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chapter (Chapter 12) by Nelson. From there, read as your interests take you: this varied and usefulvolume offers numerous suggestive avenues for thought and research

Alan J. MacFadyen ∗University of Calgary, Department of Economics,

1237-16th Street, Canmore, AB T1W 1T7, Canada

∗ Tel.: +1 403 678 3451; fax: +1 403 678 3441.E-mail address: macfadye@ucalgary.ca

doi: 10.1016/j.socec.2007.01.016

The Global Class War: How America’s Elite Lost Our Future—And What It Will Taketo Win It Back, J. Faux. John Wiley and Sons Inc., Hoboken, NJ (2006). 292 pp., $35.99,ISBN-13: 978-0-471-69761-9

As suggested by the title, Jeff Faux’s book is not an academic book; rather it is a popular tradebook with the inevitable polemics and gossip that make trade books popular. Still, to classify it asa polemic would do the book an injustice, because underlying this book is a carefully thought outframework that is too little discussed in the economics profession. That basic framework is a class-analysis consideration of how implicit social contracts, which must necessarily be national givencurrent institutional considerations, can be undermined by international trade. Essentially, Fauxargues that the implicit contract between labor and business, which developed in the US over thelast 100 years, was undermined by globalization. In Faux’s view, this abrogation of contract wasa conscious strategy of the global elite. Specifically, their push for NAFTA, WTO, and free trademore generally, abrogated the contracts and undermined the stability of our economic system.

1. A brief survey of the book

The book has 12 chapters along with an introduction. The first chapter attacks NAFTA andBill Clinton for supporting it. It sees Clinton’s support of NAFTA as a betrayal of US workers,a betrayal that undermined Clinton’s ability to achieve health care reform and other aspects ofhis political agenda. (Faux argues that the only difference between Clinton-style Democrats andRepublicans on trade is that the Clinton-style Democrats favor some adjustment assistance forworkers to go along with trade, whereas Republicans do not.) Chapter 2 continues the attack onNAFTA, arguing that it was needed to prop up the Mexican leader, Carlos Salinas. Salinas, Fauxargues, shared a global class-consciousness with the global elite in the US.

Chapter 3 develops the theme of the existence of a global elite and a governing class thattranscends Democrats and Republicans. In Faux’s view, this global elite class gets its power andwealth from corporations—either in the form of stock payments, or large managerial compensa-tion. For Faux, “the corporation is an instrument to power and wealth of the class that managesit” (p. 74). Chapter 4 discusses the rise and fall of the implicit US social contract that Faux sees ashaving existed. That social contract was based on countervailing power of big business and labor,and a fair division of the output. The foundation of that contract was an ever-increasing middleclass whose income would continually rise.

For Faux, Ronald Reagan’s election was the beginning of the end of the social contract; start-ing with Reagan, the laws that embedded the social contract in our society were eliminated.

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But to undermine those laws, the government had to change the power balance between laborand corporations; globalization did that—it undermined the strength of US labor and allowedcorporations to lower wages, but keep profits high. To make the strategy of globalization work,businesspeople had to cement it into the institutional structure by developing laws that underlayglobalization—laws that would allow business to produce elsewhere but sell in the US with-out restriction. Chapter 5 discusses how the end of communism led the global elite to seedeveloping countries as emerging markets and cheap reliable sources of output. The chapterconcludes, “The Democratic and Republican leadership of post-cold war America was indeedcreating our future—of cheap labor, financial speculation, oil profits, and fat military contracts”(p. 107).

Chapter 6 discusses the relationship between business and government, and what might becalled socialism for the rich. Faux argues that this business/government/elite relationship is sobuilt-in that it is unconscious. The example he gives is the bailout of the Mexican peso in 1994.Chapter 7 looks at the results of NAFTA and asks the question: Who got what? His answer isthat workers got shafted; NAFTA did not deliver benefits to Mexican, Canadian, or US workers.Chapter 8 turns to the WTO, which, he argues, was designed to expand the freedom and strengthenthe bargaining power of transnational investors, not to help the US economy. Faux suggests thatit is best to think of the WTO as the beginning of a new world constitution that benefits the globalelite and works to the detriment of the workers of the world.

Chapter 9 discusses China, India, and outsourcing. It suggests that the US may be in for ashock—that the US standard of living must fall as production shifts outside the US to lower-costareas. Faux argues that eventually it is not only the workers who will be hurt, but also the broaderUS population. Chapter 10 discusses Faux’s vision of the political situation after his predicted fallof the US economy. Faux argues that the US will need strong government leadership for it to dealwith its problems. He states that “the American economy will not be able to sustain the minimalliving standards demanded by the public without dramatic changes in tax, health care, education,trade, and budget policies” (p. 205). He further argues that “when the American governing classis finally forced to come up with a strategy for the country to work its way out of the debt trap,it will find itself hung (sic) by its own petard” (p. 207). To deal with the problem, Faux does notsee the US as being able to simply drop NAFTA—the integration of the world economy has gonetoo far for that. Instead, he argues that the US will have to figure out a way to cut its trade deficitwith the rest of the world without causing political crises in Mexico and Canada.

In Chapters 11 and 12 Faux moves to his policy punch line. In Chapter 11, he argues that“as long as the people of Canada, Mexico, and the United States see their political interests asseparate from one another, while the elites of these same nations see their interests as joined, thegap in wealth and opportunities between [the two] will continue to grow” (p. 219). He argues thatthe transnational corporations will abandon the US, and with it the US elite. This will presenta serious political problem for the US that will require a reconsideration of the political tiesamong Canada, Mexico, and the US. In Chapter 12, he discusses those political relationshipsand suggests the development of a North American political model that includes a ContinentalEconomic Bill of Rights, cohesion funds for Mexico, a common competitiveness agenda, and acitizens’ Continental Congress (p. 238).

2. Some thoughts on the arguments in the book

The arguments in this book are substantial, and many fit my general thinking. The implicit socialcontract argument makes sense (as long as it is not pushed too hard). In a national framework,

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in which companies are forced to hire workers within a specific geographic area defined by thenation state, workers in developed countries will be in a better position than they are in an aglobalized economy, in which corporations can easily move production offshore. Thus, it seemscorrect to say that there is a connection between free trade and a country’s distribution of incomeand power. Such issues have been too little explored by economics. My own view is that oncethey are carefully explored, the results will be less clear-cut than Faux sees them, and the effectswill likely change over time, but that many of his general insights will stand.

I also find that thinking about policy within the framework of an implicit social contract isuseful. Again, there are limits; implicit contracts are inherently fuzzy, and I do not see the fight asbetween a global elite class and workers, but rather as a much more complicated fight that minglesclasses. It seems to me that workers bargained poorly over the last 100 years, and that there wasnever an organization that supported workers generally—simply organizations that supportedsubgroups of workers. Some of these subgroups did very well for themselves, and became thebackbone of organized labor, but in a long run sense they failed not only labor, but also themselves.The reason those organizations failed to secure their long-run advantages for labor is that they didnot tie workers’ pay to residuals and real percentages, which would lock in their gains to changingeconomic situations, but instead bargained for short-run gains and unsustainable promises thatseemed almost too good to be true, and were, in fact, too good to be true. They operated underthe assumption that US dominance of the global economy would last forever. The far more likelyassumption was that that US dominance was a temporary phenomenon, a legacy of the world warsthat would slowly end over time. Within an open, global economy, towards which technologicaland political forces were driving the economy, the relatively high US standard of living (comparedto the rest of the world) was unsustainable over the long run. The law of one price would eventuallycome home to roost, implicit contracts or not. All policy could have hoped to accomplish was toslow the forces of globalization.

As should be clear from my above comments, I see the issues surrounding globalization asmore nuanced than Faux does. For example, while I agree that NAFTA did not have the benefitsthat some saw for it (as Faux strongly argues), I also see it as not having the costs that otherspredicted. In the broader scheme of things, NAFTA was not all that large a policy change, and mostof the economists I talked to during that time recognized that. The claims and counterclaims aboutwhat NAFTA would and would not achieve were primarily political blunderbuss. Thus, from anacademic’s perspective, I found that Faux’s structuring of the book around NAFTA obscured hisarguments. (However, I suspect that it helped the book have broader appeal, and I can imaginehis editors strongly applauding that structure.)

Another area that I believe is more nuanced than Faux makes it involves his conspiracy theory;where Faux sees conspiracy, I see the standard muddling along. In a world where everythingis conspiratorial, nothing is. I also had a problem with Faux’s characterization of unions. Hepresents a picture of unions as out to save all workers; I see the issues surrounding unions as farmore nuanced, with unions almost as interested in improving union worker status relative to otherworkers as they are in improving it in relationship to business.

I had a similar problem of interpretation with Faux’s discussion of the benefits of trade. Some-how, Faux seems to be arguing that all workers everywhere are hurt by trade. I see the reality asmore complicated. Specifically, assuming a constant level of profit, if US workers are being hurtby trade, then, even if trade were only a zero sum game, the workers abroad on average would bebeing helped. Since trade is a positive sum game, I believe that, on average, trade helps society,so the argument that some workers are being helped by trade somewhere deserve more weightthan Faux gives it.

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A final problem I have with that book is that he never discusses the broader political issues ofglobalization—if the US had not invested in China, would not some other country have done so,and it is possible that US workers would be in even worse shape if the US had not globalized.Moreover, from a global political standpoint, it may have been better to bring China into the worldfold than not, regardless of the economic implications of trade. Finally, I was unconvinced byhis proposals that suggest the development of a North American political and economic socialcontract. The argument is imaginative, and the logic behind the proposals is clear—since theproblem is that free trade undermines the social contract, we have to develop a new transnationalsocial contract. But the specifics of his proposal seem highly improbable.

I could go on about my disagreements, but those disagreements should not obscure my admi-ration for the book, nor my belief that Faux’s general argument is sound. The US is in for somedifficult times as a result of its integration of the world economy, and the US economy today isin an unsustainable situation; our relative per capita income is higher than what is supportablein a globalized world with transferable technology. The US’s large trade deficit cannot continueindefinitely, and at some point there will be an adjustment. To handle the problems that will accom-pany adjustment out of that unsustainable position will require significant political changes. Bypointing that out, Faux has made a useful contribution to the policy debate.

David Colander ∗Department of Economics, Middlebury College, Middlebury,

VT 05753, United States

∗ Tel.: +1 802 443 5302; fax: +1 802 443 2084.E-mail address: Colander@Middlebury.edu

URL: http://www.community.middlebury.edu/∼colander/

doi: 10.1016/j.socec.2007.01.017