Excerpt from Strangely Like War

Globalization (p. 106)

From chapter "Consuming the World"

This all brings us back to globalization, a word we’ve discussed through some of its characteristic processes, and that here we’re going to define anew: Globalization is a current term for the horizontal and vertical integration of manufacturing and trade on an international level. Vertical integration is where one company controls processes from beginning to end of extraction to manufacturing to distribution and sales. The vertical integration of the wood products industry has been called by one expert “probably the single most recognized characteristic of the industry,” meaning, for example, that most paper sales are by corporations which also control timberland. Now the horizontal integration of the industry is also being completed, as corporations like International Paper spread their operations to dozens of countries. In other words, fewer and fewer corporations control more and more of the world.

But you knew that.

All of this creates problems, just as the spread of cancer throughout a body “creates problems” for the host. These problems are not merely ecological, but economic as well. Below are a few of these problems.

Globalization forces everyone to compete with the cheapest producers.

In the early 1990s, bleached hardwood pulp cost $78 per ton to produce in Brazil, $156 per ton to produce in eastern Canada, and $199 per ton to produce in Sweden. Of course the primary reason pulp was cheaper in Brazil was that more of the costs could be externalized. That is, more of the costs could be sloughed off onto the natural world, onto poorly paid workers, onto members of local communities, onto future generations. Following the logic and reward system of capitalism, paper producers shift to these places of greatest externalities, and workers and governments are drawn into competition to see who can most quickly and cheaply destroy their own communities and landbases.

Corporations, aided by their governments’ agricultural and foreign aid policies, regularly dump products into overseas markets at prices below their real cost.

This destroys local economies and self-sufficiency, and further promotes the externalization of costs. For example, since joining GATT in 1986, and especially since the passage of the North American Free Trade Agreement in 1994, tariffs on Mexican imports of pulp and paper have decreased. As a result, the Mexican paper market has been glutted by imports of U.S. paper and by the entry of global manufacturing corporations like Weyerhaeuser and Smurfit-Stone. Paper prices collapsed, as did the Mexican paper industry.

The interconnected nature of the global economy puts particular regions at risk.

When Asian economies collapsed in 1997, regional timber economies in the American Northwest and South were hurt. When Columbia Forest Products closed its hardwood veneer plant, 225 workers lost their jobs. Michael King, an attorney representing Columbia, “listed a number of factors that conspired against the plant, none of them related to the work force or management. ‘It’s part of the whole global economy sort of thing.’” Globalization destroys jobs in several ways. Jobs are shifted overseas as corporations seek cheap resources, cheap wood, government handouts, and foreign markets. Jobs are also lost in an absolute sense, as hyper-competition causes consolidation and sell-off of facilities. This is especially marked in the pulp and paper and panel industries, where excess capacity has been a long-standing problem.

Capital-intensive manufacturing (such as pulp and paper) destroys local small-scale ecological and economic systems.

It also reduces employment, as technology and mass production replaces human labor. World-class pulp mills, which can cost $1 billion to build, create additional debt in poor countries—and can require $1 million in capital investment per job. Of course the locals would be far better off if someone handed them a half million dollars each and told them to do what is best for the forests. The capital required for the industry to continue growing has perhaps hit its limit, and corporate spending is increasingly going toward consolidation—buying out competitors rather than building new capacity. All of this helps the biggest corporations, not small companies, and certainly not workers. As one writer puts it: “It has been more than a quarter century since the primary producers in the paper industry created a new job.”

Mergers and acquisitions destroy forests as well as jobs.

When timberland is sold, the buyer’s debt (which is the seller’s windfall) often forces quick liquidation of timber assets, the closure of mills, and the layoff of workers. Examples include James Goldsmith’s takeover and dismantling of Crown Zellerbach, Georgia-Pacific’s takeover of Great Northern Nekoosa in Maine, and MAXXAM’s aforementioned buyout of Pacific Lumber.

Paper manufacturing capacity far exceeds consumption.

As prices slump, investment in huge paper-making machinery becomes possible only for the largest corporations, and even they require larger and larger subsidies from governments in the form of low-interest loans, tax breaks, and infrastructure subsidies. Further consolidation of the industry, excess capacity and consumption, and resource depletion are further encouraged, to cover the costs of running these mills.

Exacerbated boom and bust cycles.

The cyclical nature of the paper and wood products industries is caused by fluctuations in inflation, currency and interest rates, demand, and supply. Every five to ten years the downside of the cycle leads to price drops, wage cuts, mill closures, and ever-tighter market control by corporations large enough to survive the recession. Traditional over-capacity in the timber industry exacerbates economic cycles, and results in the continuing consolidation of regional industries into a global industry dominated by a few huge international corporations, as less efficient (or less subsidized) producers go out of business: five corporations now produce 60 percent of all pulp in Japan, and five corporations produce 85 percent of the newsprint in Europe. Alternatively, in boom times, lumber and pulp prices soar, easy credit becomes available to build greater capacity, and then the inevitable next collapse makes debt harder or impossible to pay off. As the industry loses money (the Canadian pulp industry lost $4 billion from 1991 to 1993), cost-cutting leads to layoffs and wage cuts, reduced environmental protection, and delayed maintenance. The U.S. paper industry permanently lost 6,000 jobs during the 1990-91 recession alone, and the current wave of consolidation in the pulp and paper industry is expected to cost another 50,000 jobs.

Mechanization, raw material exports, and overcutting destroy jobs.

Corporations make workers and environmentalists into scapegoats—remember “jobs versus owls”—while engaging in wage cuts and routine violations of environmental and health and safety protections. In reality, jobs are lost through overcutting caused by overconsumption (encouraged by advertising), mechanization (called “increases in productivity”), and the wholesale export of raw logs, woodchips, and pulp. We’ve already discussed how both paper and lumber production have gone up over the past few decades, while the number of jobs has gone down. The numbers of jobs permanently lost never reveals, however, the full extent of the human damage, because it fails to include wage and benefit cuts, increase in part-time and contract jobs, and routine “temporary” layoffs. It’s important to remember that a corporation’s “increase in productivity” is a human being’s unemployment, and a forest’s death.

Globalization shifts the income from workers to investors, and shifts the costs from investors to communities.

A week after the merger of Jefferson Smurfit and Stone Container, to provide a typical example, the new Smurfit-Stone said it would pare its work force by up to 3,600 jobs, or 10 percent. “The restructuring is a difficult action to take, considering the impact it will have on jobs and on communities,” said Roger W. Stone, president and chief executive. “However, it contributes significantly to achieving our synergy goals, increasing our competitive edge and building shareholder value.” Meanwhile, when International Paper and Union Camp announced their merger, a spokesman said closings are possible but that no decisions had been made: an International Paper manager observed, however, that “[Job losses are] a regrettable situation. However, we live in a free market economy.”

His statement is nonsense, for several reasons. First, “the market” has always been driven by politically motivated and anticompetitive subsidies, which means “the market” is in no way “free.” Second, those who oppose the theft of their resources are co-opted, displaced, or even killed, meaning, once again, “the market” is not “free.” Third, his statement imparts an immutability to this mythical free market, as though it were an inescapable fact of life, like the existence of gravity. Yet the dominant economic system is the result of numerous choices, many of them very bad for most on this planet. We should never forget that….

Globalization feeds on itself.

Mergers and consolidation encourage more mergers and consolidation. Share prices jumped on the announcement of the merger of International Paper and Union Camp, and Wall Street analysts and traders gleefully anticipated it to cause even consolidation across the paper industry. “This really begins to put pressure on other paper companies to become serious about deal-making,” said one analyst. Further consolidation in the industry is inevitable, according to another, who predicts that the number of U.S. containerboard mills (currently fifty to sixty) will be cut in half by the year 2005. An industry journalist in Asia justified the restructuring by concluding that “being number two (or worse) at a time of overcapacity can be the kiss of death. . . . The process [of consolidation] will be a painful one for many . . . but a leaner, more efficient industry will emerge from crisis. . . . Rich Western companies have started to move in [to Asia]. Local M&A [mergers and acquisitions] is sure to follow.” The chairman of Smurfit-Stone, seemingly a winner in the corporate race to “survive,” takes an even more enthusiastic view of the trend: “Undoubtedly, the increasing globalization of our customer base has also been a catalyst for the spate of mergers and amalgamations that are currently reshaping our industry. This most welcome process of industry consolidation will, I believe, secure a much brighter future for our businesses for the next two years and beyond.” A two-year planning horizon!

International trade destroys domestic economies.

Mexico makes a good example: saying that Mexico was reaping the benefits of the NAFTA free trade agreement, and the market was growing very strongly, Smurfit announced plans to spend $120 million to expand its corrugated and folding carton business in Tijuana, Mexico. But the directors of Smurfit were lying. All is not well in Mexico. From 1995 to 1996, Mexican employment in wood products dropped 30 percent and production was cut in half, while consumption increased by 16 percent. Imports and the entry of foreign corporations have destroyed the Mexican paper industry, which had been using wastepaper for 75 percent of its fiber needs. The Mexican government’s response has been to offer even more incentives to foreign corporations.

Just as clearcuts are called temporary meadows, global cut and run is called innovative.

In 1995, World Paper wrote that “Diminishing access to forests, timber certification and recycling regulations have drawn innovative responses from our industry. . . . The search for fibre is moving offshore.” Let’s translate: Because timber corporations have deforested the region, and because local regulations are beginning to prohibit the further externalization of certain costs, timber corporations are leaving the country. They are doing what timber corporations have always done, and will always do: they are cutting and running. This is called innovation.

In 1995, blaming everything from a proposed federal forest plan to high demand to disease to forest fires, Boise Cascade said it was seeking timber outside the Northwest. Boise Cascade CEO George Harad admitted that private timber was “being cut at an unsustainable rate,” and corporate spokesman Doug Bartels admitted that “in any [public timber supply] scenario we’re still going to have to look offshore for timber supplies.” Boise Cascade vice president Dick Parrish and other corporate officials had toured Siberian timberland. They were also considering radiata pine forests in South America, South Africa and the South Pacific (principally New Zealand). Once again, let’s translate: despite all rhetoric about sustainable forestry and community commitment, the real commitment is to deforestation, to cutting and running.

Free trade agreements encourage globalization, and perhaps more importantly, encourage the destruction of human and nonhuman communities.

They do this by reducing tariffs; and removing worker, consumer, and environmental protections, all in order to encourage multinational corporate investment in foreign countries. “Barriers to trade” that violate World Trade Organization rules include, among many others: export controls used to protect local jobs or native forests (meaning no region can demand local forests be used to benefit local people); requirements for the reuse and recycling of paper, or for controlling the use of packaging materials (meaning no region can require recycling); certification and labeling of forest products (meaning no region can require forestry to be even remotely sustainable); performance requirements for foreign investors such as requiring investors to take local partners, to hire local workers, to make certain levels of investment, or to transfer environmentally beneficial technology to the local government or to local companies; provisions allowing discrimination against foreign investors based on poor environmental records (meaning even if Weyerhaeuser has clearcut more than 4 million acres just in the United States, which by its own admission it has, no nation can use that information to effectively protect itself and its forests); restrictions on foreign ownership of forest land; and even phytosanitary measures intended to control the invasion of exotic species. All of these are considered violations of “free trade” rules, and nations that enact them are subject to economic sanctions.

Free trade increases consumption.

According to studies by the World Trade Organization’s Committee on Trade and Environment and the American Forest & Paper Association, tariff elimination for forest products could generate a 3 to 6 percent growth in consumption and an annual increase of $350 million to $472 million in worldwide trade for selected forest products in key markets. They consider this good news. I’m not so sure forests—or normal humans—would agree.

Free trade and globalization lead to more subsidies.

Subsidies to the wood products industry include publicly-funded timber sale administration, road construction, forest fire and erosion control; exemptions from property taxes; and tax breaks for job-destroying log exports, retraining for laid-off mill workers, and hazardous waste clean-up at abandoned mill sites. Increased corporate mobility inevitably leads to increased job blackmail. Job blackmail occurs when corporations threaten to close or move an operation unless workers accept wage reductions and local governments offer greater subsidies. These local governments often compete with each other to attract or retain timber corporations by offering reductions in property, sales, or other taxes, free sites for mills and port facilities, and low-cost loans or grants for equipment and modernization. For example, Ohio and Kentucky have for years been engaged in a multimillion dollar competition to subsidize International Paper’s “restructuring.” The public pays for deforestation and the shifting of jobs from one place to another, and the taxpayer and worker always lose. Wouldn’t it be nice if normal people had this same ready access to free housing as corporations have to free mill sites, and to free food as corporations have to subsidized raw materials?

As free trade agreements encourage the closing of domestic mills, a new layer of subsidies to globalization has been created: the U.S. Department of Labor gives “NAFTA aid” to laid-off workers for job retraining, relocation reimbursements, and extended unemployment benefits when plant closures have been caused by cheap imports or the relocation of operations to Canada or Mexico.

Meanwhile the World Bank and multilateral development banks, flush with endless taxpayer monies, provide loans for destructive and unnecessary timber operations. When local people fight back against the invasion of foreign corporations, the U.S. State Department’s Overseas Private Investment Corporation provides government-backed political risk insurance, such as for International Paper’s takeover of a paper mill in Russia.

The game is rigged.

***

But it’s not a game. Or rather it’s only a game for the “winners.” For the “losers” it’s poverty and degradation, life and death.