Tuesday, July 07, 2009

"Crisis and Hope: Theirs and Ours" part1

Transcribed by Scott Senn

This is a very informative and important lecture.

Scott Senn transcribed the entire talk. I appreciate his hard work.

"Crisis and Hope: Theirs and Ours"

12 June 2009
Harlem, NY

Also at:
http://video.yahoo.com/watch/5295017/13964512
http://video.yahoo.com/watch/5295224/13964982

(16:04) Thanks. It was really exciting to watch Amy [Goodman] a couple of days ago when she was interviewing Judy [Brown Chomsky] . It's quite an amazing achievement. I won't go into the whole story, but she took a lot of courage and effort to win a completely unprecedented case. I don't think there's ever been a case of a settlement like that, where the evidence – which she had in fact gathered in Nigeria – was so strong that the corporation [Shell Dutch Oil] not only settled but even allowed the settlement to be public, indicating their concern that they might be exposed in trial.

Well, let me say a couple of words about the title ["Crisis and Hope: Theirs and Ours"] which as always is shorthand. There's too much nuance and variety to make any sharp distinction between "us" and "them". And of course neither I nor anyone else can presume to speak for us. But I'll pretend it's possible. There's also a problem about the word "crisis". Which one do we have in mind? There are numerous very severe crises. Many of them will be under discussion here in a couple of weeks at the United Nations in their Conference on the World Financial and Economic Crisis. And these crises are interwoven in very complex ways which preclude any sharp separation. But again I'll pretend otherwise for simplicity.

Well, one way to enter this morass was helpfully provided by a current issue of the New York Review, dated yesterday. The front cover headline reads "How to Deal with the Crisis" [("The Crisis and How to Deal with It", 11 June 2009)]. It features a symposium of specialists. And it's worth reading, but with attention to the definite article: "THE crisis". For the West, the phrase "THE crisis" has a clear enough meaning: it's the financial crisis that hit the rich countries, and therefore is of "supreme importance". But in fact, even for the rich and privileged, that's by no means the only crisis or even the most severe of those they face. And others see the world quite differently: for example, the newspaper New Nation in Bangladesh. There, we read: "It's very telling that trillions have already been spent to patch up leading world financial institutions, while out of the comparatively small sum of $12 billion pledged in Rome earlier this year, to offset the food crisis, only $1 billion has been delivered. The hope that at least extreme poverty can be eradicated by the end of 2015, as stipulated in the UN's Millennium Development Goals, seems as unrealistic as ever, not due to lack of resources but to a lack of true concern for the world's poor." They're talking about approximately a billion people facing starvation, severe malnutrition, even thirty/forty million of them in the richest country in the world. That's a real crisis, and it's getting much worse. In this morning's Financial Times, the British business press, it's reported that the World Food Program just announced that they're cutting food aid and rations and also closing operations. The reason is that the donor countries have been cutting back the funding because of the fiscal crunch, and they're slashing contributions. So [there's] a very close connection between the horrendous food crisis and poverty crisis and the significant – but less significant – fiscal crisis. They're ending up closing down operations in Rwanda, Uganda, Ethiopia, many others. They have a twenty to twenty-five percent cut in budget, while food prices are rising and the financial crisis – the general economic crisis – is bringing unemployment and cutting back remittances. That's a major crisis.

We might, incidentally, remember that when the British landed in what's now Bangladesh, they were stunned by its wealth and splendor. And it didn't take long for it to be on its way to become the very symbol of misery, not by an act of God. Well, the fate of Bangladesh should remind us that the terrible food crisis is not just a result of Western lack of concern; in large part, it results from very definite and clear concerns of the global managers: namely, for their own welfare. It's always well to keep in mind an astute observation by Adam Smith about policy formation in England. He recognized [(Wealth of Nations, Book 4, chap 8)] that what he called "the principle architects" of policy – in his day, the "merchants and manufacturers" – make sure that their own interests are "most peculiarly attended to", however grievous the impact on others, including the people of England but far more so those who were subjected to what he called "the savage injustice of the Europeans", particularly in conquered India (his own prime concern). We can easily think of analogues today. His observation in fact is one of the few solid and enduring principles of international and domestic affairs; [it is] well to keep in mind. And the food crisis is a case in point.

It erupted first and most dramatically in Haiti in early 2008. Like Bangladesh, Haiti is a symbol of utter misery. And, like Bangladesh, when the European explorers arrived, they were stunned because it was so remarkably rich in resources. Later it became the source of much of France's wealth. I'm not going to run through the sorted history; it's worth knowing. But the current food crisis traces back directly to Woodrow Wilson's invasion of Haiti, which was murderous and brutal and destructive. Among Wilson's many crimes was to dissolve the Haitian parliament at gunpoint, because it refused to pass what was called "progressive" legislation, which would allow US businesses to take over Haitian lands. Wilson's marines then ran a "free election" in which the legislation was passed by 99.9% of the vote; now that's of the five percent of the population permitted to vote. All of this comes down to us as what's called "Wilsonian idealism". Later, USAID instituted programs in Haiti under the slogan of turning Haiti into "the Taiwan of the Caribbean", by adhering to the sacred principle of "comparative advantage": that is, they should import from the United States, while working people – mostly women – slaved under miserable conditions in US-owned assembly plants. Haiti's first free election in 1990 threatened these economically "rational" programs. The poor majority made the mistake of entering the political arena and electing their own candidate: Jean-Bertrand Aristide, a populist priest. And Washington instantly adopted standard operating procedures, moving at once to undermine the regime. A couple months later came the military coup, instituting a horrible reign of terror, which was backed by Bush I and even more so by Clinton. By 1994, Clinton decided that the population was sufficiently intimidated, and he sent US forces to restore the elected president (that's now called a "humanitarian intervention"), but on very strict conditions: namely, that the president accept a very harsh neo-liberal regime – in particular, no protection for the economy. Haitian rice farmers are quite efficient, but they can't compete with US agribusiness that relies on a huge government subsidy, thanks to Ronald Reagan's "free market" enthusiasms. Well, there's nothing at all surprising about what followed next. In 1995, USAID wrote a report pointing out (I'm quoting it) that the "export-driven trade and investment policy" that Washington mandated will "relentlessly squeeze the domestic rice farmer." In fact, the neo-liberal policies rammed down Haiti's throat destroyed, dismantled what was left of economic sovereignty, drove the country into chaos. That was accelerated by Bush #2's banning of international aid on totally cynical grounds. In February 2004, the two traditional torturers of Haiti, France and the United States, combined to back a military coup and send President Aristide off to Africa. The US denies him permission to return to the entire region. Haiti had by then lost the capacity to feed itself, making it highly vulnerable to food-price fluctuation. That was the immediate cause of the 2008 food crisis which led to riots and enormous protests, but not getting food.

The story is familiar, in fact quite similar in much of the world. So, going back to the Bangladesh newspaper, it's true enough that the food crisis results from Western lack of concern (a pittance, by our standards, would overcome its worst immediate effects); but more fundamentally, it results from the dedication to Adam Smith's principles of business-run state policy. These are all matters that we too easily evade; they happen daily, along with the fact that bailing out banks is not uppermost in the minds of the billion people now facing starvation, not forgetting the tens of millions enduring hunger in the richest country in the world.

Well, also sidelined is an easy way to make a significant dent in the financial and the food crises. It's suggested by the publication a couple of days ago of the authoritative annual report on military spending by SIPRI, the Swedish Peace Research Institute . The scale of military spending is phenomenal, regularly increasing, this last year as well. The US is responsible for almost as much as the rest of the world combined, seven times as much as its nearest rival China. No need to waste time commenting.

This distribution of concerns reflects another crisis here, kind of a cultural crisis: that is, the tendency to focus on short-term parochial gains. That's a core element of our socio-economic institutions and the ideological support system on which they rest. One example, now prominent, is the array of perverse incentives that are devised for corporate managers to enrich themselves: for example, what's called the "too big to fail" insurance policies that are provided by the unwitting public, and deeper ones that are just inherent in market inefficiencies. One such inefficiency, now recognized to be one of the roots of the financial crisis, is the under-pricing of systemic risk: the risk that affects the whole system. And that's general. Like, if you and I make a transaction – say, you sell me a car, we may make a good deal for ourselves, but we don't price into that transaction the cost to others. And there's a cost: pollution, congestion, raising the price of gas, all sorts of other things, killing people in Nigeria because we're getting the gas from them. That doesn't count; we don't count that in. That's an inherent market inefficiency, one of the reason why markets can't work. And when you turn to the financial institutions, it can get quite serious. So it means that if (say) Goldman Sachs – if they're managed properly – if they make a risky loan, they calculate the potential cost to themselves if the loan goes bad; but they simply don't calculate the impact on the whole financial system. And we now see how severe that can be, not that it's anything new. In fact, this inherent deficiency of markets – this inefficiency of markets is perfectly well known. Ten years ago, at the height of the euphoria about "efficient markets", two prominent economists John Eatwell and Lance Taylor – they wrote an important book called Global Finance at Risk in which they spelled out the consequences of these market inefficiencies (which we now see), and they outlined the means to deal with them. These proposals were exactly contrary to the deregulatory rage that was then being carried forward by the Clinton administration under the leadership of those who Obama has now called upon to put band-aids on the disaster that they helped create.

Well, in substantial measure, the food crisis plaguing much of the South and the financial crisis of the North have common roots: namely, the shift towards neo-liberalism since the 1970s. That brought to an end the post Second World War Bretton Woods system that was instituted by the United States and Britain right after World War II. It had two architects: John Maynard Keynes of Britain and Harry Dexter White in the United States. And they anticipated that its core principles – which included capital controls and regulated currencies – They anticipated that these principles would lead to relatively balanced economic growth and would also free governments to institute the social-democratic programs – welfare-state programs – that had enormous public support around the world. And to a large extent, they were vindicated on both counts. In fact, many economists call the years that followed – until the 1970s – the "golden age" of capitalism. That golden age led not only to unprecedented and relatively egalitarian growth, but also the introduction of welfare-state measures. Keynes and White were perfectly well aware that free capital movement and speculation inhibit these options. Professional economics literature points out – what should be obvious – that the free flow of capital creates what they sometimes call a "virtual Senate" of lenders and investors who carry out a "moment-by-moment referendum" on government policies, and if they find that they're "irrational" – meaning they help people instead of profits – then they vote against them, by capital flight, by tax on the country, and so on. So the "democratic" governments have a "dual constituency": their own population and the virtual Senate, who typically prevail. And for the poor, that means regular disaster. In fact, one of the reasons for the radical difference between Latin America and East Asian in the last half century is that Latin America didn't control capital flight. In fact, in general, the rich in Latin America don't have responsibilities. Capital flight approximated the crushing debt. In contrast, during South Korea's remarkable growth period, capital flight was not only banned, but could bring the death penalty, one of many factors that led to the surprising divergence. Latin America has much richer resources; you'd expect it to be far more advanced than East Asian. But it had the disadvantage of being under imperialist wings.

From the 1970s, the "golden age" faded. When neo-liberal rules were observed – insofar as they've been observed, economic performance deteriorated and social-democratic programs have been substantially weakened. We see that right here. The United States partially accepted these rules. And for the past 30 years real wages for the majority of the population have stagnated; up till then, they essentially tracked growth. Work hours have increased – now well beyond Europe. Benefits, which have always lagged, have declined. Social indicators – kind of general measure of the health of a society – they also tracked growth, until the mid-1970s when they began to decline, reaching the 1960-level by the end of the millennium. Well, there has been economic growth; but it's finding its way into very few pockets, increasingly into the financial industries, which have grown enormously, while productive industry has significantly declined. And we're seeing it right now. And with the decline of productive industry of course that means decline in living standards – in fact, even opportunities to survive – for much of the work force. The economy has also been punctuated by bubbles, or financial crises, and public bailouts. So the huge bailout of Citigroup right now is nothing new; something quite similar happened in the early '80s to its predecessor Citibank, thanks to the US taxpayer.

These results were described, all through this period, and explained by a few really outstanding international economists (David Felix is one). But the mythology about "efficient markets" and "rational choice" prevailed. And that's not at all surprising. These myths were highly beneficial to very narrow sectors of privilege and power – what Adam Smith called "the principle architects" of policy. That's another very severe institutional and cultural crisis which persists.

Actually, the phrase "golden age of capitalism" is a little misleading. It might more accurately be called "state capitalism". It's worth bearing in mind that the dynamic state sector was and remains a primary factor in development and innovation, through a variety of measures: research and development, procurement – government procurement, public subsidy, regular bailouts, and other means. It's particularly true in the United States. It was done here under a Pentagon cover, as long as the cutting edge of high-tech industry –advanced economy – was electronics-based. For that, the Pentagon served as a good cover. (In recent years, if you look at government spending, it's shifting more towards the health-oriented institutions of the government. That's a reflection of the fact that the cutting edge of the economy is becoming more biology-based.) That includes computers, the internet, satellites, most of the rest of the IT revolution that finally exploded in the late '90s in a tech-bubble, but also much else: civilian aircraft, advanced machine tools, pharmaceuticals, biotechnology, and a lot more. The crucial role of the state in economic development should be kept in mind, when we read these days dire warnings about government intervention in the financial system, after private management has once again driven it to ruins, this time an unusually severe crisis and one that harms the rich not just the poor, so it merits special concern. It's also worth recalling that large-scale state intervention in the economy is nothing new. On the contrary, it's always been a central factor in economic development. (It's a matter I wish I had time – There's no time to review it here, but the history, which I'll skip, is quite instructive.) These state-guided modes of economic development require considerable deceit in a society where the public can't be controlled by force. So people can't be told that the advanced economy relies heavily on the principle that the population pays the costs and takes the risks and that the profit is eventually privatized. And the eventual can be a long time, sometimes decades, as in the case of computers and the internet, for example.

(continued)

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