‘It’s unprecedented!’ So said many people in Cairo during the dramatic recent uprising, that began in protest against ‘austerity’ measures and turned into a full-blown revolution. They were proud of being able to say so.
The contrast could hardly have been more stark than with a spin doctor I recently heard advise a British politician never to say ‘unprecedented’ at all. It sounds like an excuse, he said, and during these difficult times no-one is in a forgiving mood. Far better to say ‘inherited’, which means that someone else is to blame. My mind promptly turned to wondering quite what it is that I have inherited from my own lengthening life which is no-one else’s fault but my own.
I left college with a hefty overdraft. This was not so common in 1968, and it played on my mind. Quite unsure of what else I might do, I felt obliged to pay the overdraft off. Working for an international bank looked like the most logical way to start.
And so, once I’d arrived in Montevideo, Uruguay, it proved to be. Within six months, a debt that amounted to half my annual salary had vanished. I still have little idea where it went. What I did discover, however, was the exquisite tedium of banking. Ever since, I’ve recognized in more enthusiastic bankers the outward and visible signs of an inner and emotional void that surely stems from the nature of their work. Any world ruled by bankers would commit suicide in short order.
At the time, tiny Uruguay was ‘the Switzerland of Latin America’, lacking the mountains but with a vaguely comparable, unpretentious society where nothing much happened and every other Uruguayan seemed to work for a bank. The country had become a cesspit for financial sewers that flowed into its banks from illicit gold mines in the Amazon, and the laundries of hot money everywhere. I did some of the ironing myself. Montevideo might well have been styled ‘the City of London of Latin America’.
So when – to my eternal gratitude – the clerks walked out on strike for better pay, and the banks closed their doors, there was said to be a national emergency. The clerks were ‘militarized’, made ex-officio members of the Uruguayan armed forces and charged with desertion if they failed to return to work. A colonel occupied the manager’s office, armed soldiers the banking hall, the clerks were frog-marched back to their desks, and I quit.
A debt crisis promptly engulfed Uruguay, Latin America and much of the ‘Third’ or Majority World. International financial markets had been touting loans to the most improbable and lucrative – or ‘sub-prime’ – borrowers they could find. Abetted by public institutions like the IMF and World Bank that should have known better, when these loans duly went toxic they were offloaded onto despotic governments, whose citizens had nothing whatever to do with incurring them. In order to pay the banks for these toxic loans, governments would of course have to borrow from the banks, using sharply reduced government spending on everything else, and tax revenues from their citizens, as a much more reliable form of collateral and repayment in future. Bankers’ problem solved.
So ‘structural adjustment’ and ‘neoliberal’ economic policies took over governments, privatized anything that moved, dismantled public services, collected fees for education and healthcare, suppressed wages, ignored unemployment and extorted regressive taxes, in order to pay the banks for their own toxic loans – a con-trick of truly breathtaking proportions.
Sound familiar? Having pulled it off in Latin America and Africa in the 1980s, then Asia in the 1990s, grotesquely inflating their self-esteem and personal fortunes as they went, by the 2000s increasingly deluded and pointless financial markets had nowhere else to go, and came home to perch over their birthplace.
In 2007 banks in the ‘First’ or Minority World finally had to conclude, with rare good reason, that they should no longer trust even themselves, so stopped lending to each other. Using blackmail on an industrial scale, they once again persuaded obsequious governments to prop them up and take over their toxic loans. The ‘Credit Crunch’ then set in motion the continuing Great Recession and its supposedly remedial Age of Austerity – ‘structural adjustment’ by any other name.
The Great Recession that wasn’t
During the Great Depression of the 1930s it could justly be said – and all too often was – that when Wall Street sneezed the world caught a cold. However, and baffling as it might seem to the Minority World now, the Great Recession of the 2000s has failed altogether to materialize in the Majority World.
So striking is the contrast between the Minority and Majority Worlds now that even the in-house journal of corporate globalization, The Economist, has finally been prompted to suggest: ‘It may not feel like it in the West, but this is, in many ways, the best of times… For most of human history, only a privileged few have reasonably been able to hope that the future would be better than the present. Today the masses everywhere can.’1
The reasons why
First, it will be said that much of what’s left of the world’s natural resources is in the Majority World. Dissatisfied with low returns in financial markets, clever money is now in search of more lucrative trade in potentially scarce ‘commodities’, like oil, gold or food. So the world price of commodities has been rising, despite the Great Recession, and the Majority World has been reaping some of the reward. A few rich countries with plentiful natural resources, notably Australia, have escaped the Great Recession for much the same reason.
Second, corporate globalization has been redistributing investment, industry and employment away from the Minority World towards those who have welcomed it with the cheapest, most disciplined labour – those ‘masses everywhere’ in the Majority World. They have been justly compensated, and corporate globalization itself now looks set become the worthy winner from the Great Recession. Corporations are sitting on huge cash hoards: perhaps $900 billion by the end of 2010 in Europe alone.2
However, both are better descriptions of the causes of the Great Recession in the Minority World than they are of the new landscape of the Majority World.
The history of commodity exporting from ‘developing’ countries goes way back, to the colonial regimes and the neocolonial ‘Third World’. It never did them much lasting good then, and there’s no reason to suppose it will lead anywhere other than backwards now. What’s more, the prospect of raw material scarcity reflects the advent of climate change and the growing environmental impact of recklessly extracted resources that are also non-renewable. As the Majority World already knows to its cost, reliance on the limitless generosity of nature amounts to economic and environmental suicide – scarcely a well-founded reason to hope for a future that will be better than the present.
Then again, how did global corporations come by all that cash? By doing as they always do and cutting their wage bills. As unemployment has risen in the Minority World, so real wages for those ‘masses everywhere’ have fallen by an average four per cent worldwide since 2007.3 That equates to big bucks for corporate employers. Unfortunately, it also equates to much smaller bucks for those masses everywhere, who can afford to buy less of the growing amount of stuff that corporations are forever driven to produce. This persistent tendency towards ‘over-production’ accounts for corporations’ inability to use the cash more productively now, during a recession of their own devising.
Hence, too, all those ballooning, inherently explosive trade ‘imbalances’ between national economies – and all that ‘sub-prime’ borrowing in the Minority World, in a doomed attempt to make up for the decline in real wages.
Arguably, just two fracturing props now keep a crazily leaning financial ‘architecture’ from toppling right over: empty deposit ‘guarantees’ and ‘quantitative easing’ (printed money) still pouring towards private banks from bankrupt Minority World governments; and the absence of any international reserve currency other than an increasingly worthless US dollar.
In the driving seat
In the Minority World, governments have been pouring literally uncounted treasure into the abyss of financial boondoggles. For the most part they have done so without any kind of democratic mandate or control, in the face of widespread popular hostility and disbelief. As a result, with bankrupt financial markets duly retooled by governments, and governments themselves effectively bankrupted instead, there is now said to be ‘no alternative’ to an otherwise self-defeating and aimless Age of Austerity regulated by self-destructive financial markets.
The Majority World has been here before. It has recovered from ‘structural adjustment’ through a hard-won and continuing determination, often impressed upon its governments by deep-rooted social movements, to assert more conscious, political control over its varied local, national and regional economies. A shared cultural sense of material sufficiency may also have survived a little less crippled than it has been in rich consumer societies.
Broadly speaking, the Majority World has preferred ‘counter-cyclical’ or ‘Keynesian’ economic policies. These centre not on subservience to financial markets, but on the much greater duty of national governments to attend to the hardships of their citizens, and especially to mass unemployment. These policies work. So the Majority World has been able to make rather better use of its resources, and an Age of Possibility remains a realistic proposition here.
Poster-children change faces
The same has been true across much of Latin America. Today, the elected President of Uruguay – José Mujica – is a former Tupamaro who was incarcerated by the military for many years, two of them at the bottom of a well. According to a regular opinion poll, an astonishing 80 per cent of Uruguayans are now satisfied with the way their democracy works. An improving and uninterrupted trend covers most of a continent where poverty and inequality are, at long last, slowly being defeated.5
In Asia a less marked but comparable trend is also clear. The Asian financial crisis disposed of the dictatorship of General Suharto in Indonesia in 1998. Greater democratic engagement has accompanied a relatively flourishing economy since. The Philippines dispensed with its Marcos dictatorship more than a decade earlier. Thailand (the flashpoint of the Asian financial crisis, and still a political cauldron) now imposes a 15 per cent ‘withholding tax’ on purchases of its foreign debt, to discourage speculation. India, where banks have remained relatively tightly regulated despite its ‘liberalizing’ economic agenda, has not had to bail any of them out. Chinese financial systems are under strict governmental, if scarcely democratic, control. China’s huge $500 billion Keynesian ‘fiscal stimulus’ also allowed for wage increases in the face of growing industrial unrest.
Only in Africa have these relatively benign trends still to materialize. Yet, even here, outright recession has largely been avoided, and recent events in Tunisia and Egypt show that the Great Rebellion has finally arrived in North Africa too. China’s demand for Africa’s natural resources may have helped, if only for the time being. Indeed, the Majority World seems set to look to itself for much more of its international trade in future.
This is not to suggest that the Majority World has miraculously arrived, overnight and entire, in the same economic nirvana. A billion people fell into absolute poverty when world food prices soared in 2008, and have yet to climb out of it – now food prices are on the rise again. Corporate globalization may be folly, but national economies are no less prone to disaster, if for different reasons. The two giant countries that between them contain a third of the world’s people could scarcely be more distinct: China runs a huge trade surplus – India a substantial deficit; India resembles a liberal democracy – China a one-party corporation.
But common features are visible all the same. If self-destructive financial markets come to dominate a society, disaster promptly follows. The best and perhaps only way out of this is to take more deliberate political control over economies, in the diverse interests of the world’s kaleidoscopic societies. For all the bluster of corporate globalization, nation-states demonstrably have a critical role to play. However, all of them are also confronted by some common looming obstacles.
He may well have been thinking about half of India’s children, who are still afflicted by stunted physical development. Economic growth never of itself brings greater wellbeing to all or even most. The UN Development Programme produces an index of what it calls ‘human development’. This gives a far truer indication of what really does make a difference, like education, healthcare, equity and environmental sustainability. As it turns out, the longer this index has run, the more the link between human development and economic growth emerges as only tangential at best.
So, when economists or governments prescribe ‘economic growth’ pure and simple as the magic potion for ‘recovery’ from the Great Recession in the Minority World – or for reaching whatever the ambitions of an Age of Possibility in the Majority World turn out to be – they are talking through their hats. The results of economic growth are every bit as problematic as the means of achieving them.
What economists like to call an ‘opportunity cost’ has been incurred as a result. It is paid in the waste of precious time and in the rapidly compounding damage of delay. Neither climate change nor economic growth will ever change course of their own accord.
The Majority World already suffers first and worst from climate change, as well as from the reckless exploitation of its natural resources. Having averted the Great Recession with its own tentative forms of ‘New Deal’, it is now much better placed than it was to contemplate its own ‘Green New Deals’. The possibilities increase dramatically, of course, if the Minority World follows suit, as eventually it must.7
Third, corporate globalization has strong bonds with international financial markets. Among other things, corporations are as determined to evade taxes as financial markets are to escape regulation, by playing national governments off against each other. This – accompanied by the ‘race to the bottom’ in wages – is a ‘beggar-thy-neighbour’ protection racket far more economically damaging than the threat of nationalist trade ‘protectionism’ that is always cited as the main justification for free trade.
Despite the terrible price being paid by the Irish people for the spectacular collapse of their ‘tiger’ economy, for example, the Irish Government has fought longest and hardest to retain a lower rate of corporation tax than anywhere else in the European Union. Reducing corporation tax closer to what little is actually paid is also a surreptitious feature of the ConDem coalition government’s ‘austerity package’ in Britain.
Yet the minimal taxes already being evaded by corporations, banks and billionaires in havens, instruments and fiddles of one sort or another would have rendered cuts in public services totally unnecessary. That’s just how important this is. The clear remedy is for corporations to pay taxes wherever their profits are actually earned, rather than in havens of their own choosing. Known as ‘country-by-country reporting’, this requires urgent collaboration between national governments, and might even overcome the shortage of useful work for the IMF.8
Déjà vu never again
So far, resistance has been fiercest in Europe, where the Age of Austerity dawned earliest, though its eventual consequences are still to see the full light of day. Remarkably, this resistance has been led by the new generation: young people whose aspirations are being most brutally disregarded. Youth unemployment is double the adult average, and rising fastest. Cuts in education are among the most savage. Hikes in college fees amount to the attempted complete privatization of a key component of human wellbeing.
Forgive me if at this point I suffer from a bout of déjà vu all over again, recall my own ‘student loan’ and take my hat off to this generation of young people for being more alert than I was to the perils of delivering oneself into the hands of financial markets before one’s working life has even begun.
The people of Latin America and elsewhere have taught me since that even in the darkest hours of despotism, when the imposition of passivity is at its most fearful, human inspiration persists and eventually prevails; making possible what once seemed hard even to conceive of within one’s own lifetime.
So today in Britain my spirits lift when I come across such things as the cunning Big Society Revenue & Customs network of UK Uncut. ‘Over the past few months,’ it tells me, ‘protesters have staged sit-ins, performance interventions, pickets, flash mobs, superglue stick-ons and intrepid one-woman protests against tax dodgers across the country.’9
Rarely can the Daily Mail (jeer-leader of reactionary discontents in Britain) have found its own readers, as a result, calling for something like a boycott of the giant Kraft food corporation – which took over Cadbury’s, and has just broken a promise not to close a factory near where I live – because of its tax-dodging moves to Switzerland.10
As with the student protests in Britain towards the end of 2010, these youthful movements do not have to be told when to go, where and why. Inspiration resonates through social networks on a frequency of its own. What lifts my spirits is the resonance this has within me – and evidently within many others too. It could yet prompt an unprecedented Age of Possibility from within us all.
The new economic landscape
The state of the world’s economy is conventionally described by such things as economic growth, the balance of physical trade between nation-states and financial flows. A few rich countries (the ‘Minority World’) have dominated this landscape since records began, and expected everyone else (the ‘Majority World’) to conform. That is no longer happening.
The Minority World is growing its ‘gross domestic product’ (GDP) very slowly indeed, and even went a long way backwards in 2009. Everywhere else, GDP is growing roughly three times as fast – and never went backwards into recession.
The regions of the Majority World – excepting Africa – have a huge trade surplus (of exports over imports) with the Minority World. Among other things, this means that they have accumulated absolutely enormous reserves of foreign currency – an estimated $6 trillion (thousand billion) by the end of 2010. Oil and gas account for much of the surplus of the former Soviet Union and the Middle East – but not of the others.
Jobs in mid-2010
• Unemployment reached an estimated 210 million – 30 million above the pre-crisis 2007 level – and was still rising. Real wages for those in work were 4% lower than before the crisis – and still falling.
In the Minority World
• Unemployment was 70% higher than pre-crisis levels.
• Average unemployment was 7.8%, or roughly 1 in every 13 people available for work.
• Youth unemployment was twice the rate of general unemployment.
• Income inequality was rising sharply.
• The number of people working less than ‘full-time’, or ‘discouraged from active job search’ (and therefore not registered as unemployed) was also rising sharply.
In the Majority World
• Official levels of unemployment – where known – though often high to begin with, remained stable or were declining.
• Income inequality was rising less sharply or even starting to fall, particularly in Latin America.
Source: International Labour Organization, Update on Employment and Labour Market Trends, prepared for G20 meeting, Seoul, November 2010.
While the governments of Minority World countries are effectively bankrupt, many Majority World governments are running budget surpluses, reducing public debt – and even lending money to the governments of the Minority World. What’s more, the gap is projected to get even wider for at least the next five years.
Human development and economic growth
For 20 years the UN Development Programme (UNDP) has produced a ‘Human Development Index’ (HDI). Human Development measures more than economic growth – or Gross Domestic Product (GDP). It adds in such obvious and measurable benefits as life expectancy and education. Of the 10 countries where human development improved most between 1970 and 2010, just three (China, South Korea and Indonesia) were also among the 10 countries where GDP grew fastest. There is, plainly, no automatic or exclusive link between economic growth and human development.
- ‘Globalization – the redistribution of hope’, The Economist, 16 December 2010.
- The Guardian, 30 November 2010. See also ‘US companies keep hoarding cash’, The Financial Times, 9 December 2010.
- International Labour Organization, Update on Employment and Labour Market Trends, prepared for G20 meeting, Seoul, November 2010.
- ‘Emerging markets drive global recovery’, IMF Survey Magazine: in the news, 9 December 2010.
- Latinobarómetro, published in The Economist, 2 December 2010.
- ‘Nobel laureate attacks India on growth’, The Financial Times, 21 December 2010.
- For a stimulating analysis, see Chandran Nair, Consumptionomics: Asia’s role in reshaping capitalism and saving the planet, Infinite Ideas, 2011.
- Richard Murphy’s groundbreaking work can be found at www.taxresearch.org.uk For international tax issues visit the Tax Justice Network www.taxjustice.net
- ‘Companies face the people’s fury over taxes’, The Financial Times, 13 December 2010.
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