Everyone knows the story. In the 80s, liberalism began to mark the pace of political discourse and became deeply entrenched into economic paradigms; rising as the favourite contender for leading the new world order. Fittingly so, liberalism was rechristened by adding the prefix neo and encouraged to expand it is reign over every facet of daily life. Soon enough, this encouragement didn’t just limit the State’s role in upholding the rights of social majorities; it went as far as to secure neo- liberalism’s stronghold on all that could contribute towards further capital accumulation. From Atlanticist foreign policy and predatory trade policy, to protecting the rights of transnational corporations (TNCs) and enforcing the legal framework that governs capitalist property relations; the State had begun to maintain the new status quo.
In effect, it was Friedrich Hayek who —in his seminal work, The Road to Serfdom— asserted that “the more the state ‘plans’, the more difficult planning becomes for the individual”. [1] A few decades later in the 80s, he was invited to the White House as a guest of Ronald Reagan. The former United States president went on to cite Hayek as one of his greatest intellectual influences. In the meantime, Hayek was appointed a Companion of Honour in the United Kingdom, on the advice of Margaret Thatcher. By 1991, Hayek was conferred the Presidential Medal of Freedom, one of the highest civilian awards in the United States, by George H. W. Bush. The ruling elites among the most powerful States in the world openly celebrated intellectuals like Hayek, who claimed that the role of the State should be diminished. This presumes that reducing State power was to have no effect on the elites, since that which benefits the elites would not be affected by the State’s increasingly limited role.
To assert that a new era has begun, one that is distinctly different from a previous era in history, is a matter of great delicacy. And yet, at the dawn of 2021 —just twelve years after a global recession— the world that has been engulfed by a pandemic of momentous proportions. Millions of people sit expectantly, waiting for their State to take action and save not even the economy, but their fellow citizens. This is very much feels like the mark of a new era, one that remains radically different from the one that preceded it. Political turmoil is no longer a question of coup d’états or proxy wars between the great world powers, in far flung countries. Turmoil has now taken over the electoral processes of the world powers, reverberating right down through their constitutional status or even dictating the level of influence power-players may exert on peripheral economies; all through an increasingly refined Lex Mercatoria.
Now, the foremost world powers —particularly those within the European Union — are racing to address the crisis that followed the COVID-19 pandemic through a return to the central State. This renewed centrality is quickly consolidating and displays a willingness to meddle in the economy under the premise of guaranteeing social rights. At times, this move is managing to surpass the previous standards set by the three consecutive post-war decades characterized by breakneck economic growth. In the meantime, across peripheral economies, attempts to manage the pandemic fundamentally continue to rely on individuals’ own ability to financially support themselves while unemployed, to avoid contracting the virus. This, in turn, infers that social majorities remain largely exposed to transmission and consequently, the ensuing health complications.
The State is back, they say, but the COVID syndemic that has forever marked the year 2020 and likely those to follow, has taken an incalculable toll on the health sector, the economy and the labour market. The shockwaves will be felt for years to come, severely impairing people’s livelihoods and the fundamental right to live with dignity, particularly across the Global South. While the labour market still reeling from the previous crisis, current data indicators reveal that it is time to brace for an unprecedented impact on overall employment.
While the previous scenario was already particularly precarious for the most vulnerable workers worldwide, the COVID crisis has only served to exacerbate the already existing inequalities. This is due to several factors that are traditionally concentrated within peripheral economies, but that have already began to spread to core economies: the existence of a broader informal sector coupled with a limited public sector, obstacles to teleworking, and the scarce resources (or their scarce provision) that governments allocate towards the implementation of income compensation schemes.
Against such a backdrop in dire and urgent need of local solutions, is the ‘return of the State’ truly possible? Are States endowed with a broad enough scope for action to undertake far-reaching decisions and jumpstart a ‘new normal’, as they have so quickly proclaimed?
The answer is no. This stance is free of pessimism and rather relies on a much-needed dose of realism. The evidence is found in the alliance forged by the State, TNCs and their approach to human rights.
On 24 April 2013, an eight-story building collapsed in Dhaka, Bangladesh, killing 1,129 textile workers who were dutifully at the service of major international fashion brands. [2] Could the State have prevented it?
Reprehension and disgust were the most prevalent reactions to this event; not just on moral grounds, but also political ones. Critics readily asserted that a lack of safety measures coupled with fragile labour rights were to blame. Initially, all fingers pointed towards the State; in principle, it acts as the regulatory body endowed with the legislative authority to enact legal frameworks that would presumably anticipate and prevent such risks. It is further implied that within this role, the State would uphold workers’ rights in such a manner that, for example, workers would not have feel compelled to accept risky working conditions and potentially lethal outcomes.
But, does Bangladesh have the power to chaperon the production process of large corporations flocking to Dhaka for cheap labour? After all, TNCs manage global value chains, and Bangladeshi companies are just the suppliers; the first of many links in an intricate chain. Further to that, TNCs violating human rights throughout their entire global value chain is not news; this phenomenon was already well established prior to the Dhaka incident. What’s more, this tragedy continues to repeat itself, even after this incident. In most instances, TNCs continue to enjoy impunity; and in the worst of cases, they resort to paying off victims and their families through private mediation and by doing so, they successfully avoid any form of legal action or punishment for their actions. [3]
However, TNCs behaviour has been enabled by a broad set of national and international legal frameworks and institutions, established to meet the needs of transnational capital. A legal framework that not only guarantees full impunity for them, but also growing political power. This iron-clad framework is composed of trade and investment agreements; memorandums of understanding between the International Financial Institutions and the State; and even labour, fiscal or environmental legislation reforms implemented to attract foreign investment. Thus, the deaths of hundreds of textile workers in Dhaka can be attributed to a specific pattern of “development”, rehashed in Bangladesh and many other nations in the Global South. Since structural adjustment policies —patently endorsed by the International Monetary Fund [4] — were implemented in the 80s, the country has followed a neoliberal trajectory. This prioritized their insertion into global value chains, the promotion of Export Processing Zones and the expansion of the garment manufacturing sector (known as the “ready-made garment industry”). This so-called “development” subsisted from meagre wages and weak labour rights; fundamentally only benefiting a small elite, in Bangladesh and overseas. [5]
De Sousa Santos claims we are in the midst of what he dubs “a stage of disorganized capitalism”, where many of the previous forms of organization have caved in, or are teetering on the brink of collapse. This includes mechanisms originally put in place to protect and uphold human rights. The market is thus presumed to have reached an unprecedented level of intensity, one that actively colonizes the original principles of State and community. [6] De Sousa Santos implies that the market’s role and functions were reorganized due to the nature of the power relations (or capture) regimenting political and economic spheres. This, in turn, endows international financial institutions and TNCs with inordinate power and continues to sustain the concentration of wealth among certain sectors of society. Ultimately, this phenomenon would presumably lead to the collapse of the State’s sovereignty and powers; namely the State’s capacity to uphold, promote and protect human rights. Other authors, such as the political scientist Ian Bremmer, have referenced the rise of a new form of capitalism. This new iteration, brought to light by the 2008 global recession would, in their view, be qualitatively different from previous ones. [7] Already dubbed “State capitalism”, this new form purportedly differs from the idiosyncratic nature of its free market counterpart that bestows favour upon the Western Bloc, in that the State’s role is limited to solely acting as an arbiter to enforce the existing rules and discourage harmful behaviour at the collective level. In Bremmer’s version of “State capitalism”, the leviathan rises aided by specific policy tools in the political and the economic spheres that will serve to attain its objectives. Among these tools, we find: government control over strategic sectors, public companies, support for private companies and sovereign investment funds (such as the Abu Dhabi Investment Authority in the United Arab Emirates). For Bremmer, this model of capitalism does not represent a level playing field for free-market capitalism; on the contrary, it ultimately poses a serious threat to global stability.
However, the concept of “State capitalism” actually precedes Bremmer. A different perspective, perhaps more complementary to De Sousa Santos’ approach, would be the one coined by Raya Dunayevskaya [8] (1964, 1967) and further developed by Andrew Kliman: a phase where the State protects capitalism as it stands on its last legs, nudging it forward. [9] This analysis, that can be applied to explain measures such as the United States’ New Deal and is now circumstantiated by the bank bailouts handed out during the Great Recession, would imply a new stage of capitalism, where the State’s role in containing the collateral damage of the recession as it upholds human rights, becomes clouded. However, the State’s efforts to protect, correct and sustain its economic ecosystem have not diminished, but actually accelerated. The State’s pantomime of the ‘benevolent protector’ merely looking after its own citizens would have come to an end the moment it was forced to step in and save capitalism from itself — through stimulus packages, liquidity injections and financial assistance for entrepreneurs. The cover up soon followed: rebranding capitalism under slick new initiatives, cynically exhibiting concerns over rampant inequality, and going as far as to engage in public debates on hot topics such as Universal Basic Income — previously relegated to the turf of social democrats.
Projections by the World Bank and the International Monetary Fund —hardly suspect of harking catastrophism when faced with the consequences of the capitalist mode of production— have predicted another recession in the near future. The overall global economy is expected to shrink by about 5.2%, according to the World Bank. [10] Another matter is that, of course, eventually it becomes tempting to blame any crisis —economic or otherwise— on deus ex machina: external shocks. It is far easier to point fingers than to consider that modern capitalism might be operating on faulty premises. The COVID-19 pandemic is a prime example of this. However, the recession that is already hounding certain countries and lurking on the horizon for many others, is understandably exerting pressure and molding the public’s expectations for the role of the State in safeguarding citizens’ health, protecting their livelihoods and looking after their safety. And so, the question remains: is the State capable of fulfilling these expectations?
The State has not addressed these issues over the last few decades; at least not in a manner that could be deemed satisfactory. Even defenders of the free market such as Bremmer, blame the emergence of “populist” movements that challenge the free market on “globalism” and its neglect or disdain for the well-being of the majority of the population in developed countries. [11] But that does not mean that the gears of the State —or rather, States— have stopped spinning. On the contrary, the State has redirected its efforts to impose market authoritarianism; a new legal-economic order bolstered by a vast body of international law. The new rule was reinforced through a comprehensive network of national legislation, geared towards promoting international trade and protecting the interests of foreign investors. [12]
This new body of law, denominated the Lex Mercatoria, traces its roots back to the “Washington Consensus”: a set of policies implemented throughout Latin America in the 80s. However, the Consensus’ foundations date back to the 70s, when a series of military dictatorships engulfed the Southern Cone nations. [13] Through the “Consensus” —a misnomer from the very beginning— Latin America was beset with the International Monetary Fund’s strategic guidelines. These reins were eventually also latched on the European Union amid the so-called “euro crisis”, through what is now sometimes referred to as the “Brussels Consensus”. [14]
The Lex Mercatoria, a “Code of Capital” [15], has several components. On the one hand, it integrates the legal provisions as well as the adjustment and conditional lending policies of International Financial Institutions (IFIs). Particularly, those derived from the International Monetary Fund’s (IMF) operations and its development guidelines for state actors. However, the “Code” also assembles trade and investment agreements that comprise tariff reductions; the gradual liberalisation of certain services, the opening of markets to new products and the granting of extraordinary privileges that enable foreign investors to sue the State. [16] Also noteworthy are the so-called mega-regional trade agreements, or the “new generation” of Free Trade Agreements (FTA) that boast a brand-new mechanism: regulatory cooperation. [17] In short, trade and investment liberalisation provisions. However, they also dictate dispositions that extend beyond State borders incorporating them within domestic legislation. The latter is conditioned by two salient features: a “freeze” effect that follows the implementation of investor-State dispute settlement mechanisms [18] and establishing gradual commitments towards harmonizing regulatory standards — to the detriment of the various State parties of international trade agreements.
TNCs both originate in and give shape to the Lex Mercatoria, as they both promote and benefit from it. Their transnational structure, as such, allows them to evade sanctions from the State, based on the principle of territoriality for judicial systems. The State is hence, impaired from bringing parent companies to justice for any incidents taking place along their enormous transnational production chains. In addition, TNC’s ability to shift production across State borders —always in search of legal frameworks with lax human rights standards (lato sensu)— forces States into a never-ending race to the bottom as they compete to attract foreign investment.
Today, TNCs have turned into veritable decentralized offshore networks. While in the past they resorted to spreading the different stages of production across various factories or production centres, today TNCs are able to disperse them throughout different countries; while holding loose ties to the territory, local markets or even communities. The locations are selected solely based on the incentives offered by local governments and communities, who compete with each other for the privilege of hosting TNCs. [19]
The State —unable to guarantee social, economic, political or even human rights when confronted by the evasive nature of TNCs— has no other choice than to submit to the will of international financial institutions and implement the Lex Mercatoria, relying on the vague hope of attracting foreign investment and spurring the economy forward. It is a vicious cycle that ultimately benefits only one party: TNCs, who no longer have to manoeuvre around a State that limits their actions or potential for revenue, since the State becomes powerless to uphold basic rights and standards.
The relationship between the State and capital is, as evidenced, quite complex and historically influenced by numerous cross-cutting factors. On the one side, there is the State’s inability to guarantee basic labour, social and economic standards and rights; those that previously fell under the State’s purview and balanced out the uncertainties, inefficiencies and outright injustices of the market economy. On the other hand, the States have played a pivotal role in implementing a liberal framework that erodes any future possibility for these rights to be recovered or upheld. As Jessop [20] remarks, neoliberal capital requires State intervention, but simultaneously undermines States’ sovereignty and territorial integrity. In turn, the State becomes increasingly unable to advocate for its own interests within the established fora (NAFTA, the EU, G8, etc.).
Is there any glimmer of hope ahead? A sombre mural in the working district of Falls Road in Belfast, Northern Ireland depicts a scene from 1970; a neighbourhood marching in protest after a new curfew was imposed. The inscription reads: “Oppression breeds resistance, resistance brings freedom”. Similarly, the victims of the prolific and widespread implementation of the Lex Mercatoria do not remain indifferent. Wherever there were attempts to impose this code, an array of alternatives has spawned. Examples abound: from the “Occupy Wall Street” movement and the Spanish 15M protests (2011), to the “Arab spring” (2012-2013), the “Yellow Vests” protests in France (2018) or even recent acts of popular resistance in Argentina (2017), Ecuador and Chile (2019).
The latter protests across Latin America represent a prime example of the global resistance movement, one that is still in full swing. The International Monetary Fund returned to Latin America after a sway in the dominant political discourse, marked by the rise to power of politicians such as Macri, Temer/Bolsonaro or Moreno. Data reveals that, despite the IMF’s mistakes in nations such as Greece, the Fund is now back in Latin America imposing eerily similar policies with little concern for the local context, and continues to repurpose its failed economic policies. [21]
As Nancy Fraser observes, the sweeping wave of popular resistance movements serve to highlight the incompatibility of the marriage between neoliberalism and democracy; as well as people’s growing awareness of this mutual incompatibility [22]. The Lex Mercatoria’s mechanisms are notoriously hard to pass through the filter of public approval, whether it be at the ballot box or in the form of parliamentary measures. Political, social and economic unrest never truly went away. It perhaps remained dormant after the decline of capitalism’s main alternative in the early 90s, but it is now again rearing its head in the form of unexpected electoral or constitutional turns-of-events. Political party systems in seemingly established democracies are being shaken up, while the increasingly complex game of geopolitics is rattled by new military confrontations or trade shocks. Ultimately, it is safe to say that popular struggle and protest have paved the way towards new proposals, different from those chosen so far.
A prime example these protests prominent role in upholding human rights, is the “Binding Treaty” process. Its objective is to establish an international legal framework –and the necessary mechanisms– to ensure that TNCs observe human rights in their full range of activities, regardless of where they operate; and would extend their responsibility throughout the entire global supply chain. This petition, at the heart of numerous social movements throughout the last few decades, [23] was finally championed by Ecuador and South Africa and adopted by the UN Human Rights Council in 2014 through Resolution 26/9. This led to the formation of an “open-ended intergovernmental working group on transnational corporations and other business enterprises with respect to human rights, whose mandate shall be to elaborate an international, legally binding instrument to regulate, in international human rights law, the activities of transnational corporations and other business enterprises”. [24]
Is there an alternative to the Lex Mercatoria, to democratic criteria being overlooked in order to favour capital? Or is there at least an alternative in the works? Do processes like the “Binding Treaty” show that it is indeed possible to overturn the dominant economic model? Or are these processes doomed to be buried under the avalanche of a world quickly falling apart — in social, economic, health and environmental terms? Is the State’s attempt at reasserting itself in its battle against COVID-19 the sign of gradual change towards a Keynesian renewal? Or are we witnessing political posturing and empty promises of change?
Only time will tell. But what is clear is that we remain immersed in an unprecedented global pandemic with multiple social, political and economic ramifications. As the hopes of millions of people that their health, dignity and economic well-being will be secured by the State are being dashed, citizens are increasingly seeking out options, exploring ways in which these needs can be met elsewhere; somewhere safe from the whims of the market. There might not be another chance like this one to prominently showcase those alternatives.