New Internationalist

Market Mullahs

Issue 210

new internationalist
issue 210 - August 1990

Market mullahs
'Economic common sense' may be the most harmful fundamentalism of all. Tom Walkom
exposes the successful propaganda offensive of the true believers of finance.

Hot line to the money god. Market economics is an international language.
Photo: CAMERA PRESS

Open the business pages of the newspaper. Listen to the television news. Chances are someone is talking about the 'economic fundamentals we can no longer ignore'. Chances are someone is talking about 'economic reality' or 'facing hard economic facts.'

What they really mean, these economists and bond traders and politicians, is that the rich should have more and the poor should quit complaining. Those are the 'facts' to be faced.

In a normal world, such people would be ignored. In a normal world, normal people would look at the UK's Margaret Thatcher on television talking about the virtue of joblessness or Canada's Brian Mulroney speaking of the importance of high interest rates and say they were nuts. In a normal world, the Thatchers and Mulroneys would be voted out of office. That they are not says much for the influence of the believers.

The believers have nothing to do with Islam or Christianity. Their belief is in the power of money. They call this belief economics, or sometimes 'common sense They call themselves economists, or sometimes 'practical people'. Economists became important in the West only after the Second World War. In retrospect, it seems, things were golden then. Unemployment was down, wages were up. In those days, the rage was technocracy, the heroes managers. Isaac Asimov s science-fiction masterpiece, the Foundation Trilogy, exemplified the post-war world. Hari Seldon, a scientist using modern methods, is able to predict mass human behavior for centuries beyond. Better yet, he is able to control that behavior even after death.

Asimov's Seldon should have been an economist. They were the real managers in the post-war world. Secular, urbane, they gave each other awards and - from the towers of government - fine-tuned the social machine. In a world that valued science, economists transformed themselves into scientists. They used mathematics, the language of pure science. They performed calculus. They were the keepers of esoteric knowledge, able to communicate only with one another.

That no one else understood them did not matter. They were the experts, the Hari Seldons. They ran the universe. Then a funny thing happened. It didn't work. All of the fine tuning and macroeconomic policy that the experts had been preparing flubbed. The finely burnished machine screwed up. It started screwing up in the late 1960s (the economists blamed the Vietnam War). It continued screwing up into the 1970s (the economists blamed government spending). It screwed up more in 1981 with a serious two-year depression. It continues to screw up, with the blame shifting between the Japanese, old people (the aging population), government spending, mergers, central bankers, other bankers, the Soviets, the Americans, German unification.

For our purposes, the key effect of all this was that the urbane economist, the cool, rational, scientific economist, was shown to be a fraud. So now we are in the era of the economic believers. What distinguishes a believer from an old-style economist is that the believer needs no proof. He just believes. This is not to suggest that post-war economists really did prove anything. Their science was always just a bit bogus, their uncertainties disguised by jargon and mathematics. But at least they thought they should prove things. They prided themselves on possessing rigorous objectivity - even when they didn't.

The believers, on the other hand, know. They just know. They don't need to prove anything. They are propagandists; their role is to convince. Like other fundamentalists, economic believers look back to the sacred texts. Westerners like to mock Iranian mullahs for relying on the Qu'ran. Economic believers are the real mullahs; they think Adam Smith has all the answers. But like other fundamentalists, believers prefer a simple version of this sacred text, one which justifies the present.

That's why, when they talk about economic fundamentals, they mean something very specific. They mean the power of money. A country which ignores economic fundamentals, in this lexicon, ignores the power of money. Mexico ignored economic fundamentals when it tried to build up domestic industry instead of relying on foreign investment. Now that President Carlos Salinas has embraced foreign investors, Mexico is 'facing facts'. You could argue that Mexico's efforts to bypass foreign investment stalled because the country's disparity of wealth allowed the rich to export the capital needed for any economic program. You could argue that the Mexican government never seriously tried. However, the beauty of casting Mexico's development choices in terms of facts, fundamentals and economic reality is that this permits no choice. It's not just that Mexico failed in its attempts to create domestic-owned industry. It's that the idea was impossible.

So too with Canada. In the late 1970s, Canada tried to increase domestic ownership in manufacturing, take control of its energy sector and develop a state-centred approach to industrial strategy. Much of the attempt was botched but there were some successes. Canadian ownership, for example, did rise. But now the believers have decreed all of this an ill-advised heresy. To control foreign ownership is to ignore the 'economic reality' that capital likes to go where it pleases. To increase the role of the state is to interfere with the 'fundamentals' of supply and demand. Indeed, what is needed is to 'face facts' and reduce the role of government.

their own words...

'Economics is just the method. The goal is to change the human soul.'

MARGARET THATCHER

Adam Smith himself wasn't as cut and dried as this. Smith's Wealth of Nations, in fact, is a complex and often revolutionary work. True, Smith had little time for the indolent princelings who formed governments in his time. But much of this was based on his notion of value. To Smith, things had economic value only if they were useful and only if they were created by labor. Unproductive workers were those who created no value. Soldiers and courtiers - that is, government workers -spent their time waging war and fawning on monarchs. To Smith, this was of no use; hence governments were unproductive.

But what would Smith say today of the junk-bond dealers, high-priced corporate lawyers, government consultants and media economists so fond of quoting his work? Probably he would lump them in with courtiers and soldiers as socially non-productive. Probably he would be right. For the truth is that our economy is dominated not by those who create wealth in Smith's sense, the hearty capitalist-owners of pin factories. It is dominated instead by those who manipulate wealth in its most abstract sense - by the Ivan Boeskys and Conrad Blacks of this world.

Lenin called these people 'finance capital'; the US social theorist Thorstein Veblen called them 'financiers'. We call them the 'investment community' (the word community adds a nice, soothing touch). It's all the same thing. It's Smith's warriors and courtiers. When everything was going fine, in the grey-flannel world of the 1950s, these people were called captains of industry. They were said to drink martinis and occupy the tops of high-rise buildings in places such as New York.

When captains of industry dominated the world, all that was needed of economists was their alleged expertise. No one needed to justify the captains. Why should they? Things were just humming along. But the problem now is that it has become clearer that those on top really don't do much; they are just there to fleece the earnings of others. Boesky was just the most obvious example.

At the same time, the world economy is in some trouble. Inflation keeps on popping up; trade flows are out of whack; in the US, banks fall and splatter like broken eggs. A lot of people - too many people - are out of work. The cause of these problems is complicated. But it is probably not unrelated to the first point, that the world economy is run by and for those who manipulate abstract wealth. The net effect of all this is that we need believers. If we don't have believers, other people might start asking questions - and then there would be serious trouble. And that's the role the economic fundamentalists play.

Take Canada again. Its economy suffers from two problems. First, it is based largely on resources whose prices move up and down. This is an old problem. Second, it is opening up. Canadian manufacturing used to be protected by geography and tariffs from the competition of others. Technology and the Canada-US free-trade deal are ending that. Businesses are going under and workers are finding themselves without work.

Those who run this country figure the way out of these problems is to reduce wages. That's logical. If wages fall, Canadian goods - both resource and manufactured - will be cheaper. But it's not necessarily the best thing for those who find their wages cut or those who are out of work. These people might prefer other solutions. They might prefer the reconstruction of tariff walls, for example.

But tariff walls are not popular with those in the business of manipulating abstract wealth. The whole point of abstract wealth is to have no frontiers, to allow capital to slither around the world searching for the fattest return. This is where the believers come in. The real problem, they say, is government spending. Why is it a problem? The answer is obvious: it is a problem; Adam Smith says it is a problem; everyone knows it is a problem.

In Canada, those who run things have got away with much by blaming government spending. They have persuaded the Conservative federal government to cut unemployment benefits. This is supposed to reduce the federal deficit. But its real purpose is to make unemployment less attractive and hence allow wages to be cut. They have also persuaded the Government to cut back income taxes on the wealthy and raise consumption taxes which hit the poor. They call this tax reform. Tax reform has had an interesting side effect; higher consumption taxes have pushed up inflation. It now runs at about five per cent in Canada, which in the general scheme of things isn't that high. But the believers, using the physical analogies so beloved by those who dabble in economics, say that an untreated 5-percent inflation sniffle may turn into a 150-per-cent hyperinflation pneumonia. There is no reason this should be true. But it is said and resaid enough to be believed.

You might think that if the believers were that worried about rising prices, they would want cuts in the consumption taxes which increase measured inflation. But they don't. Instead, they have had a revelation. Their revelation is that Canada needs 14-per-cent interest rates to curb the demon inflation (or the UK 15-per-cent. or Australia 20-per-cent - substitute your own). In fact high interest rates don't do much to inflation at all in the short run except raise it. In their heart of hearts, the believers know that. They also know that high interest rates, by driving some companies out of business, can increase unemployment. And that will put pressure on wages to fall.

Cutting wages, not inflation, is their real aim. But the believers don't say that. They talk instead about economic reality. They urge us to face facts. They are on television every night, these secular Jim Bakkers. And they are just as sincere.

Tom Walkom's lively column appears in the Toronto Star.

Worth reading on... FUNDAMENTALISM

One of the best recent studies of Christian fundamentalism is the highly-readable Fall From Grace; The Failed Crusade of the Christian Right; Michael D'Antonio (Farrar, Straus, Giroux 1989). On the rise of Islamic fundamentalism there are several good works: The Struggle Within Islam; Ra'fiq Zakaria (Viking Penguin 1988); Radical Islam; Emmanuel Sivan (Yale University Press 1985), and Islamic Fundamentalism; Dilip Hiro (Paladin 1989). One of the best looks at fundamentalism in power is John Simpson's Behind Iranian Lines (Robson Books 1988). On right-wing fundamentalism one of the most comprehensive recent works is Revolution on the Right, Simon Gunn; (Pluto Press 1989). An excellent critique of the fundamentalist deep ecology movement is supplied by George Bradford's perceptive pamphlet How Deep is Deep Ecology? (Times Change Press, Box 2510, Navato, Ca 94948, USA).

 

[image, unknown]
These are organizations involved in the fight against different types of fundamentalism:

· Fundamentalists Anonymous;
(P0 Box 20324, Greeley Sq Station, NY 10001, USA)
gets ex-fundamentalists back on their feet.

· Women Against Fundamentalism;
(SM Box 2706, London WC1 3XX, UK.)
is a London-based coalition of women drawn from Asian, black and other communities who organize against the anti-women bias of fundamentalism.

· The Cult Project;
(3400 Stanley St, Montreal, P0, H3A 1 R8, Canada)
has information about the scope and methods of cults.

· The Christic Institute;
(Washington, DC. Tel: 202-797-8006)
keeps track of the machinations of the fundamentalist right while

· Dollars and Sense magazine;
(One Summer St, Sommerville, Mass 02143, USA)
examines the impact of free-market fundamentalism.

 

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