Wake up and smell the (fair trade) coffee, Mr President

Globalisation has much to offer our society, argues Grazia Ietto-Gillies, but it requires responsible governance if we are to reverse the trends of third-world exploitation and environmental damage

Seattle, London, Prague, Nice, Davos, Porto Alegre, Johannesburg, Naples: the street protests and demonstrations against global capitalism are spreading wide and fast. For a generation brought up in the belief that capitalism is not only the best, but the only viable economic system, it must be rather confusing. They wear jeans, sneakers and T-shirts when they protest against the very companies and system that produce them.

For many of their parents, there is, superficially, a sense of déjà vu . But not quite. The 1960s and 1970s were seen as decades of confrontation between transnational companies and national governments. There were large numbers of nationalisations of foreign affiliates, particularly in developing countries.

From the 1980s, there was a change of direction as a more transnational-friendly political environment developed. Most writers on the economics of international business welcomed the change. The 1980s and 1990s were seen as decades of cooperation between national governments and transnationals. Far from attempting nationalisations, many governments in developing countries followed in the footsteps of some rich countries and developed policies to attract private investment.

The number of nationalisations had peaked in the mid-1970s and by the mid-1980s, they had become extremely rare. The privatisation trend started in the mid-1970s and increased rapidly over the next two decades. During this period, privatised assets in many developing and central and eastern European countries were acquired by foreign companies.

Cooperation between governments and transnationals went hand-in-hand with the establishment and diffusion of a liberal agenda. Deregulation created the conditions for transnationals to pursue their strategies within and across borders in an unfettered way. It would, however, be wrong to see the 1980s and 1990s as decades of low government intervention. Both national governments and international institutions were very interventionist, though mainly through policies designed to shift power towards the business sector and, in particular, the transnationals.

In this ideological framework, the cooperative stance has led increasingly to a stronger position for transnationals. Cooperation has gradually developed into transnational domination of various other economic players, including governments. Distribution of income and wealth has moved away from the poorest people, groups, communities, classes and countries, to the richer ones. This has led to increasing discontent with global capitalism and disillusion with the democratic process.

Confrontation has returned to the world agenda, though not as confrontation between governments and transnationals, but rather between people and transnationals, as well as international institutions such as the World Trade Organisation, seen as the agent of transnationals and the midwife to globalisation's ills.

Many pressure groups and young people view appeals to national governments as a lost cause. Thus the confrontation takes on the form of grass-roots opposition and street protests.

As governments have followed strategies for the few, people have come to believe less in the democratic process as a way of changing the social and economic situation. Cynical use of the electoral process on both sides of the Atlantic increases the sense of distrust in the process and may lead to a further fall in electoral participation.

Protests tend to be mainly against the visible face of global capitalism: the transnational companies and their brands. The charges range from poor labour and environmental standards to exploitation of consumer health and purchasing power to further pauperisation of the world's poor. The charges seem correct, but is the blame fully and properly apportioned?

The shift in distribution from poor to rich countries and from the poor to the wealthy in both developed and developing countries has been done largely via the increasing dominance of the financial over other sectors. The deregulation policies of governments in both developed and developing countries have been instrumental in this.

Throughout the 1990s we were bombarded with a rhetoric based on the equation: globalisation equals liberalisation and deregulation. This equation seems to have been accepted by both right and left; the former sees it as desirable, the latter as inevitable. The acceptance of this rhetoric has led to hands-off governance, or rather to governance in the interests of the wealthy, rather than of citizens as a whole.

We must reject the equation; it is not a mathematical truth. We can have many positive aspects of globalisation without the deregulation binge of the 1980s and 1990s. Globalisation has been used as an excuse for liberalisation. The other problems derive from the excessive power of transnational companies. Excessive power, whether in the political and/or economic sphere, tends to bring its own misuse.

Transnationals derive their power from their size and from their ability to operate in many countries. At present, they are the only economic actor that can truly plan, organise and control activities across national frontiers. This gives them the ability to operate across different nation states with specific sets of rules and regulations. It puts transnationals in a stronger position partly because it fragments other players in the system, such as labour or governments.

What is the solution, if any? Let me start by stating what I do not think are solutions. First, to put the clock back and do away with transnationals altogether. As long as capitalism is alive and kicking, a world without transnationals is pure utopia, and not of the desirable kind. Smaller companies exploit labour just as much or more and they do not bring the advantages of technology, scale, high productivity and prosperity - although these transnational advantages could be distributed more evenly.

Second, to rely on voluntary codes of conduct by transnationals. This alternative seems to me no better than leaving Railtrack in charge of rail safety or the Ministry for Agriculture, Fisheries and Food in charge of food safety. Environmental, safety and labour standards will always be in the way of profits. Self-regulation cannot secure industrial coordination necessary for the long-term prosperity of companies and countries.

The realisation that transnationalism gives excessive power because of transnationals' unique position may also give us a clue to possible strategies to deal with the problems. The first is to work towards the development of countervailing transnational power for other actors, be they labour or consumers or uni-national companies. The second is to establish supra-national institutions with strong teeth and subject to democratic control, to deal with issues such as global warming or global monopolies. The third is to pressure national governments to take a more active monitoring and controlling role and thus move towards a regulation phase.

National governments must regain the lead in developing appropriate policies to deal with transnationals' powerful position. We need regulation to channel the many opportunities and to cope with the many problems raised by the new technologies and by transnationals' activities - in relation to the environment, safety, competition, labour standards - and because many problems need appropriate international institutions.

Moreover, regulation is essential in financial markets. The debate about the evil deeds of transnationals seems to obscure the fact that many problems of global capitalism originate with financial deregulation.

Transnational companies have a positive role to play in the global phase of capitalism, not least in the development of alternative sources of energy. Many transnationals are involved in much-needed development and diffusion of innovation; many produce items that people genuinely want and need; many generate employment and develop skills. However, their activities must be regulated by a system of coherent governance. The pattern of social exclusion to the benefits of globalisation and technological advances must be replaced by a more inclusive and participatory framework.

Inclusiveness must embrace present and future societies via a serious commitment to - and implementation of - a responsible strategy for the environment.

Grazia Ietto-Gillies is professor of applied economics and director of the Centre for International Business Studies at South Bank University. Her book, Transnational Corporations: Fragmentation Amidst Integration , will be published by Routledge later this year.