"Your money or Your
Life" - The Tiranny of Global Finance By Eric Toussaint Extracts from the introduction
This English edition by Pluto Press comes hot on the heels of the French, Dutch, Spanish, German, Turkish and Greek editions. For a book that does not hide its hostility to the neoliberal project, this in itself is a sign of renewed interest in global alternatives to mainstream thinking.
In a number of key countries around the world, we have seen either outright drops in production and consumption or significant drops in their rate of growth.
The term 'systemic crisis' is fitting in so far as the economic strategy of a number of big states, large private financial institutions and industrial multinationals has been unsettled — due to the growing imbalance and uncertainty in the world economic situation. 26 International Viewpoint #310 April 1999
From the very start, the capitalist system has gone through a large number of generalised crises. On occasion, its very survival was in doubt; but it has always managed to weather the storm. However, the human cost of these crises — and of the ways in which the capitalist system has emerged from them — is incalculable.
Capitalism may once again weather the storm. It is by no means sure that the oppressed will be up to the task of finding a non-capitalist solution to the crisis. Although victory is far from guaranteed, it is imperative that the oppressed reduce the human cost of the crisis and pursue a strategy of collective emancipation that offers real hope for all humankind. A worldwide fall in income
Recent studies carried out by economists in government and UN circles, have confirmed just how far buying power has dropped in various parts of the world. The Clinton administration's former Secretary of State for Labor, Robert Reich, for example, has said: •Workers have less money to spend on goods and services
10 [..] The crisis is upon us'. He adds: "The sluggishness of American income levels is a highly sensitive matter, given the role played by household spending in overall economic performance. [Household debt] accounted for 60 per cent of available income at the beginning of the 1970s; it is now more than 90 per cent [...] We La have hit the ceiling' (Robert Reich, 'Guerre a la spirale de la deflation', Le Monde, 21 November 1998).
The 1998 report of the United Nations Development Programme (UNDP) gives some idea of the levels of household debt. In response to the drop in real income, households have clearly opted to finance a greater and greater share of their spending with debt. 'Between 1983 and 1995, as a share of available income, debt has risen from 74 to 101 per cent in the USA; from 85 to 113 per cent in Japan; from 58 to 70 per cent in France.' In absolute terms, US household debt was 5.5 trillion (5,500 billion) dollars in 1997.
This phenomenon can also be found in the most advanced' countries of the Third World. For example, in Brazil in 1996, fully two thirds of all families earning less than 300 dollars per month
were in debt — that is, one million of the
1.5 million families in this category.
According to the UNDP, bad cheques are a common method for financing consumer spending in Brazil. Between
1994 and 1996, the number of bad cheques rose six fold.
Robert Reich is quite right when he says that a ceiling has been reached. A recession in the North and an increase in interest rates in the South could lead to a huge drop in consumer spending in the North and across-the-board bankruptcy of households in countries of the Periphery — in line with what we saw in the 1994-1995 Mexican crisis, and with what we have seen in the Southeast Asian crisis of 1997-1998 and the Russian
Three examples illustrate this fall in income for the majority of the world's population. First, the UNDP notes that in Africa, 'Consumer spending has on average dropped 20per percent over the last 25 years'. Second, the UNDP notes that in Indonesia poverty could double as a result of the 1997 crisis. According to the World Bank, even before the crisis there were 60 million poor in Indonesia out of a total population of 203 million. Third, according to Robert Reich, real incomes continue to fall in much of Latin America. According to a World Bank report released at the end of 1998 (Agence France Presse, 3 December 1998), 21 countries experiences a fall in per capita income in 1997. The same report estimates that in 1998, some 36 countries — including Brazil, Russia and Indonesia — will register a drop in per capita income.
According to a 26 November 1998 press release issued by the Russian undersecretary the economy, unemployment was expected to rise by 71 per cent between the end of 1998 and the beginning of 2001 - from 8.4 million to 14.4 million. straight talk on the crisis trom Camdessus and Clinton
Up until early 1998, International Monetary Fund (IMF) director Michel Camdessus had played down the scale of the Mexican and Asian crises. By the time of the October 1998 joint World Bank-IMF summit, however, he had come around to saying that the crisis was indeed systemic. At that same gathering, Bill Clinton declared that the crisis was the most serious one the world had experienced in 50 years.
Establishment economists criticise policies dictated by the IMF, the World Bank and the G7
The severity of the crisis in a large part of the world economy has led a number of Establishment economists to subject IMF and G7-supervised policies to harsh criticism. Jeffrey Sachs was a leading exponent of shock-therapy policies in Latin America in the mid1980s — the most brutal examples of which could be found in Bolivia - and in Eastern Europe at the beginning of the
1990s. By 1997, however, he was pillorying IMF and US-inspired policies in Southeast Asia. Unfortunately, this didn't stop him from overseeing the implementation in Ecuador of a ruthless austerity package in late 1998
In the mid-1990s, Paul Krugman argued that increased free trade and global commerce would pave the way for growth in all those countries that joined in the globalisation process. As the crisis deepened and began to affect Brazil in
1998, Krugman suggested that the
Brazilian president put in place coercive measures, for at least six months, to regulate capital flows. Robert Reich wondered aloud why the Clinton administration and other world leaders continued to defend tight-money and austerity policies at a time when such policies created a deflationary spiral. For one thing, he said Third World countries should not be forced to make huge cuts in public spending and to increase interest rates before they are eligible for loans (Le Monde, 21 November 1998).
In the June 1998 edition of Transition, in a broadside against the Washington consensus, World Bank vice-president and chief economist Joseph Stiglitz denounces the IMF's shortsightedness. He argues that although there is indeed proof that high inflation can be dangerous, there is no such proof that very low inflation rates necessarily favoured growth. Yet, for the moment, the IMF (and the World Bank, too, lest we forget) continue to promote the lowinflation dogma, even if this means destroying any possibility of economic
Nor have editorial writers at the Financial Times held back in their criticisms of the IMF: "The IMF's way of dealing with crises must also change. Its standard remedy was not appropriate for Asia, where the problem was mainly private-sector debt. Too much IMF money was used to bail out foreign creditors' ('How to change the world", Financial Times, 2 October 1998).
Making a major break with tradition, Stiglitz has even 'dared' to criticise the role of the sacrosanct markets in Latin America: The paradox is that the panicking market, has, for reasons totally unrelated to the region, demanded that Latin American investments deliver unreasonably high interest and dividends to cover the perceived risks. By driving interest rates up and stock prices down, the markets risk doing severe damage to the Latin American economies' ('A Financial Taint South America Doesn't Deserve', International Herald Tribune, 19-20 September 1998).
Of course, the authors of these remarks have not exactly been won over to the cause of the oppressed. That being said, they do indeed reflect the unease Establishment economists feel over the
Ideo XANANA PILL INDONE AN pops cuT of OR LOSE Indonesia
Student solidarity
A range of organisations are sponsoring an International day of solidarity for Indonesian and East
Timorese students scheduled for Saturday, May 22, one day after the Indonesian student movement forced the resignation of Suharto.
Given the vanguard role being played by the student movement in Indonesia and East Timor at the moment, it is extremely urgent to provide the maximum support for these two movements.
In Australia, there will be marches, rallies, public meeting and other events in most major cities. Activities will also be held in a number of European and N. American cities. Suggested themes
• Solidarity with Indonesian and
East Timorese students!
• Free East Timor! Freedom in
• Release all imprisoned and disappeared students!
• Free Xanana, Budiman and
• End all military ties with the
Habibie-Wiranto regime! Initiated by Resistance Socialist Youth Organisation, Australia. Supporters include: Anteiro da Silva, Student Solidarity Council, Dili, East Timor; Revolutionary Front for an Independent East Timor (FRETILIN), Australia; Students in Solidarity for Democracy in Indonesia (SMID), Indonesia; Students and Peoples Committee for Democracy (KOMRAD), Jakarta, Indonesia; Student Solidarity for Indonesia (SSI), the Netherlands; Malang Student Committee (KMM), Indonesia, and; People's Struggle Committee for Change (KPRP), Indonesia. For more information contact ASIET, PO Box 458, Broadway NSW 2007, Australia. Tel: 61-(0)2-96901230. Fax: 61-(0)2-96901381. Email: asiet@peg.apc.org Webpage: http://www.peg.apc.org/~asiet
International Viewpoint #310 April 1999 27
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* debt patent inability of governments, financial markets and the international financial institutions to get the global economy back on a path towards growth. A flurry of corporate mergers
The tendency towards concentration in the corporate sector has been given a huge boost as we approach the twenty-first century. There were more megamergers in 1998 than in any previous year - in banking, insurance, oil, chemicals, pharmaceuticals, automobiles and the media. This merger trenzy nas amplified the power of a handful of companies over whole sectors of the global economy. The mergers have gone hand in hand with a renewed offensive on the employment front; they invariably mean dismissals and downsizing through 'voluntary' retirement.
At the same time, this striking increase in the concentration of capital has not necessarily meant greater stability for the companies that come out on top. Takeovers and mergers have proceeded with such reckless abandon that the new mega-firms are not likely to be any more resilient than other companies when confronted with abrupt shifts in the world economy. Wealth concentrated in fewer and fewer hands
In its 1997 and 1998 reports, the UNDP keeps a tab on how many of the world's wealthiest individuals one would have to assemble to come up with a total fortune of one trillion (one thousand billion) dollars - keeping in mind that this sum is equal to the annual income of nearly 50 per cent of the world
Using data from Forbes magazine's annual listing of the world's wealthiest individuals, the UNDP calculates that in 1996 it would have taken 348 of the world's mega-rich to put together one trillion dollars. By 1997, however, this figure was brought down to 225. At this rate, in a few years the richest 150 people might well own as much wealth as the total annual income of three billion people! The gap between holders of capital, on the one hand, and the majority of the population, on the other, is growing wider and wider.
The UNDP also makes a radical critique of Thatcherism without mentioning the Iron Lady by name: "During the 1980s, the gap [between rich and poor] in the United Kingdom widened by a degree never before seen in an industrialised country.'
So much for private-sector efficiency
Neoliberalism has been the dominant creed for some 20 years. One of the major arguments made by neoliberal opinion-makers has been that the private sector is much more efficient than
Lost Texts of
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The Fate of the Russian Revolution
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The Fate of the Russian Revolution collects the key texts of these longeclipsed but very important political thinkers — many available nowhere else - vindicating those who made
Transformation and regroupment
Reactions to the current socio-economic crisis all too often take the form of reactionary tendencies of an ethnic, nationalist, racial or religious character. Hence the urgent need to rebuild a world-wide movement of anti-capitalist struggle, taking account of the recomposition of the workers' movement which is underway as a result of the double failure of social democracy and Stalinism. Regroupments of forces determined to learn the lessons of the historical abomination that was Stalinism and to the October Revolution, and restating the real ideas of those Bolsheviks who fought Stalinism until it killed them.
A long introductory essay traces Leon Trotsky's attempts to understand Stalinism and submits Trotsky's ideas to a systematic criticism.
To order your copy of The Fate of the Russian Revolation (608 pages)
send your name & address plus:
UK: £16.99 + E3 pap. Cheques to "AWL"
(To: Box IV, Phoenix Press, PO Box 823, London SE15 4NA.)
28 International Viewpoint #310 April 1999 continue, against the winds and the tides, to fight against capitalism are being realised in a number of countries. In all the countries where such possibilities exist, the organisations of the Fourth International are ready to be part of the re-groupment process. We consider this as an important step towards the recomposition of the anti-capitalist left on a world scale. At the international level, the Fourth International is an active participant in re-groupment, bringing with it the advantages of a long tradition of combat against capitalism and Stalinism. * Price: E5/510. International Viewpoint, PO Box 27410, London SW9 9WQ, Britain.
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Russian Revolation The Fate of the! Lost Tets of Critical Mendum Voll By Mer Shecktmon, Hel Draper, CLR James, Al Giotrer, Joseph Carter and other Balled by Sean M
government in economic matters. Yet
1997 and 1998 have been replete with examples of private-sector inefficiency.
The 1998 reports of the World Bank and the Bank for International Settlements (BIS) concede that it was the private companies of Southeast Asia that had amassed unsustainable debt levels, not government. The same reports say that the previous Third World debt crisis (from 1982 onwards) had resulted from excess public-sector debt. In other words, once the private sector was given free access to international financial markets, it (alongside the financial institutions of the North that provided the loans) proved to be just as short-sighted and reckless as
In the most industrialised countries, the 'hedge funds' that boosted their financial fortunes over the last 15 years have also been reeling of late.
The best known example is that of Long Term Capital (LTCM), a misnamed company if ever there was one. By late September 1998, LICM was on the verge of bankruptcy. It had 4.8 billion dollars in real assets, 200 billion dollars in leveraged funds in its portfolio, and a notional value of 1.25 trillion (1,250 billion) dollars in
It is worth noting that LTCM had been advised all along by the two recipients of the 1997 Nobel Prize in Economics, Myron Scholes and Robert Merton — two stalwarts of the of financial risk', rewarded for their work on derivatives. As its bankruptcy loomed, international banks with conservative reputations admitted to having made imprudently large loans to
Had LTCM not been bailed out through the massive intervention of a number of big banks such as the Union des Banques Suisses (the biggest bank in the world before Deutsche Bank and Bankers Trust merged in late 1998), Deutsche Bank, Bankers Trust, Chase Bank, Barclays, Merrill Lynch, Société Générale, Crédit Agricole and Paribas, all these banks themselves would have found themselves in a highly vulnerable position. Indeed, beyond reckless loans to LTCM, they have all increasingly involved in speculative operations. In the second half of 1998. many of these big banks registered significant losses for the first time in
Finally, there is a long list of formerly state-owned companies that have in no way performed any better in private hands. Huge private industrial concerns have posted losses hand over fist as a result of strategic errors, particularly in the information technology sector.
Further proof of private-sector inefficiency have been the monumental errors made by such private rating agencies as Moody's and Standard and Poors. They had nothing but praise for countries now wallowing in crisis.
Government to the rescue
For the last 20 years, governments have said they would not come to the rescue of struggling companies and have privatised major state-owned concerns.
Now, however, they have been rushing to bail out private-sector companies that threaten to go under. Funds for these rescue packages come from state coffers fed largely by taxes on working people
Here, too, the past two years have been telling. On 23 September 1998, the head of the US Federal Reserve convened a meeting of the world's top international bankers to put together a rescue package for LTCM (*Fed attacked over LTCM bail-out, Financial Times, 2
October 1998; Le Monde diplomatique,
November 1998). Around the same time, the Japanese government was adopting a rescue plan for the country's private financial system, involving nationalisation of a part of private-sector debt — to the tune of 500 billion dollars to be shouldered by the state.
Thanks to IMF and World Bank intervention in the Southeast Asian crisis in 1997, some 100 billion dollars were pooled together to enable the region's private financial institutions to continue paying off their debts to international lenders. Most of this money came from the state coffers of IMF and World Bank member-countries.
The October 1998 IMF package to keep Brazil afloat was also financed by public funds. The plan enabled Brazil to go on servicing its external and internal debts to the international and domestic private financial system. Private financial institutions categorically refused to contribute to this so-called rescue package. Instead, the IMF ensured that their debts would be paid off, and they cynically decided to hang back and refuse to make new loans to Brazil. They adopted exactly the same stance in the face of the 1982 crisis. The time has surely come to put an end to such publicly-funded bailout packages for private finance.
So much for the advantages of financial deregulation
Right up until 1997, the IMF, the World Bank, the BIS and (more Conference on Trade and Development (UNCTAD) sang the praises of financial liberalisation and deregulation. This, they declared, was the way forward for all countries seeking economic growth. Southeast Asia's high growth rates until 1997 were cited as living proof of the success to be had from pursuing such an approach. Once the region was plunged into crisis, the IMF, the World Bank and the BIS declared that the crisis was primarily due to the weakness of the region's private financial sector. This was the best argument they could find to obscure their own responsibility for what has happened.
Of course, the argument is wrong, and UNCTAD has been honest enough to say so. In the press release introducing its
1998 annual Report on Trade and
Development, UNCTAD notes weakening of Asia's private financial sector. This weakening, it says, is the result of the combination of three factors: first, the liberalisation of capital flows; second, high interest rates set by private financial institutions to attract foreign capital and discourage the flight of domestic capital; third, exchange rates fixing national currencies to the dollar.
Together, these factors produced a massive inflow of capital which thoroughly destabilised domestic financial markets. In other words: yes, the financial system was weak; but, no, this weakness was not a vestige of the pre-deregulation period, as the IMF, the World Bank and BIS would have it. On the contrary, it was the policy of deregulation that weakened financial markets. Simply put, the huge inflow of short-term capital was not matched by a corresponding increase in productive activities - which require long-term investments. As a result, most short-term capital was invested in speculative activities, in strict accordance with criteria of capitalist profit
Southeast Asia's financial system was no weaker than those of other so-called emerging markets. Instead, it was undermined by deregulation measures which gave free rein to supposedly highprofit short-term activities such as the quick buying and selling of (often vacant) real estate. According to Walden Bello, 50 per cent of Thai growth in 1996 stemmed from real-estate speculation. Although the IMF and the World Bank were supposed to be monitoring the economic reform process in these countries, their unflinching defense of neoliberal precepts blinded them to the real problems at hand. Yet another debt crisis
All but a handful of the countries of the Periphery - which account for 85 per cent of the world's population → have now to endure yet another debt crisis. The immediate causes are: an increase in interest rates (which are actually falling in the countries of the North); a fall in all types of foreign capital inflows; and a huge drop in export earnings (caused by the fall in the prices of most of the South and the East's exports).
There has been a swift increase in the total debt owed by Asia, Eastern Europe (especially Russia) and Latin America. Short-term debt has increased, while new loans are harder to obtain and export earnings continue to fall. In relative terms, Africa has not been as hard hit by changes in the world situation: loans and investment by the North's private
International Viewpoint #310 April 1999 29
financial institutions have been so dismally low since 1980, things can hardly get any worse except for South
With the 1997 Southeast Asian crisis spreading into Eastern Europe and Latin America, private financial institutions have been increasingly reluctant to make new loans to countries in the Periphery (whether in the Third World or the
Those countries which continue to have access to international financial markets — and continue to make government-bond issues in London and New York - have had to hike the guaranteed return paid on their issues in order to find buyers.
Argentina's October 1998 bond issue on the North's financial markets, for example, offered a 15 per cent rate of return - 2.5 times the average rate of the North's government bond issues. Yet this has not been enough to lure the North and the South's private lenders back from their preference for bonds from the
As was the case in the early 1980s, when the last debt crisis hit, credit has become rare and dear for the Periphery. Between 1993 and 1997, there was a steady increase in foreign direct investment (FDI) in Southeast Asia (including China) and the main economies of Latin America (drawn by the massive wave of privatisations).
This tendency faltered in 1998 and could well do so again in 1999: FDI in Southeast Asia fell by more than 30 per cent between 1997 and 1998; and loans fell by 14 percent between the first half of 1997 and the first half of 1998.
IMF-dictated measures in the countries of the Periphery have led to recession, a loss of some of the key pillars of national sovereignty, and a calamitous fall in the standard of living. In some of these countries, conditions were already unbearable for much of the
While the incomes of domestic holders of capital in these countries continue to rise, there has been a disastrous fall in the income of working-class households. This chasm is as wide or wider than at any time in the twentieth
During the months of September and October 1998, for example, holders of Brazil's internal debt were receiving nearly 50% in annual interest payments, with inflation hovering below 3%.
Brazilian capitalists and multinational companies, especially those based in Brazil, could borrow dollars at 6% interest on Wall Street and loan them to the Brazilian government at between 20
All the while, these same capitalists continued to siphon most of their capital out of the country, to shelter themselves from abrupt changes in the country's economic fortunes. 30 International Viewpoint #310 April 1999
Progressive and radical policies are both necessary and feasible
Global public opinion began to shift in 1997 and 1998, in response to the of policies imposed by a combination of neoliberal governments, domestic and foreign holders of capital and the multilateral financial institutions.
In the wake of the neoliberal whirlwind, a large number of people in Southeast Asia, Russia, Brazil, Mexican, Venezuela, Argentina, Central America and Africa have seen a drop in their standard of living.
For the 400 million inhabitants of the former Asian "dragons' and "tigers', IMF has come to mean 'I'M Fired'. Across the planet, including in Europe, a sizeable share of the population has begun to challenge neoliberal policies. In some cases, this has taken on contradictory and confused forms. In most countries, the weakness of the radical Left and the slavish submission of the traditional Left to the dictates of the market (that is, of holders of capital) have created an opening for parties and movements that redirect the population's consciousness and will to act against a series of scapegoats, be they foreigners or followers of a different faith.
Successful resistance to the ongoing neoliberal offensive is no easy matter; but those engaged in struggle have a number of points in their favour, including partial victories. The October 1998 decision by the French government of Lionel Jospin to withdraw from negotiations on the Multilateral Accord on Investments (MAI) came about in response to a broad campaign of opposition organised by an array of movements, trades unions and parties in France, the USA, Canada, the Third World and across Europe.
To be sure, multinational corporations and the US government will again attempt to push through the MAT's objectives of total freedom for holders of capital. For the moment, though, they have suffered a major reversal. It is indeed possible to roll back such government and corporate initiatives through campaigns and mobilisation.
Another sign of the changing times was the UNCTAD September 1998 in favour of the right of countries to declare a moratorium on foreign-debt payments: "A country which is attacked can decide to declare a moratorium on debt-servicing payments in order to dissuade "predators" and have some "breathing room" within which to set out a debt restructuring plan.
"Article VIII of the IMF's Statutes could provide the necessary legal basis for declaring a moratorium on debtservicing payments. The decision to declare such a moratorium can be taken unilaterally by a country in the face of an attack on its currency" (UNCTAD Press release, 28 August 1998).
Of course, UNCTAD is a small player in comparison to the G7, the IMF, the World Bank and the World Trade Organisation (WTO). But this forthright defiance of the so-called inalienable rights of moneylenders reveals that governments in the Periphery are finding it increasingly difficult to Justity their support for the neoliberal globalisation
The UNDP's 1998 report calculates that a 4% tax on the assets of the world's 225 wealthiest people would bring in 40 billion dollars. This is the modest sum that would have to be invested annually in 'social spending' worldwide over a period of ten years in order to provide: universal access to clean water (1.3bn people went without such access in 1997); universal access to education (1bn people are illiterate); universal access to basic health care (17m children die annually of easily curable diseases); universal access to basic nutrition 2bn people suffer from anaemia); universal access to proper sewage and sanitation facilities; and universal access by women to basic gynecological and obstetric care.
Meeting these ambitious targets would cost only $40bn annually worldwide over a period of ten years. The UNCTAD report compares this figure to some other types of spending which humankind could easily do without: in 1997, Európeans spent $50bn cigarettes, and $105bn on alcoholic drinks; the USA and Europe spent $17bn on pet food; and worldwide, $400bn were spent on drugs, $780bn on the military. An incredible $1,000bn were spent on advertising.
1999 and 2000 are Jubilee years in the Judeo-Christian tradition which culturally dominates the select club of G7 countries. With yet another debt crisis upon us, Jubilee tradition demands that we energetically call for the complete and total cancellation of the debts of the countries of the Periphery.
A host of other measures must be implemented urgently, such as: a tax on international financial transactions (as called for by the ATTAC coalition); an inquiry into the overseas holdings of wealthy citizens of the countries of the Periphery, leading to the expropriation and restitution of these holdings to the peoples of the countries in question when they are the result of theft and embezzlement; bold measures to restrict capital flows; an across-the-board reduction in the working week with corresponding hiring and no loss of wages; land reform providing universal access to land for small farmers and peasants; measures favouring equality between men and
Though incomplete and insufficient, these measures are a necessary first step towards satisfying basic human needs. * Contact CADTM, 29 rue Plantin, B-1070 Brussels, Tel: (32-2) 527.59.90 Fax: 522.61.27, cadtm @skynet.be
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