into a
planet undergoing its sixth largest mass extinction, under increasing temperatures, and rising
levels of carbon dioxide that will make it difficult for life to survive in many places. In 2010, we
now know that global warming is irreversible and has triggered additional positive feedback loops
in greenhouse gas emissions (GHG). This means that, in addition to the high levels of human
GHG and industrial pollution being emitted, large amounts of methane and carbon dioxide that
were previously stored are now being rapidly released from melting ice caps, raging forest fires,
and acidic oceans in a vicious cycle that produces more GHG, higher temperatures, and more
violent natural disasters. Even if we stop all fossil fuel use tomorrow, it’s too late to stop the
world’s warming effect. With just the greenhouse gases we have in the atmosphere now,
temperatures will continue to rise for another 60 years. Humans may be able to adapt to a few
degrees in temperature rise, but not much more. The Earth is not going to cool itself down and
re-freeze the ice polar caps. Due to the damage that we have caused to the planet, Earth as we
know it has been fundamentally altered into a hotter more volatile planet with failing ecological
systems at all levels (McKibben, 2010).

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The new political economy that replaces neoliberalism is going to have to figure a
framework for how to survive on a planet that is plagued with overpopulation, famine, disease,
war, and environmental refugees from floods, hurricanes, and drought. The support systems for
life on Earth are failing at such an accelerated rate that we can now literally watch the planet
dying in front of our eyes. Species on land and sea are going extinct at an alarming rate. Glaciers
are literally melting into the sea and disappearing from the mountains. Entire forests are dying,
diseases are spreading, and crop yields are significantly declining in all areas of the world.
Petroleum is polluting our lakes, seas, and rivers with oil spills and industrialized agriculture runoff at non-stop rates. Humans are plagued with health epidemics from environmental toxins. As
these huge humanitarian problems continue to mount, small positive steps towards change
remind us that there is still hope to create balance in our political economy.
Although the third phase of contemporary globalization will be mostly remembered for its
destructive behavior, it will also be known as a time of global resistance, innovation,
environmental mobilization, and consciousness awakening. It will be known as the “time of the
turning,” when the spiritual and cultural consciousness of some humans rose to its potential to
create a new era of sustainability and restoration focused on rescuing the Earth from its economic,
environmental, cultural, social, technological, and moral unraveling. Globalization is a process
and a choice. We can choose a better future for our political economy. It is time for a new era to
be born and for the laissez-faire model of capitalism to be put to rest and discredited for the
second time in less than a century.

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CHAPTER 6: Reforming the Political Economy
6.1

Alternatives to Neoliberalism

The prevailing political economy is in the process of change due to the extreme
imbalances caused by the neoliberal model of globalization. There are alternatives to
neoliberalism that create a balanced framework for a just, peaceful, and prosperous model of
global trade. The first alternative is the imminent reform of the political economy towards
sustainable development. Sustainable development is already redefining commerce and
conventional economic practices by promoting policies that balance and protect the interests of
profit, the planet, and people. Sustainable development reform for the political economy is in the
process of replacing neoliberalism. Sustainable development reform will replace neoliberalism
when a confluence in the trade and finance agenda of the Bretton Woods Institutions and the
environmental agenda of the United Nations, is developed and implemented throughout the
political economy.
The second alternative model for the political economy is a fundamental restructuring of
global trade. Building on the core principles of the sustainable development model, the restorative
development model seeks to go beyond sustainability to correct imbalances in our early
perceptions about science, god, and human moral dominion over nature. Restorative
development encourages a political economy framework that is actively engaged in healing
relationships between human and ecological communities, rather than just trying to sustain their
relationship at the margin under the capitalist model. Restorative development rejects the
Imperial ethic and replaces the fundamental assumptions of the Western scientific approach with
new understandings in science and consciousness. Restorative development adopts the
interconnected Arcadian ethic towards the management of the global commons and heralds a
return to the ancient wisdom of the feminine principles of cooperation, reproduction, unity, and
mutual interdependence. The Arcadian ethic honors the intelligence of each living being and

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builds a culture of peace around the observation that life flourishes in communities of diversity.
Finally, restorative development promotes democracy and the participation of local stakeholders
in decision-making over resources in local communities.
Sustainable development requires that we balance economic capital, social capital, and
natural capital. It requires that we become more efficient at technology and commerce so that we
can sustain human existence on the planet. It does not require that we change capitalism,
abandon imperialism, or alter models of societal organization. However, it does ask us to be more
just, democratic, and equitable in global trade. It also asks us to respect human rights, respect
diversity of culture, and to protect and share the global commons (including food security).
Restorative development on the other hand is a culturally transformational model. It is a
paradigm shift that can be hard to describe or imagine because it is currently so different from
what we tend to think is possible. It is a shift in consciousness away from the current paradigm of
global war, fear, violence, and imperialism, and towards a new culture of world peace, mutual
respect, and earthly abundance for every human and ecosystem on the planet. The inspiration for
the restorative development framework comes from the 1935 Roerich Pact and Banner of Peace.
The 1935 Roerich Pact was a pre-United Nations peace treaty signed by the United States and 21
other countries to preserve culture and heritage from the destruction of war. During times of war
the Banner of Peace (see Figure 1) could be hung on cultural buildings (libraries, universities,
theaters, churches) for protection, similar to the Red Cross flag hung on hospitals.

Figure 1: Symbolism: The Banner of Peace symbol (right) has three circles
inside a larger circle. The trinity inside the circle represents man’s development
in art, science, and religion. The outer circle represents the culture of peace that
exists for humanity when the trinity within the circle is balanced (Roerich, 1947).
Sustainable Development symbolism (left) also has a trinity and a circle that
represents balance in the development between man’s economy, environment,
and society.

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The restorative development model described in this work draws from Roerich’s concepts
to foster a balanced life in the humanities in order to bring about a culture of peace in the political
economy. It builds on the practical model of sustainable development and adds three additional
elements including scientific (technological) capital, spiritual (moral) capital, and cultural (arts)
capital to its framework.

Figure 2: Restorative Development & Balance: Combined with the
sustainability trinity, the restorative development trinity becomes a six-pointed
hexagram that creates the scared geometric symbol for balance (Greer, 2002). This
framework corrects fundamental imbalances in power between men and women,
and man and nature. Symbolically the triangles represent opposed forms. When
combined, the balance between the two opposing forces creates a vibration of
harmony and love. For that reason it is the Sanskrit symbol of the Heart Chakra
which stands for unconditional love, compassion, and peace. This sacred harmony
is repeatedly expressed in the symbolism of many religions, including Judaism,
Hinduism, and Taoism.

Restorative development fosters a culture of spiritual consciousness that directs the
political economy to use science and technology for the restoration, health, and shared abundance
of all living communities on Earth. In a restorative society, the profit imperative is replaced by the
imperative to have a well-balanced life filled with art, peace, and spiritual interconnectedness.

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Restorative development seeks to provide every human on the planet with a high quality of life in
an environment free from fear, oppression, and scarcity. However, it will not be easy to achieve a
restorative model for the political economy without first agreeing to reform the economy towards
sustainable development. Adopting sustainable development as the dominant model for the
political economy is the first step towards building a restorative society.

6.2

Reform Political Economy: Sustainable Development

The framework for sustainable development seeks to balance the flow of economic capital
(profit), social capital (people), and natural capital (planet). Sustainable development is defined as
“…development that meets the needs of the present without compromising the ability of future
generations to meet their own needs” (World Commission on Environment and Development,
1987). Sustainable development adjusts to new conditions in human awareness about ecological
limits, societal health, and economic valuation. Sustainable development takes an incremental
approach to reform that allows time for discussion and the adaptation of new ideas and processes.
Ideas and information are developed slowly and implemented in a top-down direction by large
institutions, government agencies, universities, civil society organizations, and businesses. Over
time, reform has the potential to move society towards a fundamental restructuring of the political
economy through the aggregation of small changes. Conversely, reform has the potential to stop
society from reaching restorative development by preventing deeper cultural problems within the
system from being corrected. This is because although reform helps to redistribute power between
society, it may cause a “band-aid effect” over the underlying cultural dysfunction without healing
it. In the case of the political economy that dysfunction is imperialism. Reform towards
sustainable development is likely not to dismantle the culture of imperialism or power structures
within the political economy. Hence there is need for a cultural paradigm shift towards restorative
development.

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Sustainable development represents a political economy that is more aware of the
patterns of nature and their effects on the production and consumption of natural resources.
Nature’s economy operates in cyclical patterns and creates no sustained wastes. Every natural
waste process provides food or support for some other natural process through an interconnected
and complex web of symbiotic relationships. Therefore, many reformists are beginning to imitate
nature’s economy to develop sustainable patterns of production and consumption in the
marketplace. This can be seen in the growing popularity of the new science of biomimicry, which
observes and emulates nature’s best examples for technological materials and processes in human
development (Benyus, 1997). For example, oysters and other shelled sea creatures produce
adhesives and hard-coverings superior to any petroleum-based, synthetic equivalents. These
biochemical and physiological structures found in nature can be mimicked and used in human
applications for a number of industrial purposes such as the construction of submarines.
Conversely, neoliberal global economic production and manufacturing models are not
considerate of nature’s economy and instead flow in linear38 and monocultural patterns.
Extraction, production, and distribution of natural resources into one-time-only consumer goods,
produces high percentages of inefficiencies and wastes, resulting in externalities not being
absorbed into the cost of the product. Further inefficiencies in the linear economy are generated
by the superfluous transportation of goods in colonial patterns of trade where resources are
shipped back and forth across oceans and highways for processing and consumption multiple

Linear refers to a one-way flow of influence from cause A to effect B, or from producer to
produced. Its model implies that there is no new behavior in the effect B that cannot be traced
back to cause A. It assumes that action continues in a unilateral movement forming chains of
information that can be used to make explanations and predictions. The roots of the linear,
unidirectional, causal paradigm can be traced back to the Greek philosophers Parmenides and
Aristotle whose unidirectional thoughts on God and philosophy took root in subsequent major
thinkers such as Plato, Descartes, Augustine (Christian theology) and Newton. The scientific
method and economic theory adopted unidirectional assumptions by creating models where inputs
determine outputs in proportion to the information the inputs carry. The strength of linear
methodology is that it has yielded powerful results, especially in fields of analysis, predictability,
and control. However mathematicians, scientists and theologians such as Steward, Hume, and
Hartshorne have challenged linear thinking, pointing out that the universe does not conform to
expectations (Macy, 1991).

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times. To reform the linear economy towards sustainable development, a system that is inherently
non-linear must be adopted, where wastes can be safely assimilated back into the economy or
reused in downstream processes.
Physicist Fritjof Capra in his book, The Hidden Connections: A Science for Sustainable Living
(2002), offers a comprehensive argument for how new concepts in design have the potential to
convert 100% of the present waste of industrial production into raw materials for other industrial
processes in a continuous, beneficial, economic cycle that does not deplete the planet’s natural
resources. Such technological changes and innovations are sparking a green industrial economy in
which civilization hopes to survive and sustain economic growth by replacing linear production
and technology with circular models that imitate nature in efficiency and zero waste.
In 1999, authors Paul Hawken, Hunter Lovins, and Amory Lovins, articulated a
macroeconomic model for commerce based on a sustainable reform of linear production and
consumption models in their book, Natural Capitalism. Natural capitalism is a reformist approach
to neoliberal capitalism and suggests retooling the way the political economy operates in order to
avoid widespread ecological breakdown. Natural capitalism does not advocate making sudden
market changes or uprooting the Bretton Woods Institutions; rather it makes small critical
changes that can tip economic and social factors in positive ways. Natural Capitalism suggests that,
through small sustainable changes, a social transformation of commerce will naturally take place
(Hawken, Lovins, Lovins, 1999).
The natural capitalism model is a pragmatic, market-based approach to sustainable
development meant to appeal to both liberal and conservative policy makers. It argues that,
without the inclusion of natural resources into the economist’s accounting sheet, we will continue
to deplete the Earth’s life-sustaining resources until they are devastated. “Our current accounting
system is based on principles that would bankrupt any company” (Hawken, 1993, p. 42). Natural
capitalism advocates that a fourth type of capital be accounted for in economic models in order to
measure costs and benefits of natural resource extraction accurately:

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1. Human capital – labor, intelligence, culture, and organization.
2. Financial capital – cash, investments, and monetary instruments.
3. Manufactured capital – infrastructure, machines, tools, and factories.
4. Natural capital – global commons, minerals, and ecological services.
(Hawkins, Lovins, Lovins, 1999, p. 4).

Classical economic models only account for the first three forms of capital: human, financial, and
manufacturing. These are used to transform natural capital into the products we enjoy everyday
such as cars, furniture, roads, houses, and schools. Under the current system, natural capital
remains artificially cheap and vulnerable to unrestricted corporate extraction. Ignoring the value
of natural capital and continuing to uphold linear economic assumptions is dangerous to the
future of trade, society, and the environment. This is because the depletion of natural capital
represents depletion in the assets and wealth of a nation state. Growth is only an illusion if it is the
result of depleting fisheries, mining soils, and destroying whole forests.
Natural capital is comprised of ecosystem goods and services. They are the processes and
functions by which biological systems provide goods (food, water, and natural resources) and
services (waste assimilation, air filtration, and water purifiers) that sustain life and are used directly
or indirectly for the benefit of humans. Sustainable development calls for investing money, time,
and energy into regenerating natural resources and ecosystem functions that sustain life on Earth.
Ecological economists now recognize that it is less expensive in the long run to protect ecological
functions than to try to replicate artificial environments after natural habitats have been destroyed
(Costanza, et al., 1997).
“There is no finite compensation that individuals would accept to agree
to the loss of the world’s ecosystems, and they would pay everything they
had to avoid it. To an economist this is the definition of an essential
good, a good for which there is no finite compensation for its complete
elimination.” (Bockstael, et al., 2000, p. 1387)

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The loss of the ecosystem goods and services needed to sustain life would most likely cause the
deepening of the environmental crisis and a progressive worsening in the political economy. It is
crucial therefore, to manage and protect the Earth’s resources by accounting for and replenishing
natural capital.

6.3

New Economic Models for the Political Economy

In the 1960s, a growing awareness of the innate relationships between ecological systems
and the political economy emerged.39 In response, economists began to examine resource flow in
the economy and its impact on the environment (Turner, Pearce, and Bateman, 1993). The field
of ecological economics40 emerged as a means to provide scientific and economic measurement of
human influence on natural capital (Harris, 2002). It reforms models and assumptions found in
classical economics to account for natural capital and pollution. This helps enable policy makers
to measure the relationships between environmental protection and economic activity.
Economic activity can be viewed as a process of transforming solar energy and materials
into heat and wastes. Natural resources (goods) are extracted, transformed, and then become
wastes. Those wastes are eventually assimilated back into the environment through (services) such

Ecological economics emerged from the fringes in the 1960s, with the birth of the environmental
movement. However, there is a much longer history of social and environmental thinking. For
further information, see, e.g., Malthus (1798) on absolute limits, population, scarcity; Ricardo
(1817) on relative limits, exploitation of best resources; Marx (1867) on limits due to social and
political unrest; Gray (1914) on user cost; Hotelling (1931) on discounting, economic models for
non-renewable resources; Pigou (1920) on pollution from externalities; Hicks (1946) on the amount
of income that can be spent without depleting wealth; Carlisle (1954) on optimal optimal rates of
extraction; Gordon (1954) on open access and property rights; Boulding (1966) on spaceship earth
and waste assimilation capacity; Ayres (1969); Kneese (1970) on materials balance models and
economic incentives; Daly (1974) on steady-state economics; and Norton (1984) on pollution
control policy and regulatory models.
40 In this work, the field of ecological economics is defined by the macro- and microeconomic
models used for setting environmental standards, trading pollution permits, managing natural
resources and waste assimilation, providing cost-benefit analysis, conserving biodiversity, and
developing property rights. This field of economics also has other approaches that differ in some
ways from ecological economics known as natural resource economics, environmental economics,
and Earth economics.
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as air and water purification.41 As economic growth increases, so does the volume of waste relative
to the limited capacity of natural environments (atmosphere, oceans, landfills, wetlands) to absorb
that waste. Finding a balance between natural resource consumption and waste assimilation is an
important theme in ecological economics.
Ecological economics is based on the theory that our entire economic system is
underpinned by, and cannot operate without, the use of natural capital (Harris, 2002). For
example, manufacturing capital could not exist without the flow of ecosystem goods and services,
and, therefore, neither could human welfare (Daly and Costanza, 1992). Ecological economists
argue that human benefit and welfare in the economy comes from combining natural capital with
labor, land, and manufacturing capital. Such economists claim that zero natural capital implies
zero human benefit and welfare. This illustrates that natural capital is a multifunctional asset that
is currently undervalued. In order to correct the undervaluation of natural capital, a system of
economic valuation must be developed and implemented into the accounting systems of the
political economy.
Economic valuation42 of ecosystem goods and services starts by asking, “How do changes
in the quantity or quality of various types of natural capital and ecosystem services impact human
welfare?” (Costanza, et al., 1997, p. 255). Such changes in the functions of ecosystem services
range from small and simple (valuing services at the margin) to large and extremely complex
(global warming, loss of biodiversity). Ecosystem changes directly impact the allocation of benefits
and costs associated with human welfare in both market (monetary) and non-market ways (nonmonetary). For example, the Gulf of Mexico is home to a diverse range of ecosystem goods and
services that provide monetary and non-monetary benefits to the regional and global economy.
The economy uses natural resources for the benefit of human welfare through sources (directly
through use of natural resources, indirectly through appreciation of scenic landscape) and sinks
(waste assimilation functions, clean air and water).
42 “Economic value arises if someone is made to feel better off in terms of their wants and desires.
Positive economic value – a benefit – arises when people feel better off, and negative economic
value – cost – arises when they feel worse off. What economic valuation does is to measure human
preferences for or against changes in the state of environments. It does not ‘value the
environment’” (Turner, Pearce and Bateman, 1993, p. 38).
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Monetary values can be derived from fishing, oil drilling, and recreational use. Non-monetary
values can be derived from the peace of mind that comes from the Gulf’s abundance, or the quiet
enjoyment of the wildlife sanctuaries. Changes in the quality of the Gulf will undoubtedly affect
the interests of each diverse group of users. Unfortunately, that is exactly what happened on April
20, 2010 when BP’s Deepwater Horizon oil rig exploded and spilled over 4.9 million barrels of oil
into the Gulf over an 88-day period. Compared with the Exxon Valdez oil spill that dumped
750,000 barrels of oil into the Prince Edward Sound, the Gulf oil spill spread pollution to over 5
state lines, crippled the fishing industry, and placed a moratorium on drilling that cost jobs in the
whole region. How then do economists determine what all of the values are between all of the
human and ecological systems? Who derives compensation? How is compensation decided? In
some cases market values are estimated by an individual’s willingness to pay (WTP) for a gain or
to avoid a loss.43 Values can also determined by an individual’s willingness to accept (WTA)
compensation to tolerate a loss or forego a benefit (Pearce and Seccombe-Hett, 2000; Costanza et
al., 1997). However these methods are not widely used (World Bank, 2006). In the case of the BP
oil spill in the Gulf, a simple monetary fine based on how many gallons were spilled determined
compensation for the entire disaster.
The greatest difficulty in valuing natural capital is gathering relevant, updated data for
ecosystem goods and services whose economic valuations are widely accepted. Debates over what
to quantify as natural capital have been abstruse, polemic, and marginalized. What is important,
however, is that, irrespective of the methods of valuation, a consensus between the United
Nations, the World Bank, and the OECD countries, has been reached that environmental goods
and services should not be free; rather, they are an economic asset that should be included in

The hedonic pricing method is used to estimate the value of environmental amenities that affect
prices of marketed goods. The method is based on the assumption that people value the
characteristics of a good, or the services it provides, rather than the good itself. Thus, prices will
reflect the value of a set of characteristics, including environmental characteristics, that people
consider important when purchasing the good. Retrieved from
http://www.ecosystemvaluation.org/hedonic_pricing.htm.

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macro- and microeconomic accounting sheets of all nations. Although this has not yet become
official policy, many OECD countries have begun to account for natural capital and greenhouse
emissions on an annual basis. In 2006, the World Bank published a report called, Where is the
Wealth of Nations? In that report, the World Bank estimates the value of natural capital in over 120
countries in the year 2000. They conclude that 25% of the wealth in low-income countries comes
from natural capital, and 18% of the world’s total wealth comes from natural capital. Because the
depletion of natural resources is not currently visible in standard national accounts, dependence
on resource extraction makes it difficult for many low-income countries to save and invest in
future growth. Middle-income countries (13%) and OECD countries (2%) have less dependence
on natural capital for wealth.
In order to account for natural capital’s relationship to human welfare, environmental
indicators and economic modeling must become a central component of sustainable reform.
Instruments that provide quantified measurements of pollution, ecosystem services, and human
welfare must be implemented into a national accounting system that all nation states can adopt.
Institutions that are capable of managing natural resources, collecting information, and sharing
natural capital information between countries must also be developed to complete the transition
towards sustainable development and balanced growth. The United Nations has been working
quietly to develop guidelines for an environmental accounting system since the 1992 Earth
Summit through a project called “The Economics of Ecosystems and Biodiversity” (TEEB). The
World Bank announced in October of 2010 that it will partner with the United Nations
Environmental Program to conduct a 5-year pilot program to measure natural capital in 10 key
countries, including India and Columbia. This pilot program will test various valuation methods
and formalize a set of tools that finance ministers in nation states can adopt to determine policy
for global trade. This new system of environmental accounting will change the models and
calculations that economists use to determine the wealth of a nation. For example, when
calculating the economic return of clearing mangrove trees to farm shrimp, the cost of the loss of

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habitat for fish stock and coastal protection will also be subtracted from the benefit of the income
gained from shrimp farming. Once finalized and implemented worldwide, this “green”
accounting system would replace the neoliberal political economy with sustainable development.

6.4

Accounting for Natural Capital and Social Capital

The mainstream accounting tool for measuring national well being is currently the Gross
Domestic Product (GDP). The GDP was originally devised in the 1930s by the United States as
an emergency national accounting measure during the Great Depression. It measures, in dollars,
the total production output and expenditure transactions in a country’s domestic economy,
linking growth in GDP to growth in living standards (Beyon, 1999). Classically trained economists
assume that, as GDP grows, society will benefit through increased progress and economic
development. However, the GDP only measures the produced assets in the economy and is
therefore an antiquated model, because it does not include natural capital or social capital.
The paradox of the GDP lies in the distribution of benefits from economic development.
If a rising GDP assumes benefit to all of society, then shouldn’t US society be doing pretty well
after 20 years of steadily rising GDP? We are taught to assume so, but evidence under
neoliberalism shows the opposite. By the turn of the century, American living standards had been
steadily declining since the late 1970s. Between 1980 and 2000, the GDP grew 55%, yet real
wages declined by 14%. The exception was for the rich. The top 5% of household incomes
concurrently rose by 20% (Cobb and Halstead, 1999). Under the neoliberal agenda, a majority of
Americans found themselves working longer hours for less money, less leisure time, and lower
quality of life (Morris, 1999). From 2000 to 2010, Americans experienced further declining
household income, job growth, savings rates, and increased rates of poverty and unemployment.
That is because current GDP indicators mask social and environmental costs associated
with economic development and therefore give an inaccurate assessment of human benefit and

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wealth. Critics have outlined several major distortions of the GDP, the greatest being its
relationship to natural capital. When natural capital is extracted (e.g., when ancient forests are
clear-cut and sold, or depleted fish stocks are harvested) the extraction of natural capital is treated
as income, instead of what it really is, the depletion of an asset. The market creates a value for
extracted goods such as wood, but never accounts for the economic, environmental, and social
costs involved in cutting down the forest. The rise in GDP would continue to imply the
improvement of society even if every last tree were cut down or every last fish in the ocean caught.
Concurrent with the growing awareness of the need to account for natural capital, social
capital44 has emerged as another essential ingredient in the economic formula for sustainable
development. Social capital is a process by which people establish social networks and norms
based on principles of trust, reciprocity, and participation. Individuals facilitate cooperation
between each other for mutual benefit, forming interconnected non-monetary relationships that
foster family, community, and culture. The GDP, however, does not account for social capital
and therefore cannot measure breakdowns or contributions in the non-monetized social realm.
For example the GDP records social externalities such as divorce fees, accident fees, and health
costs as economic growth. As the GDP rises with each monetary transaction, it does not
differentiate or account for the correlated economic costs related to social externalities such as
mental illness, loss of family, incarceration, war, crime, and murder. Undoubtedly, economic
globalization has left innumerable communities across the world in poor condition, with depleted
social capital.

“Social capital is the raw material of civil society. It is created from the myriad of everyday
interactions between people. It is not located within the individual person or within the social
structure, but in the space between people. It is not the property of the organization, the market or
the state, though all can engage in its production. Social capital is a ‘bottom-up’ phenomenon. It
originates with people forming social connections and networks based on principles of trust,
mutual reciprocity and norms of action. The term social capital was first used in the 1980s by
Bourdieu and Coleman” (Bullen and Onyx, 1999).

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Recognizing the fundamental problem with the GDP accounting system, the United
Nations, in a joint publication effort with the IMF, the OECD, the European Commission, and
the World Bank, developed a System of National Accounts (SNA) in 1993, to provide a common
international framework to ensure economies are measured in the same way across countries (UN
Statistical Division, 1994). At the same time the SNA was set up, the UN and other agencies
published a separate handbook called The System for Environmental and Economic Accounts (SEEA).
The SEEA was not included in the SNA, which adopted such standards as the use of the Purchase
Power Parity (PPP). The PPP between two countries is the rate at which the currency of one
country needs to be converted into that of a second country to represent the same volume of
goods and services in both countries (World Bank, 1998). The PPP and SNA have been adopted
by all WTO nations as a harmonization method for global accounting. However, the SNA
remains problematic because it has not yet translated the SEEA measurements into its
harmonized global accounting system for use in shifting development policy towards
sustainability.
The SNA also developed a conceptual framework for social capital accounting that aims
to measure non-monetary socioeconomic indicators, such as life expectancy, infant mortality,
adult literacy, nutrient intake, access to public health and education facilities, housing, labor,
employment, and expenditures per household (UN Statistical Division, 1994). However, this
framework is not currently used in SNA accounting, although it will likely be used in the future.
The World Bank launched a study in 1996 to define and measure social capital, its evolution, and
its impact (World Bank, 1998). This led to the World Bank’s publication of a Social Capital
Implementation Framework (SCIF). The United Nations and World Bank have since teamed up in
2010 to develop a similar study on a green accounting system for natural capital over the next 5
years, with the intent of integrating the value of natural capital into the SNA. When both the
SEEA and SCIF can be implemented into the SNA, instead of defining wealth in terms of GDP,

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the new system will define wealth in terms of Environmentally Adjusted Net Domestic Product
(eaNDP) and Sustainable National Income (SNI) (World Bank, 2006).

6.4

Retooling the Political Economy for Sustainable Development Governance

In order to achieve sustainable development reform, governments must have the political
will to use new economic models and tools to create environmental policy and reform. Agenda 21
is an early example of a global framework for sustainable development governance. Many local
and regional governments have used Agenda 21 as a guide to create their own frameworks,
adapted for local conditions. However, at present, the corporate sector still plays a dominant role
in policy making through lobbying efforts, resulting in pro-business policies that support corporate
welfare in the form of subsidies, diminished accountability, and unregulated business practices
(Real World Coalition, 2001). As a part of sustainable development reform, governments will play
a more balanced and legitimate role in the political economy. They will have the political will and
power to change the payments of perverse subsidies45 to corporations through the adoption of
sustainable laws, permits, taxes, and standards that protect ecosystem services, restore natural
capital stocks, and control industrial pollution.
For example, US fiscal policy disproportionately supports conventional business through
a package of perverse subsidies known as corporate welfare. Corporate welfare gives special tax
breaks, financial assistance, and lax regulations for large industries in agriculture, mining, energy,
transportation, and fisheries. The International Institute on Sustainable Development (IISD)
reports that the combined subsides of the latter five industries totals $1.9 trillion per year, of
which $1.45 trillion is considered perverse (Kent and Myers, 1998). Corporate welfare uses an
inordinate portion of society’s resources via public subsidies for expenses such as advertising,
Perverse subsidies are, in a word, perverse. They encourage development in scientific and
industrial sectors that is counterproductive to environmental and social concerns, and they
encourage growth and development in areas that are often non-competitive.

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executive salaries, lobbying expenses, and luxury corporate travel. Furthermore, these subsidies
allow corporations the privilege of externalizing their costs by way of paying less than a living
wage, downsizing the workforce, keeping substandard working conditions, dumping pollution into
the environment, and extracting resources at below-market prices. Reforming the political
economy would require government subsidies to be redirected away from non-sustainable,
extractive, and inefficient corporations. Rather than paying perverse subsidies for corporate
welfare, sustainable development reform uses ecological economics to set new taxes, regulations,
standards, and permits to balance economic activity with natural capital management and
pollution abatement.
For example, governments can set standards and quotas on natural capital rather than
paying subsidy support to corporations for extraction and depletion of natural capital. Economic
modeling can also help governments determine optimal pollution levels46 in order to set taxes. For
example, the Pigovian tax, also known as the polluter pays principle, states that the price of a
good or service should fully reflect its total cost of production, including all externalities.47 If air,
water, or land is being used to store wastes, then it should be accounted for as a monetary cost to
the polluter. This approach puts the monetary burden on those who emit pollution, rather than
on the communities affected by it. Taxes on pollution are a method of redirecting externalized
costs paid by society, to internalized costs, paid by the producers of pollution. In addition to the
polluter pays principle, sustainable development governance also advocates using the
precautionary principle. The precautionary principle switches the burden of proof to
corporations, which must prove the safety of a new product (such as cloned meat) before
introducing the product to the mass market. This is an improvement over the current system,

“Optimal pollution levels are amounts of pollution that exactly balance marginal social benefits
and marginal social costs. Another way of looking at this is to consider the marginal cost of
pollution control versus the marginal cost of pollution damage” (Harris, 2002, p. 49, 327).
47 Pigovian tax is a per-unit tax equal to the external damage caused by an activity, such as a tax
per ton.
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which often rushes products to the market for monetary reasons without adequate testing to
determine the long-term impacts on society.
Under the reform model, market-driven incentives represent the most widely accepted
alternative for creating sustainable policy. Some economists assert that negative externalities arise
from the lack of well-defined property rights in certain environmental assets. Open access to
common resources can lead to a “tragedy of the commons,” in which resources are exhausted due
to overuse, such as in the fishing industry. Issuing permits or property rights over industries that
use ecosystem goods and services is believed to create better management of resources for future
generations than would be the case if no exclusive ownership was awarded to anyone (Heal,
2000). This requires international cooperation and governance in industries involving the global
commons.
The United Nations Framework Convention on Climate Change (UNFCCC), known as
the Kyoto Protocol, outlines, under Articles 6 and 17, an international, market-based program for
trading pollution permits to help protect Earth’s atmosphere and air quality. The goals of the
program are to slow global warming by capping the total global emissions of four major
greenhouse gasses (GHG) and to ensure that the reduction of GHG emissions happens at the least
cost. The theory is that polluters will be incentivized to reduce pollution and trade surplus credits
to other polluters for profit. This market approach limits the need for draconian regulation by
offering the carrot incentive. This method of trading permits is highly anticipated to become an
international law for markets relating to carbon and other greenhouse gases. In a follow-up to the
failure of the 2009 Copenhagen meeting to replace the Kyoto Protocol when it expires,
governments will meet again in Cancun, Mexico in December 2010 in hopes of creating an
enforceable international agreement on climate emissions and tradable pollution permits.
In the business community, sustainable development has slowly become a standard part

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of the vocabulary. Through voluntary initiatives and guides such as the Natural Step,48 some
corporations now adopt sustainability measures for internal processes. In addition, growing
demand for sustainable products has captured the attention of larger corporations who wish to
increase profits and market share.49 An indicator of such growth, the Dow Jones Industrial
Sustainability Index50 now tracks the financial performance of sustainability-driven companies
worldwide.51 Such products are often labeled as organic, green, biodegradable, renewable, or
recyclable. Consumers purchase green products based on perceived values and implied quality
assurances rather than on cost and advertising alone.
In order to achieve sustainable development governance from corporations within the
political economy, the WTO must be reorganized away from state-corporate collusion under
laissez-faire models of global trade policy. Instead, good governance that directs environmental
policy and accounting is essential. Otherwise, like in the case of the Kyoto protocol, corporations
will not invest in cleaner technologies until regulation or legislation mandates it. Under
neoliberalism, many corporations find that it is not cost competitive to change unsustainable
business practices when other competitors do not. Because there is currently no guarantee of legal
compliance or an enforcement mechanism for sustainable development, even the most ethical

The Natural Step is a business protocol that was founded in 1989 by Swedish doctor and
researcher Dr. Karl-Henrik Robèrt. After observing human cancer cells Robèrt collaborated with
other scientists to develop four basic principles for businesses to follow that reduce the
accumulation of toxins and address the systemic causes of environmental pollution.
49 For example, early successful organic food companies have grown and been absorbed by larger
TNCs vying to capture a profit share of rapidly growing markets. Brands include Ben and Jerry’s
Ice Cream (Unilever), Cascadian Farms (General Mills), Boca Burgers (Phillip Morris) and Seeds
of Change (Monsanto). In addition, large corporations such as Nike, Toyota, and IKEA have
adopted energy-efficiency and resource-saving targets.
50 “Launched in 1999, the Dow Jones Sustainability Indexes are the first global indexes tracking
the financial performance of the leading sustainability-driven companies worldwide. Based on the
cooperation of Dow Jones Indexes, STOXX Limited and SAM they provide asset managers with
reliable and objective benchmarks to manage sustainability portfolios. Currently 70 DJSI licenses
are held by asset managers in 16 countries to manage a variety of financial products including
active and passive funds, certificates and segregated accounts. In total, these licensees presently
manage $8 billion USD based on the DJSI.” (http://www.sustainability-index.com/)
51 According to the 2005 DJSI Review, companies are focused on good corporate governance,
accounting and environmental reporting. Corporate trends are moving towards implementing ecodesign concepts into products and services. Retrieved from http://www.sustainabilityindexes.com/djsi_pdf/news/PressReleases/DJSI_Review05.pdf
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corporations have cut corners on social and environmental responsibility to make a profit. Only in
areas of industry where monetary cost savings have proven to be substantial, such as in energy
efficiency, have corporations voluntarily adopted sustainability with speed. Sustainable
development governance will succeed best with a comprehensive and enforceable mandate that
would require all corporations to internalize their costs and therefore level the playing field.
It is possible to reform corporations towards sustainable development, and it is also
possible to reform governments. The deeper problem with reform is the culture of imperialism,
power, and control underlying the political economy. Sustainable development in practice does
not fundamentally guarantee a change in the Imperial ethic. This Imperial ethic expresses itself
throughout our society and most prominently in the negative behavior patterns of corporations
(e.g. greed and reckless disregard for humanity). True sustainable development governance and
corporate reform will require the United States to change its protection of corporations under the
14th amendment, which grants them the legal rights of a recognized citizen with none of the
liability for any of their actions. Critics have charged that if corporations were actually persons
they would be diagnosed as psychopathic, for their consistent callous, grandiose, and irresponsible
behavior towards society in which profit drives them to manipulate, lie, and have no empathy for
their destructive action towards human and environmental support systems (Bakan, 2004). These
behaviors are deeply embedded in corporate history and in need of reform to control the
destructive and impulsive behavior of unrestrained greed.
The sustainable development model is a great improvement over the current neoliberal
political economy, which allows corporations little to no oversight, provides no value to natural
capital, and externalizes the costs of global trade onto society. In essence, sustainable development
policies will still give corporations a license to pollute and continue widespread extraction of
resources, however policy will restrict and measure the extraction of natural capital and pollution
so as not to exceed maximum standards. Sustainable development may not be capable of
dismantling the behaviors of imperialism in the political economy, but it may be able to mitigate

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impacts on society and the environment. Such a shift has the potential to move society towards a
more fundamental change in development that rejects an Imperial ethic and returns society to an
Arcadian ethic for managing the political economy. This cultural shift is already taking place and
offers another alternative framework for the political economy that builds on the sustainable
development model called restorative development.

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CHAPTER 7: Restoration Economy
7.1

Restorative Development

“Capitalism is not a success. It is not intelligent. It is not beneficial. It is not just. It is not virtuous and it
does not deliver the goods. In short, we dislike it and we are beginning to despise it. But when we wonder what to
put in its place we are extremely perplexed.”
~John Maynard Keynes

In a personal interview with Paul Hawken at the 2002 World Social Forum in Porto
Alegre, Brazil, Mr. Hawken mentioned something that changed my consciousness. He said, “We
need to go beyond sustainability.” Hawken asked, “The idea is to restore the Earth, isn’t it?”
Economically, if we stay in the sustainability paradigm we will always be living at the margin,
failing to replenish natural capital and evolving into a higher state of human consciousness.
Hawken articulated that the real goal was to produce net gains in diversity and natural capital
replenishment, not just sustained margins.
While sustainability is gaining momentum in the mainstream, it is still poorly understood
by those institutions, individuals, and power structures fighting to cling to old paradigms.
Therefore, the image of restoring the Earth into a socially just place of abundance for all
inhabitants is unfamiliar because it requires a fundamental restructuring of the current culture. It
requires our value system to move away from the Imperial ethic and the masculine principles of
domination and control (which has led to gender subordination, oppression, and the violent
destruction of the Earth), and towards an Arcadian philosophy that encompasses feminine
principles such as fertility, union with all life, respect, cooperation, compassion, oneness, and
healing. A restorative political economy reestablishes the lost sense of spiritual connection
between humans, god, and nature. It abandons old assumptions in Western scientific
methodology, Anglo-Christian spirituality, and Imperial cultural expression.

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In the restorative paradigm the true measure of wealth is not money. Rather it is the
health and happiness of communities that are the true measure of wealth. Restorative
development is not an attempt to turn back the hands of time on globalization or a market for
exchanging goods. Rather, a restoration paradigm represents an opportunity to reorganize society
towards a deeper and more insightful relationship between people, the economy, and nature. The
restorative development paradigm is able to go beyond sustainable development and capitalism
because new attitudes and values make up a new moral landscape for the political economy that
directs it to end wars, heal relationships with nature, recognize the equal value of women, and
evolve our understandings of science in the universe.
The restorative political economy embraces the reform economy and builds on its core
concepts of sustainability. Therefore, the two paradigms can and do exist concurrently (Khor,
2002) with the primary difference being that, while the restorative economy operates within a
market framework, it is not philosophically or culturally aligned with capitalism or imperial
institutions. Restorative economies shift the political economy towards decentralized,
participatory governance models, and uses technology for collective human well being rather than
human self-interest. Restorative development seeks to reallocate materials and resources away
from life-destructive technology such as weapons for war, and towards life-nurturing commerce
and exchanges, such as access to housing, food and water, and energy for all humans. Markets are
accountable to democratic governments who work to secure community interests by assuring that
businesses internalize costs, honor community values, and serve community needs (Korten, 2007).
Time for personal growth and spiritual reflection is honored and restorative justice (based on
rehabilitation) replaces retributive justice as a more holistic practice in social relationships.
A restorative model for the political economy links individual interests to the collective
interest through a dynamic system of reciprocity and solidarity. The restorative economy differs
from sustainable development because it is a true market system that seeks to decentralize power
and localize production away from large corporations and institutions. More importantly,

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restorative development differs from sustainability because it encompasses a larger social agenda
that changes the neocolonial relationship between North and South regions of the world by
implementing democratic changes in political and economic associations. Restorative
development includes a macroeconomic framework for international trade and finance that is
based on empowering regional producer-consumers and workers-entrepreneurs rather than on
continuing corporate control over resources, centralized financial aid from the BWIs, and
technical dependency from foreign institutions in global trade (Arruda, 2001).
In order to address the root of environmental problems in the political economy, this
author suggests that the culture of imperialism must be replaced with a culture of peace that can
respect life and honor the value of interdependency between all human and ecological systems.
Restorative development starts from this bottom-up perspective in local communities who selforganize and participate in local democratic governance. Restorative development also uses a
top-down international framework of guiding principles to help communities shape agreements in
behavior that move global culture towards positive values in trust, over negative values that create
oppression. Even though it may seem hard to believe in our planet’s darkest hour that humans
can create a culture of peace for the global political economy, our human potential gives us all the
power we need to restore the values of love over hate, caring over apathy, respect over insolence,
sharing over greed, peace over violence, and freedom from fear. Restoring the Earth, balancing
the political economy and creating a culture of compassion are all possible if we make the choice.

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7.2

Restorative Politics: A Democratic Global Constitution

“We stand at a critical moment in Earth's history, a time when humanity must choose its future. As the
world becomes increasingly interdependent and fragile, the future at once holds great peril and great promise. To
move forward we must recognize that in the midst of a magnificent diversity of cultures and life forms we are one
human family and one Earth community with a common destiny.”
~The Preamble to The Earth Charter

Under a restorative development paradigm, the laws and principles of the global political
economy follow a set of 16 fundamental principles that have been articulated by the United
Nations in what is known as the Earth Charter. The Earth Charter is the largest collectively
written international treaty to date and is likened to a global constitution for building a
democratic society. Its initiatives are based on an Arcadian respect for the whole community of
life. The Earth Charter promotes ecological integrity, social and economic justice, universal
human rights, gender equity, universal education and health care, spiritual well being, respect of
indigenous knowledge, and a culture of non-violence and peace. The document was written with
the intent of providing an ethical framework for sustainable development. However, this author
argues that sustainable development can (and will) exist under an imperial framework that is
fundamentally at odds with universal human rights, non-violence, and demilitarization. Therefore
this author suggests that the Earth Charter is a model for a restorative political economy which
embraces sustainability, but goes beyond it to defeat the culture of imperialism and honor the
sacred community of life with compassion, understanding, and love. Sustainable development is
the interim step to reaching a restorative society.
Written in the year 2000, the Earth Charter was meant to inspire a new sense of global
interdependence and shared responsibility in world citizenship for the sustained wellness of the
human family, the global economy, and the whole of the biosphere. The document articulates a
shared expression of hope that, through the creation of a new global partnership at this critical

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juncture in evolutionary history, we can create a society based on true democracy, shared values,
and collective freedom.
The Earth Charter is the product of a decade-long, worldwide, crosscultural conversation about common goals and shared values. The
drafting of the Earth Charter has involved the most open and
participatory consultation process ever conducted in connection with an
international document. Thousands of individuals and hundreds of
organizations from all regions of the world, different cultures, and diverse
sectors of society have participated. The Charter has been shaped by
both experts and representatives of grassroots communities. It is a
people's treaty that sets forth an important expression of the hopes and
aspirations of the emerging global civil society. (Earth Charter Initiative,
2000)
The Earth Charter is predicated on UN international law and declarations, treaties and reports,
integrated science, the wisdom of native tribes, women, civil society organizations, government
ministers, and philosophers. The principle objectives of the document are meant to guide all levels
of governance, business, and civil society towards positive and reciprocating exchanges within the
political economy.
The Earth Charter embodies the idea of global citizenship, in which people act locally
with moral consciousness on behalf of environmental and social needs worldwide. Global
citizenship implies a feeling of being “one” with the planet as a whole, where personal action and
responsibility is believed to directly impact positive or negative outcomes for society both locally
and globally (Albrow, 1996; Soysal, 1994). The feeling of mutual interdependency and oneness
with all living beings on the planet is an Arcadian ethic that is a result of increased awareness for
the interconnectedness with the whole of creation. This sense of being one with the whole drives
communities to respect and care for each other, and to make decisions based on the good of the
whole planet.

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7.3

Restorative Global Governance: Replacing the BWIs

“The tragic truth is that much of the work ahead centers on repairing the enormous damage caused by the
Bretton Woods Institutions. Debt must be cancelled, commodity prices stabilized, control established over the goods
and money flowing across borders, anti-trust measures implemented to break up concentrations of corporate power,
corporations with repeat criminal convictions dechartered, national economies rebuilt and redirected with proper
regulatory regimes to meet local needs, the environment healed, the power of corporations curbed, financial speculation
brought under control, wealth redistributed to create a semblance of equity, and the democratic accountability of
governments established.”
~International Forum on Globalization, 2002
Over the past 60 years the Bretton Woods Institutions have led to egregious corporate
and government abuses in power against people, their livelihoods, and the environment (IFG,
2002). Concurrently, the global governance model of the United Nations has fallen painfully short
of its mission and obligations to the global community as a result of inadequate funding,
corruption, and powerful undermining by member nations such as the United States, Canada,
and Australia (Greenpeace, 2002). Between the two models of global governance, the money and
decision-making power resides with the BWIs while those policies of the UN, written to protect
civil society and the environment, are either adopted voluntarily or ignored. In the case of
sustainable development, a confluence between the competing interests of the BWIs and the UN
must be reached in order to find the balance for globalization. However, under a restorative
political economy, the BWIs need to be replaced altogether rather than reformed.
A global think-tank known as the International Forum on Globalization (IFG) has
proposed the creation of a new set of global institutions for world governance that would replace
the Bretton Wood Institutions. Due to the depth of corruption and state-corporate collusion in the
fundamental nature of BWIs, the IFG does not recommend their reform:
“Institutional reform is a viable strategy when the institutions in question are
fundamentally fair and aligned with a legitimate purpose but have simply
been corrupted, as is the case with many national governments. It is not a
viable strategy when a system is in its structure, mandate, purposes,
principles and processes so fundamentally at odds with the human interest,
as is the case with the Bretton Woods Institutions.” (IFG, 2002, p. 225)

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The dismantling of the Bretton Woods Institutions (WTO, IMF and World Bank) would
begin by phasing out programs and lending operations, starting with Third World Debt
cancellation. A selling off of all BWI assets and liabilities would take place through an UN
International Insolvency Court and their buildings and facilities would be turned over to their
original oversight body at the UN Economic and Social Council (UNESCO).
The IFG recommends unifying global governance under a restructured and empowered
United Nations that can more accurately fulfill its original cooperative and egalitarian charter of
global democracy. The United Nations is recommended because it is an existing global
democratic institution of governance, with a framework to provide each country with an equal
vote. The United Nations Committee on Trade and Development (UNCTAD) could replace the
WTO as the leading global legislative body deciding trade and finance laws in alignment with the
Earth Charter and other international law. It would include a corporate accountability office to
promote transparency, good governance, and open access to information and technology (IFG,
2002).
The IFG recommends that the IMF be replaced by a newly appointed UN International
Finance Organization (IFO), with no lending or enforcement capabilities. The IFO would
provide technical support, technology transfer, maintenance, policy studies, and facilitation of
international agreements. The IFG recommends that a number of Regional Monetary Funds
replace the centralized finance center of the World Bank as a means to access short-term
emergency foreign exchange. Emphasis, instead, would be on using financial resources that would
be accountable to member countries of a particular region. The UN International Court of
Justice (ICJ) would replace the WTO secret tribunal court with a democratic dispute settlement
court.
Under a restorative political economy, public policy would take place through more levels
of civil participation in the political process. The IFG envisions civil society organizations and
non-governmental organizations as active political players in the economy at all scales, helping to

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disseminate information and strengthen local participation and empowerment of communities.
Such organizations make up the citizen base and work at the local governance level to articulate
what the real needs of the community are in order to build a better democratic society. With the
participation of civil society, democracy will thrive in governments.
“Aristotle viewed the legitimate state not as an institution apart from the
civil society but as an entity created through a union of society’s members
for the purpose of securing the good life--the happiness of the individual.
The civil state is therefore inseparable from the union of citizens that
creates it.” (Everson, 1996 p. 13)
Women have an important role to play in restorative development. Presently and
historically, women have been marginalized from political decision-making, discriminated against
in the workplace, considered of lesser value than their male counterparts, and made victims of
physical and psychological abuse. Male dominance in philosophy, religion, science, politics,
architecture, and economics has created a world culture based on male attributes in which
imperial war and competition dominate the quest for global resources and empire. In a restorative
society, the divine principles of the feminine would be honored and valued as equal to their male
counterparts. Women and men would find a means of political and economic cooperation rooted
in gender equality. Recognition that both genders have a vision to create a universal society that
contributes to collective welfare would be mainstream. It is only through the inclusion and respect
of women, who offer a caring, nurturing and cooperative set of values, that a culture of peace can
be manifested and sustained.

7.4 Local Restorative Economies

Various economic models for a restorative political economy at the local level already
coexist within the neoliberal economy. One example is a European-Canadian model called the
social economy. Other regions have models called solidarity economy, participatory economy,

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labor economy, and local living economy. These restorative models are centered on the policies
and enterprises of local and regional communities and emphasize collective social profitability, as
opposed to purely individual economic profitability in the marketplace. Social profitability
contributes to improvements in the quality of life for the overall population, particularly through
the increase of available jobs, goods, and services (Neamtan, 2002). Some of the principle
objectives found in a restorative economy include the following:
•

Instead of simply striving for financial profit, social enterprises are by
nature part of a stakeholder economy, whose enterprises are created by
and for those with common needs, and accountable to those they are
meant to serve.

•

The social economy enterprise is autonomous of the State.

•

In its statute and code of conduct, it establishes a democratic decisionmaking process that implies the necessary participation of users and
workers.

•

People and work have priority over capital returns in the distribution of
revenue and surplus.

•

Its activities are based on principles of participation, empowerment, and
individual and collective responsibility (Arruda, 2001).

A restorative economy is based on local participation, cooperative businesses, and
community associations that are mutually beneficial to society. There are five types of entities that
make up such an economy including cooperatives, civil society organizations, foundations, mutual
societies, and social enterprises. Cooperative business models, for example, can be found in the
sectors of agriculture, banking, and retail. Mutual societies are active in the mortgage and
insurance services. Foundations cover a wide range of social services including health care,
welfare, culture, sports, and recreation. Civil society organizations focus on education,
environmental regeneration, human rights, training, development aid, and consumer rights.
Social enterprises work in unison to serve both public and private interests. In Europe, the social
economy has gained significant political recognition as industrialized nations readjust to slower
growth rates in a more competitive international economy. Similar to subsidy support given to
corporations, governments can play a vital role in assisting social enterprises, helping to shift the

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political economy towards restorative development. The heart of a restorative economy is the
empowerment of citizens to participate in the development of strong local markets and policies
that respect nature and society and provide meaningful livelihoods to the community.
A restorative economy creates equitable relationships between markets and finance
through the active and democratic participation of community members in local decisionmaking. It seeks to make the political economy accountable to a wide range of community
standards, including “ethical consumption, women’s initiatives, community and ecological
agriculture, social money, ethical financing, fair trade, community services, appropriate and
democratized technology, and social forms of ownership and management of assets and of
developmental activities” (Reintjas, 2003). Strong tools of empowerment for social change start
locally with the initiatives of responsible citizens who want to participate in the way they are
producing, consuming, saving, investing, and exchanging.
Restorative development advocates decentralized participatory planning, in which citizen
councils propose and revise local government activities in socially responsible ways. Collective
citizen planning allocates benefits more evenly throughout society by coordinating economic
inputs and outputs among actors in an inclusive way. For example, the participation of the
community in the choice of projects financed by public funds increases the level of efficiency and
productivity of social investments. In 1988, the City of Porto Alegre, Brazil (State of Rio Grande
do Sul) instituted a participatory process of balancing the state budget that directly involved the
local citizens by allowing them to vote on how state money was allocated. The participatory
budget was implemented by the Worker’s Party (Partido dos Trabahadores, or PT) in Brazil.
Their purpose of democratization of municipal budgets was to increase the transparency of
government action and to include the general public in policy formulation regarding local
expenditures. This breaks radically from conventional methods of deciding how public money will
be spent and provides social empowerment and accountability for the people of a local area or
region. From some, participatory planning and budgeting is considered the most successful

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innovation in fiscal policy in the last 20 years.
In the United States, the restorative economy is called the Local Living Economy (LLE)
and it seeks to allocate human and material resources with ecological and social integrity in order
to meet the self-defined needs of the people in a community. Through democratic local
governance, LLEs support public oversight of the global commons, equitable distribution of
income, and user fees to assure that market prices internalize true costs of production. The theory
behind LLE is that when needs are met locally by locally-owned enterprises, people have greater
control over their lives, economies are more stable, jobs are more secure, money is recycled back
into the community and there are incentives to protect the environment and build social
relationships based on mutual trust (Korten, 2002). This model for restorative development
measures real wealth as an investment in human capital that contributes to healthy communities,
a sense of belonging, and spiritual connection. In 2001, an alliance of socially committed
entrepreneurs launched a nationwide initiative called the Business Alliance for Local Living
Economies (BALLE) to facilitate business-to-business relationships among firms committed to
restorative economic values. They educate and encourage people to buy from, work for, and
otherwise support locally owned, value-based, and eco-friendly enterprises.
The restorative economy nurtures the values of cooperation over competition, and shared
abundance over scarcity. As a functioning economy, it moves emphasis away from the self-interest
of individuals to make profit, and towards the collective interest of society to ensure that people
have jobs, health, access to ecosystem goods and services, and can participate in local decisionmaking. Creating a restorative political economy starts at the individual level, with the selfdetermined choices and participation of workers, owners, and democratic governments.

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7.5

Restorative Culture: A Culture of Peace

“Once we break free of the mental prison of separation and exclusion and see the world in its
interconnectedness and nonseparability, new alternatives emerge. Despair turns to hope. Violence gives way to nonviolence. Scarcity transforms into abundance and insecurity to security.”
~Vandana Shiva, 2002

Throughout the globalization process, human behavior and values influenced the
evolution of culture worldwide. The word culture stems from the Latin word colere, which means,
to cultivate. Culture is comprised of a shared set of traditions, values, institutions, religion, art,
and knowledge that make up how a community expresses itself. It is a human achievement
created by collective and intellectual assertion. Culture often develops around ecology, where
communities derive their survival needs from, establishing folklore and cuisine in relation to the
plants and animals they interact with (Campbell, 1998). Culture is dynamic and changes over
time as new ideas and information become absorbed and expressed in societies.
Over the past 500 years, the violence of globalization has torn many communities apart,
displacing them from their land and destroying their cultural and spiritual linkages to nature. In
Europe and throughout every continent, many diverse languages and cultures have been lost
entirely to war and violent imperial globalization. The result of such cultural extinction has been
massive social exclusion and isolation, loss of traditional knowledge, and the homogenization of
culture on a global scale. The Imperial ethic within global culture cultivates negative values of
selfishness, greed, deceit, and envy, which lead to fear, terror, and widespread, negative
externalities, including war. To build a culture of peace, the negative values, emotions, and
feelings that create violence and war, must be replaced with positive counterparts.
Restoring fragmented cultures requires a fundamental shift in the life-destroying Imperial
ethic that results in economic imperialism, militarized police states, and social stratification, to the
life-preserving Arcadian ethic that results in freedom from fear, freedom from violence, freedom

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from denial of basic needs, and freedom from non-sustainable and unethical production methods
for global trade.
“Alternatives beyond war, non-sustainability and social and economic
injustice are becoming a survival imperative. These alternatives need to
combine our making peace with the planet and our making peace among
people from diverse cultures. One is not possible without the other
because the roots of terrorism, violence and war lie in environmental and
economic exclusion and the insecurity it generates. People’s security does
not lie in larger military budgets, bigger bombs and stronger police states.
It lies in ecological security, in economic security, in cultural and political
security.” (Shiva, 2002, p. 3)
Cultural behavior and its relationship to economic, ecological, and political exclusion is an
important issue that illustrates how imbalance, poverty, and exclusion fuel insecurity and
instability, leading to negative politics, negative economies, and negative identities (e.g., domestic
and state terrorism). Such negative cultural values (terror, fear, insecurity) must be replaced with
positive values that protect life on earth, create economic security, cultivate art and knowledge
between diverse cultures, and provide basic needs to all such as food, clean water, health care,
education, livelihood, and housing. Only when basic needs are met can virtue flourish.
In countries around the world, a restorative culture seeks to end violence as an inherent
part of the political economy. Freedom from fear, terror, and war allows space for human hearts
and minds to evolve spiritual consciousness, and for a culture of peace and justice to emerge. The
Earth is seen as one family, where all beings are connected to each other through love,
compassion, and ecological responsibility (Shiva, 2002). Restorative culture encourages freedom
of expression and moral development through the humanities (visual and performing arts, music,
history, philosophy, classics, anthropology, cultural studies, linguistics, law, and religion). In a
restorative culture, time does not equal money; rather, time equals art and knowledge.
In the United States some spiritual and cultural organizations including the Quaker’s
Religious Society of Friends, have formed restorative political movements to promote a culture of
non-violence and peace.

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“We seek a world free of war and the threat of war; We seek a society
with equity and justice for all; We seek a community where every
person’s potential may be fulfilled; We seek an earth restored.” (Mission
Statement, Friends Committee on National Legislation)
In India, a movement called Earth Democracy is underway, based on Gandhi’s strategy of
Swadeshi.52 Swadeshi is based on the Dharma principle taken from the Vedas (Hinduism’s highest
spiritual book), that all interactions take place on an ethical principle of life duty that respects
social custom, civil law, and sacred law. Earth Democracy’s aim is to create local economies run
by inclusive democracies, in which moral responsibility and duty are at the core of human
relationships and cultural objectives.
Globalization has the opportunity to move beyond our violent imperial history and unite
global citizens with the Arcadian ethics of unity, compassion, and respect for all life. This
evolution in human consciousness is in part achieved by a new paradigm in science. This new
paradigm replaces the classical assumptions of a matter-based universe, with a science that is
primarily based on consciousness and quantum potentiality. This transition heralds an age of
Arcadian science that reaffirms the existence of universal oneness through scientific measurement.

7.6

Restorative Science and Technology

“What science discovers but fails to communicate to the public is that the technology of the Universe, which
we speak of comprehensively as ‘Nature,’ operates only as a complex integral of exact mathematical laws. These
laws govern all the omni-interaccomodations of the everywhere ceaselessly and eternally inter-transforming Scenario
Universe.”
~Buckminster Fuller
Breaking the superstitions of myth and religion, the development of science has led to
many technological accomplishments by man. Western science has manifested ever-more

Swadeshi (self-sufficiency) was a successful economic strategy that was developed to gain
independence from British rule. Strategies of the Swadeshi movement involved boycotting British
products and the revival of domestic-made products and production techniques. Swadeshi, as a
strategy, was a key focus of Mahatma Gandhi who described it as the soul of Swaraj (self-rule).

52

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complex machines and processes to advance the notion of material science and progress. The
advent of global trade, and its associated fields of social and natural sciences, began by using
Western science and mathematical tools rooted in linear philosophy, Greek geometry, Newtonian
mechanics, and Cartesian mathematics. Classical scientific relationships between man and nature
were defined and explained within the matter-based construct of the Cartesian three-dimensional
XYZ-axis parallel/perpendicular model of measurement (see Figure 3).53 Conversely, the greatest
technology known to man (nature and the universe) does not operate within a linear, 90-degree,
cube, or parallel/perpendicular model. Furthermore, nature does not employ Western science’s
adopted gram/centimeter/ second/area/time/temperature exponents that have led to awkward
and irrational scientific relationships.54 This has resulted in centuries of inefficient technological
associations and destructive industrial patterns of trade. Therefore, restorative development
fundamentally rejects the three-dimensional linear assumptions in Western science and
mathematics and instead replaces them with a new mathematical methodology that is based on
the direct observation of mathematic relationships found in nature and the universe.

Archaeologists have discovered artifacts proving sophisticated mathematics dating back 4,000
years to Mesopotamia and Babylon. Over 3,000 years ago, the Greeks made magnificent
contributions to geometry, algebra and calculation. Then, 1000 years later, the Roman Empire all
but obliterated mathematics, only to be restored slowly by Arabs and Hindus traveling through
North Africa towards westward-evolving culture. It was not until 1200 AD that algebra was
republished in Latin and not until 200 years later, in the 15th century, that Europe diffused the
zero-cipher into the university system (Fuller, 1975, section 1203).

53

54For

example scientific entry into the realm of nuclear competence was accomplished by the
centimeter/gram/temperature/second (CGtS)² measurement and the Cartesian XYZ 90-degree
coordinate system. However Plank’s constant (6.626 × 10-34 joule/second) must always be applied
to the data to correctly interpret the awkwardly calculated constant of photon energy relative to
frequency. Buckminster Fuller reminds us that “the development and adoption of the great
computers has now relieved humans of the onerous computational tasks entailed in the corrective
processing by the irrational constants necessitated by the ineptness of the arithmetical rigidity of
arbitrarily exclusive, three-dimensional interpretation of the Euclidean geometric measuration”
(Fuller, 1975, section 204.01).

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Figure 3: The Cartesian Model: The three-dimensional XYZ-axis
coordinate system provides measurements for the physical dimensions of matter:
length, width, and height.

By observing the structural relationships and strategies employed by nature, author and
inventor Buckminster Fuller discovered the universal principle of synergy.55 He subsequently
published the laws of nature’s own mathematical coordinate system in his two-volume series
called, Synergetics (1975).56 Fuller’s mathematics was experientially derived (rather than theoretical),
and combined topology with geometry to illustrate that nature itself is an eight-dimensional
coordinate system that grows spherically outward in very mathematically precise omniintertriangulated structures called tetrahedrons (see Figure 4). The tetrahedron is the smallest unit
of measurement found in the physical universe. Rather than a 90-degree, linear measurement
system, synergetics uses a 60-degree geometric system that structurally appears as closely packed
spheres made up of tetrahedrons (see Figure 5). Synergetic math led to the discovery of atomic
coordinates for molecules, including carbon-60, and was paramount in the development of
nanotechnology and quantum physics. Consequently, the synergetic mathematical framework is
the foundation of restorative science and technology.

Synergy is the interaction of two or more agents or forces so that their combined effect as a
whole system is unpredicted by the effect of their individual parts.
56 Synergetics is energetic geometry, since it identifies energy as expressed by rational whole
numbers.
55

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Figure 4: Tetrahedron: A tetrahedron is the smallest unit of measurement in
the universe. It is a polyhedron bounded by four equilateral triangles, three
meeting at each vertex. (Fuller, 1975)

Figure 5: Principles of Synergetics: Nature grows according to precise
mathematical equations which are omni-directional concentric closest packing of
equal spheres (c) about a nuclear sphere form a series of vector equilibrium (b) of
progressively higher frequencies (a). The number of spheres or vertexes on any
symmetrically concentric shell outer layer is given by the equation 10 F2 + 2,
where F = Frequency. The frequency can be considered as the number of layers
(concentric shells or radius) or the number of edge modules on the vector
equilibrium (taken from Fuller, 1975).

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Synergetic math starts with the consideration of the entire universe, which is finite
because it is made up of finite parts. The universe is synergetic because no single part of the
universe can predict the behavior of the whole. The Earth’s biosphere is also a finite system made
up of synergetic relationships. Both systems are held in place by the opposing forces of gravity and
radiation under the universal law of mass attraction. Isaac Newton discovered the law of
attraction in the law of gravity, however he analytically and mathematically misstated it.57 Fuller
explains that such scientific misunderstandings are widespread and have led humanity to become
stuck, unable to comprehend and find technological solutions for balance with the planet:
This moment in the evolutionary advance and psychological
transformation of humanity has been held back by non-physicallydemonstrable __ ergo non-sensorial __ conceptionless mathematical devices
and by the resultant human incomprehensibility of the findings of science.
There are two most prominent reasons for this incomprehensibility: The
first is the non-physically demonstrable mathematical tools. The second is
our preoccupation with the sense of static, fixed "space" as so much
unoccupied geometry imposed by square, cubic, perpendicular, and
parallel attempts at coordination, rather than regarding "space" as being
merely systemic angle-and-frequency information that is presently nontuned-in within the physical, sensorial range of tunability of the
electromagnetic sensing equipment with which we personally have been
organically endowed. (Fuller, 1975, section 1212.00)
Fuller’s discovery of synergetic math demonstrates one single method to integrate all scientific
fields, “energetically, arithmetically, geometrically, chemically, volumetrically,
crystallographically, vectorially, topologically, omnirationally, and energy-quantum-wise” (Fuller,
1975, section 201.01). Synergetics is considerate of universal principles and has given science the
mathematical tools needed to transcend the old paradigm of Western science’s matter-based
calculations of nature and the universe and understand a new paradigm.

Fuller explains that Newton was able to identify the concept of “squared,” however incorrectly.
Newton’s inverse understanding of attraction led him to speak in terms of “progressive diminution
of the attraction: as the distance away was multiplied by two, the attraction diminished by four.”
(Fuller, 1975, section 120.01). Conversely, Fuller discovered the exact inverse; that the attraction
of one mass for the other increases as the power of the rate of increase of their proximity to one
another; halve the distance and the interaction is four folded.

57

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7.6.2

Changing The Paradigm of Western Science

New understandings in math and physics have led to a new worldview in science
articulated by the field of quantum physics (often interchanged with quantum mechanics and
quantum field theory). Quantum physics replaces the classical mechanical view of nature with a
more Arcadian view of science, in which the universe is primarily understood as one unified living
organism with interconnected fields of energy (consciousness) that expand through space and time
(Radin, 2006). Quantum physics dispels the theory of naïve realism,58 which “operates at the root
of our minds and distorts our knowledge of the world, thus we mistakenly interpret the contents of
our minds as an external material universe” (Ringland, 2009). In other words, quantum physics
replaces the classical scientific worldview that life, and the universe we experience, is made mostly
of matter. Conversely it states that physical matter is only a tiny fraction of what makes up the
whole of the universe (Goswami, 1995). Instead, it states that, “consciousness is the ground of
being, of which objects are a part, but not all. The objects can be described as waves of
possibility” (Goswami, 1995). This energetic field of consciousness is the one unifying force in the
universe that everything is connected to on the most fundamental, scientifically measurable level.
Quantum physics measures on the atomic level that the universe is made up of waves of
information in an energy field, rather than particles of matter fixed in space. It demonstrates that
the mere act of human observation in the present moment changes a wave of potentiality into a
particle of matter, which then impacts reality in the present moment by fixing an object in time
and space. Humans use free will and choice to direct consciousness, and that choice has an
impact on the material reality that humans create. Therefore, human consciousness has a huge
impact on the collective outcome of human culture, science and technology, and the political
economy.
Naïve realism is a cognitive habit and philosophical position. It is the idea that the mind
perceives the world directly, and thus we experience the world “as is” rather than just “as it
appears” within the mind.

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Despite the newest discoveries in quantum physics and consciousness, no paradigm shift
has officially occurred in the mainstream view of science. This is because when the early theories
of quantum physics were articulated over 90 years ago by Neils Bohr and Albert Einstein, two
divisions of science emerged, one for quantum theory (atomic and sub-atomic associations), and
the other for classical mechanical physics (physical associations). The devaluation of classical
science has not yet taken place because it works well in describing the physical universe. The
complexities of the sub-atomic world and the field of consciousness are left out of the mainstream
educational system because it is simply easier to do it that way (Radin, 2006).

7.6.3

Reuniting Science and Spirituality

Although a full-scale mainstream scientific revolution has not taken place yet, quantum
physics continues to provide a new worldview that brings science back together with spirituality
and god. The new worldview of science reunites humans with the scientific proof that we are not
separate from god, rather we are one unified living organism of god. This evidence of compete
unity contradicts Christianity’s concept of separateness, and signals a return to the Arcadian view
of science and spirituality. For example, a branch of quantum physics called Vedic science, has
done scientific experiments to prove spiritual scriptures of the ancient Hindu books of wisdom,
the Vedas including: 1) a single unified field of intelligence is at the base of nature; 2) the field of
consciousness can be directly experienced by the human mind; 3) consciousness leads to
individual growth; and 4) the field of consciousness has a measureable way to create peace in
society. Many scientists believe our unifying force of oneness can be used as a positive technology.
Dr. John Hagelin, director of the Institute of Science, Technology, and Public Policy at
Maharishi University of Management, and founder of the US Peace Government, calls Vedic
science the “science of peace” (Hagelin, 2010). Hagelin describes the field of consciousness as the
underlying field of unity between all living things on a physical level. He uses the analogy that a

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thought wave, just like a radio wave, in an electromagnetic field, propagates out in all directions
through the field of consciousness at the speed of light. Halegin has conducted experiments in
consciousness by using thought and intent as a technology for creating peace. Halegin explains
that when a person consciously radiates peace, the power of that peace amplifies by the number
of people (squared) who are also radiating peace (called peace-creating groups). Peace-creating
groups radiate an influence of harmony and orderliness through the underlying field of
consciousness for days to weeks at a time. Ripples of potentiality turn into tidal waves of
potentiality that have demonstrated repeatable, precise, and immediate effects on reductions in
crime rates, accidents, terrorism, and war (Halegin, 2010). Halegin believes that society can use
technologies in consciousness (such as peace-creating groups) to create world peace and eradicate
poverty, disease, and violence.
Experiments with water also show how consciousness changes the shape of the physical
world. Dr. Masaru Emoto, author of Hidden Messages of Water (2004), did an experiment, in which
he taped words written in Japanese to drops of water, thereby giving consciousness to the water.
He then froze the water and photographed it. Positive words such as “love,” “thank you,” and
“gratitude,” produced beautiful snowflake crystals. Negative phrases such as, “I hate you,” “I
want to kill you,” and “shut up,” produced no crystals, only bubbly pond scum images of water.
Emoto believes that in order for the world to obtain peace, we must first find water at peace.
Since human physiology is made up of 90% water, Emoto asks that if words taped to a bottle of
water can produce such results, what are human thoughts doing to their physical-self and world
around them? Most of society is still shaped by the Imperial ethic, in which the molds of culture
and religion hold individual consciousness back from belief in infinite possibilities such as world
peace and abundance. Our Imperial view of science and god has created a history of
disempowering thought patterns that must be overcome with new stories that can help create a
restorative political economy.

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The difference between the application of science and technology under a sustainable
development framework, versus under a restorative development framework lies in how new
understandings in science are shared. Sustainable development will most likely continue to
operate within the naïve realism paradigm and make great technological strides in efficiency and
clean energy, however it will be under the direction of the Imperial ethic, and the political
economy will continue to use science for profit and the benefit of human empire. The leap to a
restorative political economy looks very different because it uses its technology to advance peace,
ecological restoration, and shared abundance. It is a political economy that practices the science
of livingry – a term coined by B. Fuller to describe the use of technology towards the restoration
and abundance of human living (food, shelter, health, education, basic needs), rather than human
killing. Fuller explained, “Humanity has the option to become successful on our planet if we
reorient world production away from weaponry - from killingry to livingry” (Fuller, 1975). Fuller
asks the critical question, “Can we convince humanity in time?” This author suggests the answer
is yes, and we can start with a shift our own individual consciousness.

7.7

Conclusion: Restoring the Balance

“Will you teach your children what we have taught our children? That the earth is our Mother. What
befalls the earth befalls all the sons of the earth. All things are connected like the blood that unites us all. Man has
not woven the web of life. We are but one thread within it. Whatever we do to the web, we do to ourselves. All
things are bound together. All things connect."
-Chief Seattle, 1854

The political economy of globalization under the imperial model of neoliberal economics
has created imbalance within the Earth’s web of life. If we do not change our production and
consumption patterns to correct imbalances within our system, then the human experience within
our biosphere will be eliminated through irreversible biogeochemical changes. In such a scenario

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there will be no human experience left, and no political economy to debate. It is therefore
imperative, for the long-term survival of the human civilization, to reform, and ultimately
restructure, the policies of our political economy. The shift to a restorative society will require the
adoption of the Arcadian view of science, where humans are connected to all species on the
planet. Damage that we do to the Earth is damage that we do to ourselves.
Human consciousness, just like nature, is a complex web of symbiotic and interdependent
relationships. To achieve a restorative balance throughout the field of consciousness, each
individual must first achieve a healthy balance within his or her own-self consciousness. The very
core of planetary healing starts with self-awareness and self-love on the individual level.
Individuals have a synergistic relationship between their vital energies of the mind, body, spirit. If
one of those elements is out of balance within an individual for internal or external reasons, it can
cause disunity or negative energetics within that individual’s identity, community, and
relationship to the Earth. Bringing balance to the innermost level of individual consciousness
occurs with the positive energetic thoughts and feelings that each individual has for him or herself.
This self-love within the individual is a critical factor in determining how the individual
contributes to the larger community and field of consciousness.
The individual’s role in planetary healing is important because quantum theory states
that each individual is connected energetically on the sub-atomic level to every other human and
living organism on the planet. This was understood by Chief Seattle when he said, “One thing we
know: our God is also your God. No man, be he Red man or White man, can be apart. We ARE
all brothers after all” (Chief Seattle, 1854). This energetic feeling is what Plato called our World
Soul. It is our spiritual self that is one with the whole of creation. Arcadian scientists such as
Henry More and John Muir also understood and expressed that humans were connected to the
whole of creation. This oneness of intelligent consciousness is what some call god. Science can
now observe this oneness. This tells humanity that each individual is an active part of god’s
creation and, in essence, is an expression of god itself. As individuals, we have free will to be

153

creators of our own reality, and architects of our own destiny. Each individual reality is in part
collectively creating the current culture in which our political economy operates. Each individual
(consciously or subconsciously) is contributing positively or negatively to the realities of
environmental destruction, war, and loss of biodiversity which, in turn, are contributing to the
failing physical and mental health of humans and the planet. Individuals can make huge energetic
contributions to the whole of the planet by creating unity and balance within their own minds,
bodies, and spirits. The use of quantum technology in meditation can help an individual access
and influence the field of consciousness for oneself and for others. When an individual has
achieved self-awareness and inward self-love, they can then go forth into their community and
spread positive energy that can tip the balance of change in the political economy towards
sustainability and restoration.
Individual consciousness is powerful and plays a role in moving society towards the
adoption of sustainable development reform. Discussed at length in Chapter 6, sustainable
development seeks to reform conventional relationships between the economy, society, and
ecology. Sustainable development does not necessitate the eradication of imperialism or the
negative energetics associated with it, but it does attempt to correct imperial patterns of overt
planetary destruction and North/South discrimination in global trade. It can be thought of as the
halfway point between two opposing forces. It is a necessary part of human evolution. However,
restoring an abundant, prosperous, and healthy planet cannot be accomplished through empire
and its tools of fear, distrust, war, and terror. Restorative development requires a paradigm shift
in science, culture, and spirituality in order to achieve such an evolution. Restorative development
will come to dominate the political economy when the Imperial ethic for global trade is replaced
with the Arcadian ethic of interdependency, interconnectedness, compassion, and cooperation.
By restoring love and respect as the fundamental bonds between the humans and the biosphere,
the human family can reestablish healthy communities, planetary balance with nature, and a
culture of peace.

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In conclusion, the majority of the planet cannot make the leap from neoliberalism to
restorative development. Therefore sustainable development must come first, but ultimately both
models of sustainable development and restorative development are essential to creating balance
for the future of globalization. The healthy function of the environment depends greatly on the
overall balance and health of its interconnected parts. Finding the balance will take the positive
and thoughtful intent of each and every individual as a part of the change on this planet. It is not
clear whether our culture will be able to overcome imperialism in my lifetime and evolve into a
restorative culture of peace, but it is certain and imminent that humanity will reform the political
economy towards sustainable development and correct many of the fundamental imbalances that
still exist in today’s political economy.

155

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