Wednesday, 19 August 2015

TPP, Unilever and the Market State - Revised

Marx was wrong: feudalism doesn’t precede capitalism, it succeeds it.

What we’re witnessing is a new breed of feudalism merging with a new mercantilism. Right now, the magical mix of nation states, international companies and the Trans Pacific Partnership (TPP) suggest we might be headed back to 1600 and the days of the East India Company.

Earlier this month, a rap music video criticising Unilever for allegedly dumping toxic waste in the country went viral. The video itself isn’t useful, but it does help illustrate how British-Dutch consumer goods company Unilever and the TPP represent the wider transition away from the nation state to a “market state.”

Yes, that's the East India Company flag
with the NZ flag. Scared yet?
The emergence of this market state is a systemic rearrangement of power as the descriptions of government are altered. As I’ve argued elsewhere, the underlying system of human governance doesn’t change over time, only the nomenclature and people’s titles do. As George Orwell knew, during government transitions it’s the powerful who control how things are named.

Before discussing the TPP in relation to the market state, let us examine the example of Unilever by breaking down what happened in India. The key drivers of the controversy appear to be: the Indian state, the Unilever Corporation and the Indian people.

India is interesting in that it’s a barely coherent nation state in the classical understanding of the term. India gained independence in 1947 under an authentic government, unfortunately leading to the political subdivision of the subcontinent. India's fundamental geopolitical friction will always come from within: from its endless, shifting spread of regional interests, ethnic groups and powers. The British did not conquer India so much as manage its internal conflicts to their advantage, as does the modern Indian state.

Industries such as Unilever eventually approached India with investment propositions, taking advantage of those same power splits. Once the company started producing goods and hiring the local population, it became difficult to expel even as its toxic waste allegedly accumulated. Who should take responsibility for the enormous task of cleaning up Unilever’s industrial waste? Your first answer is probably be Unilever, but it really isn’t. Read on!

Consider that the only reason Unilever exists is because people buy its products. And the only reason people still buy Unilever products is because they’re cheap. Unilever’s products are cheap because Indian wages are comparatively low. Unilever manufactures in India because its interests are aligned with those of the Indian government.

It also pays to remember that the Indian government, broken as it is, is the world’s largest democracy and, whatever the government looks like, it is an aggregate of Indian citizens expressing personal desires via their votes. It is the sum of individual vectors pointing in different directions. In other words, there’s a disturbing and unspoken connection between the people being harmed by Unilever’s toxins and their own decisions on election day. This logic would seem to suggest the Indian people are responsible for the poisoning of their own land.

That’s true on one level, but the situation is more complicated. The reason the land is contaminated is that Indian citizens collectively decided to prioritise a general rise in personal living standards provided by Unilever and other companies, over the detrimental health effects of incorrectly disposing of industrial waste caused by these under-regulated companies.

Individual Indians might not consciously think about this decision, yet exactly this selfish cost-benefit calculation was made by those individual citizens. In a very real way, rather than negating the harmful effects of industrial waste and thereby increasing the operating costs of Unilever, Indian citizens preferred the positive effects of a wider spread of low wages instead.

The Unilever industrial waste is an uncomfortable consequence of Indians wishing for a better life and voting in a government to provide it. Humans seem to possess the universal inability to understand how individual actions might affect others. In economic jargon this is called a “negative externality”. The question is: have we seen this all before? We certainly have. This is exactly the decision every Western citizen, including New Zealanders, made in the early years of the gradual construction of our own advanced society. The difference is only in timescale. My point is, the Unilever and India example is a bottom-up process, not top-down.

The Western world collectively chose to increase its living standards about 200 years ago and can’t now remember the effects of early industrialisation. India made a similar decision only recently, a decade or two ago – now they have the power of rap videos to remind them of those effects. Coal miners in England didn’t have Youtube, but they died on a proportionately similar level to Indian workers.

The problems ailing Indians are therefore different only in effect, not type. The reason we’re so appalled by what this video reveals is because most Westerners have no idea what’s it’s like to live in an industrialising economy and so incorrectly apply their own moral standards to the situation. The artists made their own cost-benefit calculation and decided against Unilever, but ironically this is a luxury which is a direct result of Unilever operating in India.

So what can we do? Stopping industry from operating in India would hurt everyone in that country by causing wages and living standards to drop. Not even the music video creators really want this, even though they are effectively campaigning for exactly this consequence. There must be a way to convince Unilever to operate more cleanly without raising the cost of production beyond the point that the Indian job market will benefit.

Pressure on Unilever to fix its pollution must reach a point greater than the company’s incentive to continue that process. There are two immediate ways this can happen: naturally (through market forces) or artificially (through dictate). Since we’ve already discovered democracy created the problem, it’s unlikely it will also be the solution. Maybe the market is the answer? If it is – and I’m no economist – the necessary pressure to change Unilever will require a corporation with greater strength. Thankfully, a bigger corporation does exist: it’s called government.

The modern construction of government is indeed a corporation in the strict sense of the concept: an organisation with a virtual identity. A government is simply a group of people working together for a common aim – a corporation. The only difference between a government and a private corporation is that the former is sovereign. Whether a government is good or bad is not determined by who its employees are or how they are selected; only its actions are good or bad.

If the Indian government is a more powerful corporation than Unilever then it leads to at least one conclusion: the modern Indian state needs reinforcing to compel Unilever to emit fewer toxins. This would balance the two corporations, leading hopefully to compromise and constraints on each. The question is how?

In order to answer that, let’s consider the example of large free trade deals such as the TPP. In many cases the negotiating countries will gain new rules to compel both state and private corporations to respect higher standards of conduct. The alternative for these corporations would be losing money and/or power, neither of which are desirable outcomes.

The TPP is meant to homogenise rules on investment, environment, intellectual property and labour for all its members by constraining what various corporations (including governments) can and cannot do. If a corporation fails to adhere to the TPP rules, the citizens of member countries can simply choose to purchase or sell to other companies as market entry and exit is streamlined.

Essentially, these rules are exactly what India and Unilever need. The TPP deal is intended to strengthen both state and private corporations by using the power and efficiency of the market. This is how the gigantic trade agreement matches up with a much more interesting reality. The TPP cannot be understood without the wider context of the transition of power away from the nation state to what US author of The Shield of Achilles Professor Philip Bobbitt calls the “market state”.

The market state is difficult to describe precisely because it is not yet fully formed. Mr Bobbitt argues that epochal wars force the state to innovate strategically or constitutionally, and the peace treaties ending those wars function by approving the next constitutional order. To comprehend where we are today, the 20th century must be thought of as one long conflict beginning with the First World War and ending with the fall of the Berlin Wall. Essentially, the period between the 1871 unification of Germany and the 1991 breakup of the Soviet Union centred on a single story. The story was of Germany coming to grips with being a nation state. This is still the central question facing Europe today, although much less so. The consequence of this story is a wider transition to new governance replacing the failing nation state system.

According to Mr Bobbitt, the legitimacy of the nation state depends on how well it can deliver on the terms of the constitutional order under which it operates. The authority of the nation state is based on the idea that the state offers to improve the material well-being of its people in exchange for its power to govern. In contrast, the market state offers to maximise individual opportunities for its people in exchange for power to govern.

Whereas the nation state saw its role as growing the material wealth of citizens and was supposed to make sure wealth was fairly distributed, the market state instead seeks to increase the aggregate wealth of its citizenry through deregulation, growing public-private partnerships, and what Mr Bobbitt calls “the devolution of the welfare state.”

To support Mr Bobbitt’s claim that "legitimacy… is a matter of history," the nation state will fall because it can no longer: protect citizens from weapons of mass destruction (WMD); escape the reach of international law; control its economy; protect its culture; and protect itself from global problems such as climate change. "Terrorism in the era of the market state will reflect the nature of the market state. It will be decentralised, disseminated via the internet, and threaten the use of WMD and germ warfare," Mr Bobbitt adds. Bear in mind his book was published prior to the 9/11 terror attacks in the US, and took 12 years to complete.

The strength of Mr Bobbitt’s thesis is its flexibility and inclusiveness. The market state organises the powers of different organisations to run the state under the assumption that markets provide the most efficient means to run an economy. One pressing question would be how the military might be used in a market state. The private armies in the second Iraq war and other 21st century conflicts suggest the answer. Recall the 19th century East India Company’s ability to marshal private armed forces to enforce its trade deals and investment overseas. It had a trade monopoly that was also backed by the power of the British nation state.

In a market state system, all of this will enjoy a comeback. In other words, if the TPP doesn’t pass it will be replaced by another trading structure because it must be. This drive is not a US grand imperial project. It is a desire by all Asia Pacific countries for a rules-based and connected regional economy to maximise the accumulation of greater wealth and living standards – the fundamental goal of a market state.

The true problem is that, despite all the similarities we’ve never truly been here before. Not on this scale and not with such a globalised transition. The only option is to recognise the emergence of the market state and build in constraints, hence the TPP and other multilateral deals.

Where does this put us? The TPP isn’t ethical, but using ethics during a fundamental transition of constitutional order is probably undesirable anyway. The TPP is neither a good thing nor a bad thing. I simply don’t know what it will be, none of us do. It is entirely unclear how the TPP will nest within the emerging market state. The free trade deal is a medium-sized cog moving largely out of sight. The smaller cogs of Unilever and international businesses move faster, appearing bizarre and dangerous.

But it’s more important to watch the very large and slow cogs turning in the distance. If the TPP was being negotiated in a nation state system then ethical judgments might be useful. But the TPP can probably only exist with a market state system, and we don’t have ethics for that yet – let alone a coherent set of names and descriptions. For all the angry people yelling about the TPP, the question should not be: how can we stop this from happening? The question must be: given this will be the new future, how best might I manipulate it to my benefit?

The central problem for New Zealand is not the introduction of new trade rules, it is the lack of Kiwis innovating their way to a better life by using the system for themselves. If Mr Bobbitt’s market state thesis is accurate, then he and French philosopher Jean-Paul Sartre might agree that modern citizens are “freer than we know” to “maximise opportunities to advance.”


All the pieces are being put in place for a new kind of feudalism and mercantilism. The efficiency of the marketplace might not be the best solution, but it is the one the world seems to be striving for.

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