   |
 |
|
|
|
|
|
<< Index
Walden Bello - 2008
Walden Bello is a member of the House of Representatives of the Republic of the Philippines and president of the Freedom from Debt Coalition. A retired professor of sociology at the University of the Philippines, he is currently a senior analyst at the Bangkok-based analysis and advocacy institute Focus on the Global South. He is the author of 15 books, the most recent of which is The Food Wars.
Elites vs. Greens in the Global South (17 January 2008)
Last month’s conference on climate change in Bali, Indonesia, brought the North-South fault line in climate politics into sharp relief. While U.S. intransigence on the question of mandatory cuts in greenhouse gas emissions took center stage, not far behind was the issue of what commitments fast-growing developing countries like China and India should make in a new, post-Kyoto climate change regime.
The developing world’s stance toward the question of the environment has often been equated with the pugnacious stance of former Malaysian Prime Minister Mohamad Mahathir, who famously said at the Rio Conference on the Environment and Development in June 1992, “When the rich chopped down their own forests, built their poison-belching factories and scoured the world for cheap resources, the poor said nothing. Indeed they paid for the development of the rich. Now the rich claim a right to regulate the development of the poor countries…As colonies we were exploited. Now as independent nations we are to be equally exploited.” The North has interpreted Mahathir as speaking for a South that doesn’t have much of an environmental movement and that seeks to catch up whatever the cost. Today, China has emerged as the prime exemplar of this Mahathirian obsession with rapid industrialization that has minimal regard for the environment. In fact, however, the environmental costs of rapid industrialization are of major concern to significant sectors of the population of developing countries. The environmental movement, moreover, has been a significant actor in the debates in which many countries are exploring alternatives to the destabilizing high-growth model. While the focus of this piece is Asia, many of the same trends can be observed in Latin America, Africa, and other parts of the global South. The Environmental Movement in the NICs Among the most advanced environmental movements are those in South Korea and Taiwan, which were once known as “Newly Industrializing Countries” (NICs) or “Newly Industrializing Economies.” This should not be surprising since the process of rapid industrialization in these two societies from 1965 to 1990 took place with few environmental controls, if any. In Korea, the Han River that flows through Seoul and the Nakdong River flowing through Pusan were so polluted by unchecked dumping of industrial waste that they were close to being classified as biologically dead. Toxic waste dumping reached critical proportions. Seoul achieved the distinction in 1978 of being the city with the highest content of sulphur dioxide in the air, with high levels being registered as well in Inchon, Pusan, Ulsan, Masan, Anyang, and Changweon. In Taiwan, high-speed industrialization had its own particular hellish contours. Taiwan’s formula for balanced growth was to prevent industrial concentration and encourage manufacturers to set up shop in the countryside. The result was a substantial number of the island’s factories locating on rice fields, along waterways, and beside residences. With three factories per square mile, Taiwan’s rate of industrial density was 75 times that of the United States. One result was that 20% of farm land was polluted by industrial waste water and 30% of rice grown on the island was contaminated with heavy metals, including mercury, arsenic, and cadmium. In both societies, farmers, workers, and the environment bore the costs of high-speed industrialization. Both societies saw the emergence of an environmental movement that was spontaneous, quite militant, drew participants from different classes, and linked environmental demands with issues of employment, occupational health, and agricultural crisis. Direct action became a weapon of choice. “People have learned that protesting can bring results; most of the actions for which we could find out the results had achieved their objectives,” sociologist Michael Hsiao points out. “The polluting factories were either forced to make immediate improvement of the conditions or pay compensation to the victims. Some factories were even forced to shut down or move to another location. A few preventive actions have even succeeded in forcing prospective plants to withdraw from their planned construction.” The environmental movements in both societies were able to force government to come out with restrictive new rules on toxics, industrial waste, and air pollution. Ironically, however, these successful cases of citizen action created a new problem, which was the migration of polluting industries from Taiwan and Korea to China and Southeast Asia. Along with Japanese firms, Korean and Taiwanese enterprises went to Southeast Asia and China mainly for two reasons: cheap labor and lax environmental laws. Environmental Struggles in Southeast Asia Unlike in Korea and Taiwan, environmental movements already existed in a number of the Southeast Asian countries before the period of rapid industrialization, which in their case occurred in the mid-1980s to the mid-1990s. These movements had emerged in the previous decade in struggles against nuclear power, as in the Philippines; against big hydroelectric dams, as in Thailand, Indonesia, and the Philippines; and against deforestation and marine pollution, as in Thailand, Malaysia, and the Philippines. These were epic battles, like the struggle against the Chico River Dam in the northern Philippines and the fight against the Pak Mun Dam in the northeast of Thailand, which forced the World Bank to withdraw its planned support for giant hydroelectric projects-- an outcome that, as we shall see later on, also occurred in struggle against the Narmada Dam in India. The fight against industrial development associated partly with foreign firms seeking to escape strict environmental regulations at home opened up a new front in an ongoing struggle to save the environment. Perhaps even more than in Northeast Asia, the environmental question in Southeast Asia went beyond being a middle-class issue. In the Chico struggle, the opposition were indigenous people, while in the fight against the Pak Mun Dam, it was small farmers and fisherfolk. The environmental issue was also more coherently integrated into an overarching critique. Movements in the Philippines, for instance, viewed deforestation as an inevitable consequence of a strategy of export-oriented growth imposed by World Bank-International Monetary Fund structural adjustment programs that sought to pay off the country’s massive foreign debt with the dollars gained from exporting the country’s timber and other natural resources and manufactures produced by cheap labor. The middle class, workers, the urban poor, and environmentalists were thrust into a natural alliance. Meanwhile, transnational capital, local monopoly capital, and the central government created an anti-environmental axis. The environmental movements in Southeast Asia played a vital role not only in scuttling projects like the Bataan nuclear plant but in ousting the dictatorships that reigned there in the 1970s and 1980s. Indeed, because authoritarian regimes did not perceive the environment as “political,” organizing around environmental and public health issues was not initially proscribed. Thus, environmental struggles became an issue around which the anti-dictatorship movement could organize and reach new people. Environmental destruction became one more graphic example of a regime’s irresponsibility. In Indonesia, for example, the environmental organization WALHI went so far as to file a lawsuit for pollution and environmental destruction against six government bodies, including the ministry of the environment and population. By the time the dictatorships wised up to what was happening, it was often too late: environmentalism and anti-fascism fed on one another. The environmental movement is at an ebb throughout the region today, but consciousness about threats to the environment and public health is widespread and can be translated into a new round of activism if the right circumstances come together. Environmental Protests in China The environmental movement in China exhibits many of the same dynamics observed in the NICs and Southeast Asia. The environmental crisis in China is very serious. For example, the ground water table of the North China plain is dropping by 1.5 meters (5 feet) per year. This region produces 40% of China's grain. As environmentalist Dale Wen remarks, “One cannot help wonder about how China will be fed once the ground aquifer is depleted.” Water pollution and water scarcity; soil pollution, soil degradation and desertification; global warming and the coming energy crisis – these are all byproducts of China’s high-speed industrialization and massively expanded consumption. Most of the environmental destabilization in China is produced by local enterprises and massive state projects such as the Three Gorges Dams, but the contribution of foreign investors is not insignificant. Taking advantage of very lax implementation of environmental laws in China, many western corporations have relocated their most polluting factories into the country and have exacerbated or even created many environmental problems. Wen notes that the Pearl River Delta and Yangtze River Delta, the two Special Economic Zones where most transnational subsidiaries are located, are the most seriously affected by heavy metal and POPs (persistent organic pollutants) pollution. Global warming is not a distant threat. The periodical Frontline reports that the first comprehensive study of the impact of the sea level rise of global warming by Gordon McGranahan, Deborah Balk, and Bridget Anderson puts China as the country in Asia most threatened if the sea level rises up to 10 meters over the next century. Ten percent of China's population, or 144 million people, live in low-elevation coastal zones, and this figure is likely to increase as a result of the export-oriented industrialization strategies pursued by the government, which has involved the creation of numerous special economic zones. “From an environmental perspective,” the study warns, “there is a double disadvantage to excessive (and potentially rapid) coastal development. First, uncontrolled coastal development is likely to damage sensitive and important ecosystems and other resources. Second, coastal settlement, particularly in the lowlands, is likely to expose residents to seaward hazards such as sea level rise and tropical storms, both of which are likely to become more serious with climate change.” The recent spate of super-typhoons descending on the Asian mainland from the Western Pacific underlines the gravity of this observation. As in Taiwan and Korea 15 years earlier, unrestrained export-oriented industrialization in China has brought together low-wage migrant labor, farming communities whose lands are being grabbed or ruined environmentally, environmentalists, and the proponents of a major change in political economy called the “New Left.” Environment-related riots, protests, and disputes in China increased by 30% in 2005 to more than 50,000, as pollution-related unrest has become “a contagious source of instability in the country,” as one report put it. Indeed, a great many of recorded protests fused environmental, land-loss, income, and political issues. According to the Ministry of Public Security, “mass group incidents” have grown from 8,700 in 1995 to 87,000 in 2005, most of them in the countryside. Moreover, the incidents are growing in average size from 10 or fewer persons in the mid-1990s to 52 people per incident in 2004. Notable were the April 2005 riots in Huashui, where an estimated 10,000 police officers clashed with desperate villagers who succeeded in repelling strong vested interests polluting their lands. As in Taiwan, people have discovered the effectiveness of direct action in rural China. "Without the riot, nothing would have changed," said Wang Xiaofang, a 43-year-old farmer. "People here finally reached their breaking point." As in Southeast Asia, struggles around the environment and public health may be leading to a more comprehensive political consciousness. The strength of China’s environmental movement must not be exaggerated. Indeed, its failures often outnumber its successes. Alliances are often spontaneous and do not go beyond the local level. What Dale Wen calls a national “red green” coalition for change remains a potential force, one that is waiting to be constructed. Nevertheless, the environmental movement is no longer a marginal actor and it is definitely something that the state and big capital have to deal with. Indeed, the ferment in the countryside is a key factor in making the current Chinese leadership more open to suggestions from the so-called “New Left” for a change of course in economic policy from rapid export-oriented growth to a more sustainable and slower domestic-demand led growth. The Environmental Movement in India As in China, the environment and public health have been sites of struggle in India. Over the last 25 years, the movement for the environment and public health has exploded in that country, contributing to a deepening of Indian democracy. Also, many of the leaders of environmental struggles in India have also become key figures in the international movements for the environment . Although environmental and public health struggles go way back, perhaps the single biggest event that propelled the movement to becoming a critical mass was the Bhopal gas leak on December 3, 1984. This tragedy released 40 tons of methyl isocynate, killed 3000 people outright, and ultimately caused 15,000 to 20,000 deaths. The struggle for just compensation for the Bhopal victims continues till this day. Today struggles proliferate in this vast country. There is the national campaign against Coca Cola and Pepsi Cola plants for drawing ground water and contaminating fields with sludge. There are local struggles against intensive aquaculture farms in Tamil Nadu, Orissa, and other coastal states. There is a non-violent but determined campaign by farmers against GMOs, which has involved the uprooting and burning of fields planted to genetically engineered rice. The most influential of India’s mass-based environmental movement has been the anti-dam movement. Dams have often represented the modernist vision that guided many Third World governments in their struggle to catch up with the West. The technological blueprint for power development for the post-World War II period was that of creating a limited number of power generators – giant dams, coal or oil-powered plants, or nuclear plants – at strategic points to generate electricity that could be distributed to every nook and cranny of the country. Traditional or local sources of power that allowed some degree of self-sufficiency were unfashionable. If you were not hooked up to a central grid, you were backward. Centralized electrification with its big dams, big coal-fired plants, and nuclear plants became the rage. Indeed, there was an almost religious fervor about this vision among leaders and technocrats who defined their life's work as "missionary electrification" or the connection of the most distant village to the central grid. Jawaharlal Nehru, the dominant figure in post-war India, called dams the “temples of modern India,” a statement that, as Indian author Arundhati Roy points out, made its way into primary school textbooks in every Indian language. Big dams have become such an article of faith that “to question their utility amounts almost to sedition,” Roy writes in her brilliant essay, “The Cost of Living.” In the name of missionary electrification, India's technocrats, Roy observes, not only built "new dams and irrigation schemes...[but also] took control of small, traditional water-harvesting systems that had been managed for thousands of years and allowed them to atrophy." Here Roy expresses an essential truth: that centralized electrification preempted the development of alternative power-systems that could have been more decentralized, more people-oriented, more environmentally benign, and less capital intensive. The key forces behind central electrification were powerful local coalitions of power technocrats, big business, and urban-industrial elites. Despite the rhetoric about "rural electrification," centralized electrification was essentially biased toward the city and industry. Especially in the case of dams, it involved expending the natural capital of the countryside and the forests to subsidize the growth of urban-based industry. Industry was the future. Industry was what really added value. Industry was synonymous with national power. Agriculture was the past. While these interests benefited, others paid the costs. Specifically, the rural areas and the environment absorbed the costs of centralized electrification. Tremendous crimes have been committed in the name of power generation and irrigation, says Roy, but these were hidden because governments never recorded these costs. In India, Roy calculates that large dams have displaced about 33 million people in the last 50 years, about 60% either untouchables or indigenous peoples Things changed when the government announced its plans to dam the mighty Narmada River in the late 1970s. Instead of quietly accepting the World Bank-backed enterprise, the affected people mounted a resistance that continues to this day. The Narmada Bachao Andolan movement led by Medha Patkar at the Sardar Sarovar Dam and Alok Aggarwal and Silvi at the Maheshwar Dam drew support from all over India and internationally. The resistance of the people, most of them adivasis or indigenous people, succeeded in forcing the World Bank to stop funding the project. Saddled with delays, the dam’s completion has become uncertain. The Supreme Court, for instance, ordered rehabilitation for all those affected by the Sardar Sarovar Dam's construction, and in March 2005 ruled to halt construction on the dam until this had happened. Construction of the dam has now been halted at 110.6 meters, a figure that is much higher than the 88 metres proposed by the activists, and lower than the 130 meters that the dam is eventually supposed to reach. It is unclear at this point what the final outcome of the project will be or when it will be completed, though the entire project is meant to be finished by 2025. The fate of the Maheshwar Dam is similarly unclear. Equally important was the broader political impact of the Narmada struggle. It proved to be the cutting edge of the social movements that have deepened India’s democracy and transformed the political scene. The state bureaucracy must now listen to these movements or risk opposition. The political parties must heed their messages or risk being thrown out of power. Social movements in the rural areas played a key role in stirring up the mass consciousness that led to the defeat in 2004 of the neoliberal coalition led by the Hindu chauvinist BJP (Bharatiya Janata Party) that had campaigned on the pro-globalization slogan “India Shining.” Its successor, the Congress Party-led coalition, has turned its back on the rural protest that led to its election. Following the same anti-agriculture and pro-globalization policies of the BJP, the coalition risks provoking an even greater backlash in the near future. The environmental movement faces its biggest challenge today: global warming. As in China, the threat is not distant either in space or in time. The Mumbai deluge of 2005 came at a year of excessive rainfall that would normally occur once in 100 years. The Himalayan glaciers have been retreating, with one of the largest of them, Gangotri, receding at what Frontline described as “an alarming rate, influencing the stream run-off of Himalayan rivers.” Six percent, or 63.2 million, of India’s population live in low elevation coastal zones that are vulnerable to sea-level rise. As in China, the challenge in India lies in building up a mass movement that might be unpopular not only with the elite but also with sections of the urban-based middle class sectors. The middle class, after all, was the main beneficiary of the high-growth economic strategy that has been pursued since the early 1990s. National Elites and Third Worldism The reason for tracing the evolution of a mass-based environmental movement in East Asia and India is to counter the image that the Asian masses are inert elements that uncritically accept the environmentally damaging high-growth export-oriented models promoted by their governing elites. As the geographer Jared Diamond notes in his influential book Collapse, people in the Third World “know very well how they are being harmed by population growth, deforestation, overfishing, and other problems. They know it because they immediately pay the penalty, in forms such as loss of free timber for their houses, massive soil erosion, and…their inability to afford clothes, books, and school fees for their children.” It is the national elites that spout the ultra-Third Worldist line that the South has yet to fulfill its quota of polluting the world while the North has exceeded its quota. They insist on an exemption for the big rapidly industrializing countries from mandatory limits on the emission of greenhouse gases under a new Kyoto Protocol. When the Bush administration refuses to ratify the Kyoto Protocol because it does not bind China and India, and the Chinese and Indian governments say they will not tolerate curbs on their greenhouse gas emissions because the United States has not ratified Kyoto, they are in fact playing out an unholy alliance to allow their economic elites to continue to evade their environmental responsibilities and free-ride on the rest of the world. This alliance has now become formalized in the so-called “Asia Pacific Partnership” created last year by China, India, Japan, Korea, and the United States as a rival to the UN-negotiated Kyoto Protocol. Having recently recruited Canada, which is now led by Bush clone Stephen Harper, this grouping seeks voluntary, as opposed mandatory, curbs on greenhouse gas emissions. This dangerous band of renegade states simply wants to spew carbon as they damn well please, which is what voluntary targets are all about. They are the core of the Major Economies Meeting slated later this month in Honolulu that many fear is designed to derail the recently agreed “Bali Roadmap.” The Need for Global Adjustment There is no doubt that the burden of adjustment to global warming will fall on the North. This adjustment will have to be made in the next 10-15 years, and it might need to be much greater than the 50% reduction from 1990s level by 2050 promoted by the G 8 for the developed countries. Some experts predict that necessary reductions will be closer to a 100-150% reduction from 1990 levels. However, the South will also have to adjust, proportionately less than the North but also rather stringently. Bringing in China, now the second biggest emitter of greenhouse gases, into a regime of mandatory reductions would be a first step in this process. The South’s adjustment will not take place without the North taking the lead. But it will also not take place unless its leaders junk the export-oriented, high-growth paradigm promoted by the World Bank and most economists. People in the South are open to an alternative to a model of growth that has failed both the environment and society. For instance, in Thailand, a country devastated by the Asian financial crisis and wracked by environmental problems, globalization and export-oriented growth are now bad words. To the consternation of the pro-market Economist, Thais are more and more receptive to the idea of a “sufficiency economy” promoted by King Bhumibol, which is an inward-looking strategy that stresses self-reliance at the grassroots and the creation of stronger ties among domestic economic networks, along with “moderately working with nature.” Thailand may be an exception in terms of the leadership role for a more sustainable path played by an elite, and even there the commitment of that elite to an alternative path is tentative. Clearly, one cannot depend on the elites and some sections of the urban middle class to decisively change course. At best, they will procrastinate. The fight against global warming will need to be propelled mainly by an alliance between progressive civil society in the North and mass-based citizens’ movements in the South. As in North, the environmental movements in the South have seen their ebbs and flows. As with all social movements, it takes a particular conjunction of circumstances to bring an environmental movement to life after being quiescent for some time or to transform diverse local struggles into one nationwide movement. The challenge facing activists in the global North and the global South is to bring about those circumstances that will trigger the formation of a global mass movement that will decisively confront the most crucial challenge of our times. Sources
Capitalism in an Apocalyptic Mood (20 February 2008)
Skyrocketing oil prices, a falling dollar, and collapsing financial markets are the key ingredients in an economic brew that could end up in more than just an ordinary recession. The falling dollar and rising oil prices have been rattling the global economy for sometime. But it is the dramatic implosion of financial markets that is driving the financial elite to panic.
And panic there is. Even as it characterized Federal Reserve Board Chairman Ben Bernanke’s deep cuts amounting to a 1.25 points off the prime rate in late January as a sign of panic, the Economist admitted that “there is no doubt that this is a frightening moment.” The losses stemming from bad securities tied up with defaulted mortgage loans by “subprime” borrowers are now estimated to be in the range of about $400 billion. But as the Financial Times warned, “the big question is what else is out there” at a time that the global financial system “is wide open to a catastrophic failure.” In the last few weeks, for instance, several Swiss, Japanese, and Korean banks have owned up to billions of dollars in subprime-related losses. The globalization of finance was, from the beginning, the cutting edge of the globalization process, and it was always an illusion to think that the subprime crisis could be confined to U.S. financial institutions, as some analysts had thought. Some key movers and shakers sounded less panicky than resigned to some sort of apocalypse. At the global elite’s annual week-long party at Davos in late January, George Soros sounded positively necrological, declaring to one and all that the world was witnessing “the end of an era.” World Economic Forum host Klaus Schwab spoke of capitalism getting its just desserts, saying, “We have to pay for the sins of the past.” He told the press, “It’s not that the pendulum is now swinging back to Marxist socialism, but people are asking themselves, ‘What are the boundaries of the capitalist system?’ They think the market may not always be the best mechanism for providing solutions.” Ruined Reputations and Policy Failures While some appear to have lost their nerve, others have seen the financial collapse diminish their stature. As chairman of President Bush’s Council of Economic Advisers in 2005, Ben Bernanke attributed the rise in U.S. housing prices to “strong economic fundamentals” instead of speculative activity. So is it any wonder why, as Federal Reserve chairman, he failed to anticipate the housing market’s collapse stemming from the subprime mortgage crisis? His predecessor, Alan Greenspan, however, has suffered a bigger hit, moving from iconic status to villain in the eyes of some. They blame the bubble on his aggressively cutting the prime rate to get the United States out of recession in 2003 and restraining it at low levels for over a year. Others say he ignored warnings about aggressive and unscrupulous mortgage originators enticing “subprime” borrowers with mortgage deals they could never afford. The scrutiny of Greenspan’s record and the failure of Bernanke’s rate cuts so far to reignite bank lending has raised serious doubts about the effectiveness of monetary policy in warding off a recession that is now seen as all but inevitable. Nor will fiscal policy or putting money into the hands of consumers do the trick, according to some weighty voices. The $156 billion stimulus package recently approved by the White House and Congress consists largely of tax rebates, and most of these, according to New York Times columnist Paul Krugman, will go to those who don’t really need them. The tendency will thus be to save rather than spend the rebates in a period of uncertainty, defeating their purpose of stimulating the economy. The specter that now haunts the U.S. economy is Japan’s experience of virtually zero annual growth and deflation despite a succession of stimulus packages after Tokyo’s great housing bubble deflated in the late 1980s. The Inevitable Bubble Even with the finger-pointing in progress, many analysts remind us that if anything, the housing crisis should have been expected all along. The only question was when it would break. As progressive economist Dean Baker of the Center for Economic Policy Research noted in an analysis several years ago, “Like the stock bubble, the housing bubble will burst. Eventually, it must. When it does, the economy will be thrown into a severe recession, and tens of millions of homeowners, who never imagined that house prices could fall, likely will face serious hardship.” The subprime mortgage crisis was not a case of supply outrunning real demand. The “demand” was largely fabricated by speculative mania on the part of developers and financiers that wanted to make great profits from their access to foreign money that flooded the United States in the last decade. Big ticket mortgages were aggressively sold to millions who could not normally afford them by offering low “teaser” interest rates that would later be readjusted to jack up payments from the new homeowners. These assets were then “securitized” with other assets into complex derivative products called “collateralized debt obligations” (CDOs) by the mortgage originators working with different layers of middlemen who understated risk so as to offload them as quickly as possible to other banks and institutional investors. The shooting up of interest rates triggered a wave of defaults, and many of the big name banks and investors – including Merrill Lynch, Citigroup, and Wells Fargo – found themselves with billions of dollars worth of bad assets that had been given the green light by their risk assessment systems. The Failure of Self-Regulation The housing bubble is only the latest of some 100 financial crises that have swiftly followed one another ever since the lifting of Depression-era capital controls at the onset of the neoliberal era in the early 1980s. The calls now coming from some quarters for curbs on speculative capital have an air of déjà vu. After the Asian Financial Crisis of 1997, in particular, there was a strong clamor for capital controls, for a “new global financial architecture.” The more radical of these called for currency transactions taxes such as the famed Tobin Tax, which would have slowed down capital movements, or for the creation of some kind of global financial authority that would, among other things, regulate relations between northern creditors and indebted developing countries. Global finance capital, however, resisted any return to state regulation. Nothing came of the proposals for Tobin taxes. The banks killed even a relatively weak “sovereign debt restructuring mechanism” akin to the U.S. Chapter Eleven to provide some maneuvering room to developing countries undergoing debt repayment problems, even though the proposal came from Ann Krueger, the conservative American deputy managing director of the IMF. Instead, finance capital promoted what came to be known as the Basel II process, described by political economist Robert Wade as steps toward global economic standardization that “maximize [global financial firms’] freedom of geographical and sectoral maneuver while setting collective constraints on their competitive strategies.” The emphasis was on private sector self-surveillance and self-policing aimed at greater transparency of financial operations and new standards for capital. Despite the fact that it was finance capital from the industrialized countries that triggered the Asian crisis, the Basel process focused on making developing country financial institutions and processes transparent and standardized along the lines of what Wade calls the “Anglo-American” financial model. Calls to regulate the proliferation of these new, sophisticated financial instruments, such as derivatives placed on the market by developed country financial institutions, went nowhere. Assessment and regulation of derivatives were left to market players who had access to sophisticated quantitative “risk assessment” models. Focused on disciplining developing countries, the Basel II process accomplished so little in the way of self-regulation of global financial from the North that even Wall Street banker Robert Rubin, former secretary of treasury under President Clinton, warned in 2003 that “future financial crises are almost surely inevitable and could be even more severe.” As for risk assessment of derivatives such as the “collaterized debt obligations” (CDOs) and “structured investment vehicles” (SIVs) – the cutting edge of what the Financial Times has described as “the vastly increased complexity of hyperfinance” – the process collapsed almost completely. The most sophisticated quantitative risk models were left in the dust. The sellers of securities priced risk by one rule only: underestimate the real risk and pass it on to the suckers down the line. In the end, it was difficult to distinguish what was fraudulent, what was poor judgment, what was plain foolish, and what was out of anybody’s control. “The U.S. subprime mortgage market was marked by poor underwriting standards and ‘some fraudulent practices,’” as one report on the conclusions of a recent meeting of the Group of Seven’s Financial Stability Forum put it. “Investors didn’t carry out sufficient due diligence when they bought mortgage-backed securities. Banks and other firms managed their financial risks poorly and failed to disclose to the public the dangers on and off their balance sheets. Credit-rating companies did an inadequate job of evaluating the risk of complex securities. And the financial institutions compensated their employees in ways that encouraged excessive risk-taking and insufficient regard to long-term risks." The Specter of Overproduction It is not surprising that the G-7 report sounded very much like the post-mortems of the Asian financial crisis and the dot.com bubble. One financial corporation chief writing in the Financial Times captured the basic problem running through these speculative manias, perhaps unwittingly, when he claimed that “there has been an increasing disconnection between the real and financial economies in the past few years. The real economy has grown…but nothing like that of the financial economy, which grew even more rapidly – until it imploded.” What his statement does not tell us is that the disconnect between the real and the financial is not accidental, that the financial economy expanded precisely to make up for the stagnation of the real economy. The stagnation of the real economy stems is related to the condition of overproduction or over-accumulation that has plagued the international economy since the mid-1970s. Stemming from global productive capacity outstripping global demand as a result of deep inequalities, this condition has eroded profitability in the industrial sector. One escape route from this crisis has been “financialization,” or the channeling of investment toward financial speculation, where greater profits could be had. This was, however, illusory in the long run since, unlike industry, speculative finance boiled down to an effort to squeeze out more “value” from already created value instead of creating new value. The disconnect between the real economy and the virtual economy of finance was evident in the dot.com bubble of the 1990s. With profits in the real economy stagnating, the smart money flocked to the financial sector. The workings of this virtual economy were exemplified by the rapid rise in the stock values of Internet firms that, like Amazon.com, had yet to turn a profit. The dot.com phenomenon probably extended the boom of the 1990s by about two years. “Never before in U.S. history,” Robert Brenner wrote, “had the stock market played such a direct, and decisive, role in financing non-financial corporations, thereby powering the growth of capital expenditures and in this way the real economy. Never before had a US economic expansion become so dependent upon the stock market’s ascent.” But the divergence between momentary financial indicators like stock prices and real values could only proceed to a point before reality bit back and enforced a “correction.” And the correction came savagely in the dot.com collapse of 2002, which wiped out $7 trillion in investor wealth. A long recession was avoided, but only because another bubble, the housing bubble, took the place of the dot.com bubble. Here, Greenspan played a key role by cutting the prime rate to a 45-year low of one percent in June 2003, holding it there for a year, then raising it only gradually, in quarter-percentage-increments. As Dean Baker put it, “an unprecedented run-up in the stock market propelled the U.S. economy in the late nineties and now an unprecedented run-up in house prices is propelling the current recovery.” The result was that real estate prices rose by 50% in real terms, with the run-ups, according to Baker, being close to 80% in the key bubble areas of the West Coast, the East Coast north of Washington, DC, and Florida. Baker estimates that the run-up in house prices “created more than $5 trillion in real estate wealth compared to a scenario where prices follow their normal trend growth path. The wealth effect from house prices is conventionally estimated at five cents to the dollar, which means that annual consumption is approximately $250 billion (2 per cent of gross domestic product [GDP]) higher than it would be in the absence of the housing bubble.” The China Factor The housing bubble fueled U.S. growth, which was exceptional given the stagnation that has gripped most of the global economy in the last few years. During this period, the global economy has been marked by underinvestment and persistent tendencies toward stagnation in most key economic regions apart from the United States, China, India, and a few other places. Weak growth has marked most other regions, notably Japan, which was locked until very recently into a one percent GDP growth rate, and Europe, which grew annually by 1.45% in the last few years. With stagnation in most other areas, the United States has pulled in some 70% of all global capital flows. A great deal of this has come from China. Indeed, what marks this current bubble period is the role of China as a source not only of goods for the U.S. market but also capital for speculation. The relationship between the United States and Chinese economies is what I have characterized elsewhere as chain-gang economics. On the one hand, China’s economic growth has increasingly depended on the ability of American consumers to continue their debt-financed spending spree to absorb much of the output of China’s production. On the other hand, this relationship depends on a massive financial reality: the dependence of U.S. consumption on China’s lending the U.S. Treasury and private sector dollars from the reserves it accumulated from its yawning trade surplus with the United States: one trillion dollars so far, according to some estimates. Indeed, a great deal of the tremendous sums China – and other Asian countries – lent to American institutions went to finance middle-class spending on housing and other goods and services, prolonging the fragile U.S. economic growth but only by raising consumer indebtedness to dangerous, record heights. The China-U.S. coupling has had major consequences for the global economy. The massive new productive capacity by American and other foreign investors moving to China has aggravated the persistent problem of overcapacity and overproduction. One indicator of persistent stagnation in the real economy is the aggregate annual global growth rate, which averaged 1.4% in the 1980s and 1.1% in the 1990s, compared to 3.5% in the 1960s and 2.4% in the 1970s. Moving to China to take advantage of low wages may shore up profit rates in the short term. But as it adds to overcapacity in a world where a rise in global purchasing power is constrained by growing inequalities, such capital flight erodes profits in the long term. And indeed, the profit rate of the largest 500 U.S. transnational corporations fell drastically from 4.9% from 1954-59, to 2.04% from 1960-69, to -5.30% from 1989-89, to -2.64% from 1990-92, and to -1.92% from 2000-2002. Behind these figures, notes Philip O’Hara, was the specter of overproduction: “Oversupply of commodities and inadequate demand are the principal corporate anomalies inhibiting performance in the global economy.” The succession of speculative manias in the United States has had the function of absorbing investment that did not find profitable returns in the real economy and thus not only artificially propping up the U.S. economy but also “holding up the world economy,” as one IMF document put it. Thus, with the bursting of the housing bubble and the seizing up of credit in almost the whole financial sector, the threat of a global downturn is very real. Decoupling Chain-Gang Economics? In this regard, talk about a process of “decoupling” regional economies, especially the Asian economic region, from the United States has been without substance. True, most of the other economies in East and Southeast Asia have been pulled along by the Chinese locomotive. In the case of Japan, for instance, a decade-long stagnation was broken in 2003 by the country’s first sustained recovery, fueled by exports to slake China’s thirst for capital and technology-intensive goods. Exports shot up by a record 44%, or $60 billion. Indeed, China became the main destination for Asia’s exports, accounting for 31% while Japan’s share dropped from 20 to 10%. As one account in the Strait Times in 2004 pointed out, “In country-by-country profiles, China is now the overwhelming driver of export growth in Taiwan and the Philippines, and the majority buyer of products from Japan, South Korea, Malaysia, and Australia.” However, as research by C.P. Chandrasekhar and Jayati Ghosh and has underlined, China is indeed importing intermediate goods and parts from these countries but only to put them together mainly for export as finished goods to the United States and Europe, not for its domestic market. Thus, “if demand for Chinese exports from the United States and the EU slow down, as will be likely with a U.S. recession, this will not only affect Chinese manufacturing production, but also Chinese demand for imports from these Asian developing countries.” Perhaps the more accurate image is that of a chain gang linking not only China and the United States but a host of other satellite economies whose fates are all tied up with the now-deflating balloon of debt-financed middle-class spending in the United States. New Bubbles to the Rescue? Do not overestimate the resiliency of capitalism. After the collapse of the dot.com boom and the housing boom, a third line of defense against stagnation owing to overcapacity may yet emerge. For instance, the U.S. government might pull the economy out of the jaws of recession through military spending. And, indeed, the military economy did play a role in bringing the United States out of the 2002 recession, with defense spending in 2003 accounting for 14% of GDP growth while representing only 4% of the overall U.S. GDP. According to estimates cited by Chalmers Johnson, defense-related expenditures will exceed $1 trillion for the first time in history in 2008. Stimulus could also come from the related “disaster capitalism complex” so well studied by Naomi Klein: the “full fledged new economy in home land security, privatized war and disaster reconstruction tasked with nothing less than building and running a privatized security state both at home and abroad.” Klein says that, in fact, “the economic stimulus of this sweeping initiative proved enough to pick up the slack where globalization and the dot.com booms had left off. Just as the Internet had launched the dot.-com bubble, 9/11 launched the disaster capitalism bubble.” This subsidiary bubble to the real-estate bubble appears to have been relatively unharmed so far by the collapse of the latter. It is not easy to track the sums circulating in the disaster capitalism complex. But one indication of the sums involved is that InVision, a General Electric affiliate producing high-tech bomb-detection devises used in airports and other public spaces, received an astounding $15 billion in Homeland Security contracts between 2001 and 2006. Whether or not “military Keynesianism” and the disaster capitalism complex can in fact fill the role played by financial bubbles is open to question. To feed them, at least during the Republican administrations, has meant reducing social expenditures. A Dean Baker study cited by Johnson found that after an initial demand stimulus, by about the sixth year, the effect of increased military spending turns negative. After 10 years of increased defense spending, there would be 464,000 fewer jobs than in a scenario of lower defense spending. An more important limit to military Keynesianism and disaster capitalism is that the military engagements to which they are bound to lead are likely to create quagmires such as Iraq and Afghanistan. And these disasters could trigger a backlash both abroad and at home. Such a backlash would eventually erode the legitimacy of these enterprises, reduce their access to tax dollars, and erode their viability as sources of economic expansion in a contracting economy. Yes, global capitalism may be resilient. But it looks like its options are increasingly limited. The forces making for the long-term stagnation of the global capitalist economy are now too heavy to be easily shaken off by the economic equivalent of mouth-to-mouth resuscitation. Sources
Can Capitalism Survive Climate Change? (1 April 2008)
This whole week, beginning March 31, the United Nations Ad Hoc Working Groups on climate change are meeting in Bangkok in the critical first round of negotiations to follow up on the resolutions of the climate talks in Bali in December.
There is now a solid consensus in the scientific community that if the change in global mean temperature in the 21st century exceeds 2.4 degrees Celsius, changes in the planet's climate will be large-scale, irreversible, and disastrous. Moreover, the window of opportunity for action that will make a difference is narrow – that is, the next 10 to 15 years. Throughout the North, however, there is strong resistance to changing the systems of consumption and production that have created the problem in the first place. Alongside this resistance is a preference for ''techno-fixes,'' such as ''clean'' coal, carbon sequestration and storage, industrial-scale biofuels, and nuclear energy. Globally, transnational corporations and other private actors resist government-imposed measures such as mandatory caps. They have preferred to use market mechanisms like the buying and selling of ''carbon credits,'' which largely amount to a license for corporate polluters to keep on polluting. In the global South, elites have shown little willingness to depart from the high-growth, high-consumption model inherited from the North. They maintain a self-interested conviction that the North must first adjust and bear the brunt of adjustment before the South takes any serious step toward limiting its greenhouse gas emissions. Contours of the Challenge In the climate change discussions, all parties recognize the principle of ''common but differentiated responsibility'.' In other words, the global North must shoulder the brunt of the adjustment to the climate crisis since it is responsible for the economic trajectory that has brought the world to the edge of catastrophe. Also, the global response should not compromise the right to develop of the countries of the global South. The devil, however, is in the details. As analysts like Martin Khor of the Third World Network have pointed out, the global reduction of 80% in greenhouse gas emissions from 1990 levels by 2050 that many now recognize as necessary, translates into reductions of at least 150-200% on the part of the global North in order to adhere to these two principles – ''common but differentiated responsibility'' and recognition of the right to development of the countries of the South. Psychologically and politically, however, the North at this point does not likely have what it takes to meet the problem head-on. The prevailing assumption is that the affluent societies can take on commitments to reduce their greenhouse gas emissions but still grow and enjoy their high standards of living if they shift to non-fossil fuel energy sources. This assumption extends to the method of reduction, namely that the mandatory cuts agreed to multilaterally by governments will be implemented within the country according to a market-based system, that is, the trading of emission permits. The subtext is: techno-fixes and the carbon market will make the transition relatively painless and – why not? – profitable, too. But many of these technologies are decades away from viable use. In the short and medium term, relying on a shift in energy dependence to non-fossil fuel alternatives will not be able to support current rates of economic growth. Also, the trade-off for more crop land devoted to biofuel production means less land on which to grow food and therefore greater food insecurity globally. Clearly, the dominant paradigm of economic growth is one of the most significant obstacles to a serious global effort to deal with climate change. But this destabilizing, fundamentalist growth-consumption paradigm is itself more effect rather than cause. The central problem is a mode of production whose main dynamic is the transformation of living nature into dead commodities, creating tremendous waste in the process. The driver of this process is consumption – or more appropriately overconsumption – and the motivation is profit or capital accumulation: capitalism, in short. It has been the generalization of this mode of production in the North and its spread from the North to the South over the last 300 years that has caused the accelerated burning of fossil fuels and rapid deforestation, two of the key man-made processes behind global warming. The South's Dilemma One way of viewing global warning is as a key manifestation of the latest stage of a wrenching historical process: the privatization of the global commons by capital. The climate crisis must thus be seen as the expropriation by the advanced capitalist societies of the ecological space of less developed or marginalized societies. This leads us to the dilemma of the South. Before the full extent of the ecological destabilization brought about by capitalism, the South was expected to simply follow the ''stages of growth'' of the North. But now, the South can’t do so without bringing about ecological Armageddon. Already, China is on track to overtake the United States as the biggest emitter of greenhouse gases, and yet the elite of China as well as those of India and other rapidly developing countries are intent on reproducing the American-type overconsumption-driven capitalism. Thus, for the South, the implications of an effective global response to global warming include several necessary but insufficient conditions. First, countries like China can no longer opt out of a mandatory regime on the grounds that it is a developing country. Second, developing countries must push the North to transfer technology to mitigate global warming and provide funds to assist in adapting the new technology. These steps are important, but they are only the initial steps in a broader, global reorientation of the paradigm for achieving economic well-being. While this adjustment will need to be much, much greater and faster in the North, the adjustment for the South will essentially be the same: a break with the high-growth, high-consumption model in favor of another model of achieving the common welfare. The strategy of Northern elites has been to try to decouple growth from energy use. In contrast, a progressive comprehensive climate strategy in both the North and the South must reduce growth and energy use while raising the quality of life of the broad masses of people. This will mean placing economic justice and equality at the center of the new paradigm. The transition must be one not only from a fossil-fuel based economy but also from an overconsumption-driven economy. The goal must be the adoption of a low-consumption, low-growth, high-equity development model that results in an improvement in people's welfare, a better quality of life for all, and greater democratic control of production. The elites of the North and the South will not likely agree to such a comprehensive response. The farthest they are likely to go is for techno-fixes and a market-based cap-and-trade system. Growth will be sacrosanct, as will the system of global capitalism. Yet, confronted with apocalypse, humanity cannot self-destruct. It may be a difficult road, but the vast majority will not commit social and ecological suicide to enable the minority to preserve its privileges. Threat and Opportunity Climate change is both a threat and an opportunity to bring about the long postponed social and economic reforms that had been derailed or sabotaged in previous eras by elites seeking to preserve or increase their privileges. The difference is that today the very existence of humanity and the planet depend on the institutionalization of economic systems based not on feudal rent extraction or capital accumulation or class exploitation, but on justice and equality. I am hopeful that a thorough reorganization of production, consumption, and distribution will be the end result of humanity's response to the climate emergency and the broader environmental crisis. In the social and economic system that will be collectively crafted, there will be room for the market. However, the more interesting question is: will such a system have room for capitalism? Will capitalism as a system of production, consumption, and distribution survive the challenge of coming up with an effective solution to the climate crisis? Manufacturing a Food Crisis (16 May 2008)
When tens of thousands of people staged demonstrations in Mexico last year to protest a 60 percent increase in the price of tortillas, many analysts pointed to biofuel as the culprit. Because of US government subsidies, American farmers were devoting more and more acreage to corn for ethanol than for food, which sparked a steep rise in corn prices. The diversion of corn from tortillas to biofuel was certainly one cause of skyrocketing prices, though speculation on biofuel demand by transnational middlemen may have played a bigger role. However, an intriguing question escaped many observers: how on earth did Mexicans, who live in the land where corn was domesticated, become dependent on US imports in the first place?
The Mexican food crisis cannot be fully understood without taking into account the fact that in the years preceding the tortilla crisis, the homeland of corn had been converted to a corn-importing economy by "free market" policies promoted by the International Monetary Fund (IMF), the World Bank and Washington. The process began with the early 1980s debt crisis. One of the two largest developing-country debtors, Mexico was forced to beg for money from the Bank and IMF to service its debt to international commercial banks. The quid pro quo for a multibillion-dollar bailout was what a member of the World Bank executive board described as "unprecedented thoroughgoing interventionism" designed to eliminate high tariffs, state regulations and government support institutions, which neoliberal doctrine identified as barriers to economic efficiency. Interest payments rose from 19 percent of total government expenditures in 1982 to 57 percent in 1988, while capital expenditures dropped from an already low 19.3 percent to 4.4 percent. The contraction of government spending translated into the dismantling of state credit, government-subsidized agricultural inputs, price supports, state marketing boards and extension services. Unilateral liberalization of agricultural trade pushed by the IMF and World Bank also contributed to the destabilization of peasant producers. This blow to peasant agriculture was followed by an even larger one in 1994, when the North American Free Trade Agreement went into effect. Although NAFTA had a fifteen-year phaseout of tariff protection for agricultural products, including corn, highly subsidized US corn quickly flooded in, reducing prices by half and plunging the corn sector into chronic crisis. Largely as a result of this agreement, Mexico's status as a net food importer has now been firmly established. With the shutting down of the state marketing agency for corn, distribution of US corn imports and Mexican grain has come to be monopolized by a few transnational traders, like US-owned Cargill and partly US-owned Maseca, operating on both sides of the border. This has given them tremendous power to speculate on trade trends, so that movements in biofuel demand can be manipulated and magnified many times over. At the same time, monopoly control of domestic trade has ensured that a rise in international corn prices does not translate into significantly higher prices paid to small producers. It has become increasingly difficult for Mexican corn farmers to avoid the fate of many of their fellow corn cultivators and other smallholders in sectors such as rice, beef, poultry and pork, who have gone under because of the advantages conferred by NAFTA on subsidized US producers. According to a 2003 Carnegie Endowment report, imports of US agricultural products threw at least 1.3 million farmers out of work--many of whom have since found their way to the United States. Prospects are not good, since the Mexican government continues to be controlled by neoliberals who are systematically dismantling the peasant support system, a key legacy of the Mexican Revolution. As Food First executive director Eric Holt-Giménez sees it, "It will take time and effort to recover smallholder capacity, and there does not appear to be any political will for this--to say nothing of the fact that NAFTA would have to be renegotiated." Creating a Rice Crisis in the Philippines That the global food crisis stems mainly from free-market restructuring of agriculture is clearer in the case of rice. Unlike corn, less than 10 percent of world rice production is traded. Moreover, there has been no diversion of rice from food consumption to biofuels. Yet this year alone, prices nearly tripled, from $380 a ton in January to more than $1,000 in April. Undoubtedly the inflation stems partly from speculation by wholesaler cartels at a time of tightening supplies. However, as with Mexico and corn, the big puzzle is why a number of formerly self-sufficient rice-consuming countries have become severely dependent on imports. The Philippines provides a grim example of how neoliberal economic restructuring transforms a country from a net food exporter to a net food importer. The Philippines is the world's largest importer of rice. Manila's desperate effort to secure supplies at any price has become front-page news, and pictures of soldiers providing security for rice distribution in poor communities have become emblematic of the global crisis. The broad contours of the Philippines story are similar to those of Mexico. Dictator Ferdinand Marcos was guilty of many crimes and misdeeds, including failure to follow through on land reform, but one thing he cannot be accused of is starving the agricultural sector. To head off peasant discontent, the regime provided farmers with subsidized fertilizer and seeds, launched credit plans and built rural infrastructure. When Marcos fled the country in 1986, there were 900,000 metric tons of rice in government warehouses. Paradoxically, the next few years under the new democratic dispensation saw the gutting of government investment capacity. As in Mexico the World Bank and IMF, working on behalf of international creditors, pressured the Corazon Aquino administration to make repayment of the $26 billion foreign debt a priority. Aquino acquiesced, though she was warned by the country's top economists that the "search for a recovery program that is consistent with a debt repayment schedule determined by our creditors is a futile one." Between 1986 and 1993 8 percent to 10 percent of GDP left the Philippines yearly in debt-service payments--roughly the same proportion as in Mexico. Interest payments as a percentage of expenditures rose from 7 percent in 1980 to 28 percent in 1994; capital expenditures plunged from 26 percent to 16 percent. In short, debt servicing became the national budgetary priority. Spending on agriculture fell by more than half. The World Bank and its local acolytes were not worried, however, since one purpose of the belt-tightening was to get the private sector to energize the countryside. But agricultural capacity quickly eroded. Irrigation stagnated, and by the end of the 1990s only 17 percent of the Philippines' road network was paved, compared with 82 percent in Thailand and 75 percent in Malaysia. Crop yields were generally anemic, with the average rice yield way below those in China, Vietnam and Thailand, where governments actively promoted rural production. The post-Marcos agrarian reform program shriveled, deprived of funding for support services, which had been the key to successful reforms in Taiwan and South Korea. As in Mexico Filipino peasants were confronted with full-scale retreat of the state as provider of comprehensive support--a role they had come to depend on. And the cutback in agricultural programs was followed by trade liberalization, with the Philippines' 1995 entry into the World Trade Organization having the same effect as Mexico's joining NAFTA. WTO membership required the Philippines to eliminate quotas on all agricultural imports except rice and allow a certain amount of each commodity to enter at low tariff rates. While the country was allowed to maintain a quota on rice imports, it nevertheless had to admit the equivalent of 1 to 4 percent of domestic consumption over the next ten years. In fact, because of gravely weakened production resulting from lack of state support, the government imported much more than that to make up for shortfalls. The massive imports depressed the price of rice, discouraging farmers and keeping growth in production at a rate far below that of the country's two top suppliers, Thailand and Vietnam. The consequences of the Philippines' joining the WTO barreled through the rest of its agriculture like a super-typhoon. Swamped by cheap corn imports--much of it subsidized US grain--farmers reduced land devoted to corn from 3.1 million hectares in 1993 to 2.5 million in 2000. Massive importation of chicken parts nearly killed that industry, while surges in imports destabilized the poultry, hog and vegetable industries. During the 1994 campaign to ratify WTO membership, government economists, coached by their World Bank handlers, promised that losses in corn and other traditional crops would be more than compensated for by the new export industry of "high-value-added" crops like cut flowers, asparagus and broccoli. Little of this materialized. Nor did many of the 500,000 agricultural jobs that were supposed to be created yearly by the magic of the market; instead, agricultural employment dropped from 11.2 million in 1994 to 10.8 million in 2001. The one-two punch of IMF-imposed adjustment and WTO-imposed trade liberalization swiftly transformed a largely self-sufficient agricultural economy into an import-dependent one as it steadily marginalized farmers. It was a wrenching process, the pain of which was captured by a Filipino government negotiator during a WTO session in Geneva. "Our small producers," he said, "are being slaughtered by the gross unfairness of the international trading environment." The Great Transformation The experience of Mexico and the Philippines was paralleled in one country after another subjected to the ministrations of the IMF and the WTO. A study of fourteen countries by the UN's Food and Agricultural Organization found that the levels of food imports in 1995-98 exceeded those in 1990-94. This was not surprising, since one of the main goals of the WTO's Agreement on Agriculture was to open up markets in developing countries so they could absorb surplus production in the North. As then-US Agriculture Secretary John Block put it in 1986, "The idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on US agricultural products, which are available in most cases at lower cost." What Block did not say was that the lower cost of US products stemmed from subsidies, which became more massive with each passing year despite the fact that the WTO was supposed to phase them out. From $367 billion in 1995, the total amount of agricultural subsidies provided by developed-country governments rose to $388 billion in 2004. Since the late 1990s subsidies have accounted for 40 percent of the value of agricultural production in the European Union and 25 percent in the United States. The apostles of the free market and the defenders of dumping may seem to be at different ends of the spectrum, but the policies they advocate are bringing about the same result: a globalized capitalist industrial agriculture. Developing countries are being integrated into a system where export-oriented production of meat and grain is dominated by large industrial farms like those run by the Thai multinational CP and where technology is continually upgraded by advances in genetic engineering from firms like Monsanto. And the elimination of tariff and nontariff barriers is facilitating a global agricultural supermarket of elite and middle-class consumers serviced by grain-trading corporations like Cargill and Archer Daniels Midland and transnational food retailers like the British-owned Tesco and the French-owned Carrefour. There is little room for the hundreds of millions of rural and urban poor in this integrated global market. They are confined to giant suburban favelas, where they contend with food prices that are often much higher than the supermarket prices, or to rural reservations, where they are trapped in marginal agricultural activities and increasingly vulnerable to hunger. Indeed, within the same country, famine in the marginalized sector sometimes coexists with prosperity in the globalized sector. This is not simply the erosion of national food self-sufficiency or food security but what Africanist Deborah Bryceson of Oxford calls "de-peasantization"--the phasing out of a mode of production to make the countryside a more congenial site for intensive capital accumulation. This transformation is a traumatic one for hundreds of millions of people, since peasant production is not simply an economic activity. It is an ancient way of life, a culture, which is one reason displaced or marginalized peasants in India have taken to committing suicide. In the state of Andhra Pradesh, farmer suicides rose from 233 in 1998 to 2,600 in 2002; in Maharashtra, suicides more than tripled, from 1,083 in 1995 to 3,926 in 2005. One estimate is that some 150,000 Indian farmers have taken their lives. Collapse of prices from trade liberalization and loss of control over seeds to biotech firms is part of a comprehensive problem, says global justice activist Vandana Shiva: "Under globalization, the farmer is losing her/his social, cultural, economic identity as a producer. A farmer is now a 'consumer' of costly seeds and costly chemicals sold by powerful global corporations through powerful landlords and money lenders locally." African Agriculture: From Compliance to Defiance De-peasantization is at an advanced state in Latin America and Asia. And if the World Bank has its way, Africa will travel in the same direction. As Bryceson and her colleagues correctly point out in a recent article, the World Development Report for 2008, which touches extensively on agriculture in Africa, is practically a blueprint for the transformation of the continent's peasant-based agriculture into large-scale commercial farming. However, as in many other places today, the Bank's wards are moving from sullen resentment to outright defiance. At the time of decolonization, in the 1960s, Africa was actually a net food exporter. Today the continent imports 25 percent of its food; almost every country is a net importer. Hunger and famine have become recurrent phenomena, with the past three years alone seeing food emergencies break out in the Horn of Africa, the Sahel, and Southern and Central Africa. Agriculture in Africa is in deep crisis, and the causes range from wars to bad governance, lack of agricultural technology and the spread of HIV/AIDS. However, as in Mexico and the Philippines, an important part of the explanation is the phasing out of government controls and support mechanisms under the IMF and World Bank structural adjustment programs imposed as the price for assistance in servicing external debt. Structural adjustment brought about declining investment, increased unemployment, reduced social spending, reduced consumption and low output. Lifting price controls on fertilizers while simultaneously cutting back on agricultural credit systems simply led to reduced fertilizer use, lower yields and lower investment. Moreover, reality refused to conform to the doctrinal expectation that withdrawal of the state would pave the way for the market to dynamize agriculture. Instead, the private sector, which correctly saw reduced state expenditures as creating more risk, failed to step into the breach. In country after country, the departure of the state "crowded out" rather than "crowded in" private investment. Where private traders did replace the state, noted an Oxfam report, "they have sometimes done so on highly unfavorable terms for poor farmers," leaving "farmers more food insecure, and governments reliant on unpredictable international aid flows." The usually pro-private sector Economist agreed, admitting that "many of the private firms brought in to replace state researchers turned out to be rent-seeking monopolists." The support that African governments were allowed to muster was channeled by the World Bank toward export agriculture to generate foreign exchange, which states needed to service debt. But, as in Ethiopia during the 1980s famine, this led to the dedication of good land to export crops, with food crops forced into less suitable soil, thus exacerbating food insecurity. Moreover, the World Bank's encouragement of several economies to focus on the same export crops often led to overproduction, triggering price collapses in international markets. For instance, the very success of Ghana's expansion of cocoa production triggered a 48 percent drop in the international price between 1986 and 1989. In 2002-03 a collapse in coffee prices contributed to another food emergency in Ethiopia. As in Mexico and the Philippines, structural adjustment in Africa was not simply about underinvestment but state divestment. But there was one major difference. In Africa the World Bank and IMF micromanaged, making decisions on how fast subsidies should be phased out, how many civil servants had to be fired and even, as in the case of Malawi, how much of the country's grain reserve should be sold and to whom. Compounding the negative impact of adjustment were unfair EU and US trade practices. Liberalization allowed subsidized EU beef to drive many West African and South African cattle raisers to ruin. With their subsidies legitimized by the WTO, US growers offloaded cotton on world markets at 20 percent to 55 percent of production cost, thereby bankrupting West and Central African farmers. According to Oxfam, the number of sub-Saharan Africans living on less than a dollar a day almost doubled, to 313 million, between 1981 and 2001--46 percent of the whole continent. The role of structural adjustment in creating poverty was hard to deny. As the World Bank's chief economist for Africa admitted, "We did not think that the human costs of these programs could be so great, and the economic gains would be so slow in coming." In 1999 the government of Malawi initiated a program to give each smallholder family a starter pack of free fertilizers and seeds. The result was a national surplus of corn. What came after is a story that should be enshrined as a classic case study of one of the greatest blunders of neoliberal economics. The World Bank and other aid donors forced the scaling down and eventual scrapping of the program, arguing that the subsidy distorted trade. Without the free packs, output plummeted. In the meantime, the IMF insisted that the government sell off a large portion of its grain reserves to enable the food reserve agency to settle its commercial debts. The government complied. When the food crisis turned into a famine in 2001-02, there were hardly any reserves left. About 1,500 people perished. The IMF was unrepentant; in fact, it suspended its disbursements on an adjustment program on the grounds that "the parastatal sector will continue to pose risks to the successful implementation of the 2002/03 budget. Government interventions in the food and other agricultural markets... [are] crowding out more productive spending." By the time an even worse food crisis developed in 2005, the government had had enough of World Bank/IMF stupidity. A new president reintroduced the fertilizer subsidy, enabling 2 million households to buy it at a third of the retail price and seeds at a discount. The result: bumper harvests for two years, a million-ton maize surplus and the country transformed into a supplier of corn to Southern Africa. Malawi's defiance of the World Bank would probably have been an act of heroic but futile resistance a decade ago. The environment is different today, since structural adjustment has been discredited throughout Africa. Even some donor governments and NGOs that used to subscribe to it have distanced themselves from the Bank. Perhaps the motivation is to prevent their influence in the continent from being further eroded by association with a failed approach and unpopular institutions when Chinese aid is emerging as an alternative to World Bank, IMF and Western government aid programs. Food Sovereignty: An Alternative Paradigm? It is not only defiance from governments like Malawi and dissent from their erstwhile allies that are undermining the IMF and the World Bank. Peasant organizations around the world have become increasingly militant in their resistance to the globalization of industrial agriculture. Indeed, it is because of pressure from farmers' groups that the governments of the South have refused to grant wider access to their agricultural markets and demanded a massive slashing of US and EU agricultural subsidies, which brought the WTO's Doha Round of negotiations to a standstill. Farmers' groups have networked internationally; one of the most dynamic to emerge is Via Campesina (Peasant's Path). Via not only seeks to get "WTO out of agriculture" and opposes the paradigm of a globalized capitalist industrial agriculture; it also proposes an alternative--food sovereignty. Food sovereignty means, first of all, the right of a country to determine its production and consumption of food and the exemption of agriculture from global trade regimes like that of the WTO. It also means consolidation of a smallholder-centered agriculture via protection of the domestic market from low-priced imports; remunerative prices for farmers and fisherfolk; abolition of all direct and indirect export subsidies; and the phasing out of domestic subsidies that promote unsustainable agriculture. Via's platform also calls for an end to the Trade Related Intellectual Property Rights regime, or TRIPs, which allows corporations to patent plant seeds; opposes agro-technology based on genetic engineering; and demands land reform. In contrast to an integrated global monoculture, Via offers the vision of an international agricultural economy composed of diverse national agricultural economies trading with one another but focused primarily on domestic production. Once regarded as relics of the pre-industrial era, peasants are now leading the opposition to a capitalist industrial agriculture that would consign them to the dustbin of history. They have become what Karl Marx described as a politically conscious "class for itself," contradicting his predictions about their demise. With the global food crisis, they are moving to center stage--and they have allies and supporters. For as peasants refuse to go gently into that good night and fight de-peasantization, developments in the twenty-first century are revealing the panacea of globalized capitalist industrial agriculture to be a nightmare. With environmental crises multiplying, the social dysfunctions of urban-industrial life piling up and industrialized agriculture creating greater food insecurity, the farmers' movement increasingly has relevance not only to peasants but to everyone threatened by the catastrophic consequences of global capital's vision for organizing production, community and life itself. Destroying African Agriculture (3 June 2008)
Biofuel production is certainly one of the culprits in the current global food crisis. But while the diversion of corn from food to biofuel feedstock has been a factor in food prices shooting up, the more primordial problem has been the conversion of economies that are largely food-self-sufficient into chronic food importers. Here the World Bank, International Monetary Fund (IMF), and the World Trade Organization (WTO) figure as much more important villains.
Whether in Latin America, Asia, or Africa, the story has been the same: the destabilization of peasant producers by a one-two punch of IMF-World Bank structural adjustment programs that gutted government investment in the countryside followed by the massive influx of subsidized U.S. and European Union agricultural imports after the WTO’s Agreement on Agriculture pried open markets. . African agriculture is a case study of how doctrinaire economics serving corporate interests can destroy a whole continent’s productive base. From Exporter to Importer At the time of decolonization in the 1960s, Africa was not just self-sufficient in food but was actually a net food exporter, its exports averaging 1.3 million tons a year between 1966-70. Today, the continent imports 25% of its food, with almost every country being a net food importer. Hunger and famine have become recurrent phenomena, with the last three years alone seeing food emergencies break out in the Horn of Africa, the Sahel, Southern Africa, and Central Africa. Agriculture is in deep crisis, and the causes are many, including civil wars and the spread of HIV-AIDS. However, a very important part of the explanation was the phasing out of government controls and support mechanisms under the structural adjustment programs to which most African countries were subjected as the price for getting IMF and World Bank assistance to service their external debt. Instead of triggering a virtuous spiral of growth and prosperity, structural adjustment saddled Africa with low investment, increased unemployment, reduced social spending, reduced consumption, and low output, all combining to create a vicious cycle of stagnation and decline. Lifting price controls on fertilizers while simultaneously cutting back on agricultural credit systems simply led to reduced applications, lower yields, and lower investment. One would have expected the non-economist to predict this outcome, which was screened out by the Bank and Fund’s free-market paradigm. Moreover, reality refused to conform to the doctrinal expectation that the withdrawal of the state would pave the way for the market and private sector to dynamize agriculture. Instead, the private sector believed that reducing state expenditures created more risk and failed to step into the breach. In country after country, the predictions of neoliberal doctrine yielded precisely the opposite: the departure of the state “crowded out” rather than “crowded in” private investment. In those instances where private traders did come in to replace the state, an Oxfam report noted, “they have sometimes done so on highly unfavorable terms for poor farmers,” leaving “farmers more food insecure, and governments reliant on unpredictable aid flows.” The usually pro-private sector Economist agreed, admitting that “many of the private firms brought in to replace state researchers turned out to be rent-seeking monopolists.” What support the government was allowed to muster was channeled by the Bank to export agriculture – to generate the foreign exchange earnings that the state needed to service its debt to the Bank and the Fund. But, as in Ethiopia during the famine of the early 1980s, this led to the dedication of good land to export crops, with food crops forced into more and more unsuitable soil, thus exacerbating food insecurity. Moreover, the Bank’s encouraging several economies undergoing adjustment to focus on export production of the same crops simultaneously often led to overproduction that then triggered a price collapse in international markets. For instance, the very success of Ghana’s program to expand cocoa production triggered a 48% drop in the international price of cocoa between 1986 and 1989, threatening, as one account put it, “to increase the vulnerability of the entire economy to the vagaries of the cocoa market.” 1 In 2002-2003, a collapse in coffee prices contributed to another food emergency in Ethiopia. As in many other regions, structural adjustment in Africa was not simply underinvestment but state divestment. But there was one major difference. In Latin America and Asia, the Bank and Fund confined themselves for the most part to macromanagement, or supervising the dismantling of the state’s economic role from above. These institutions left the dirty details of implementation to the state bureaucracies. In Africa, where they dealt with much weaker governments, the Bank and Fund micromanaged such decisions as how fast subsidies should be phased out, how many civil servants had to be fired, or even, as in the case of Malawi, how much of the country’s grain reserve should be sold and to whom. In other words, Bank and IMF resident proconsuls reached into the very innards of the state’s involvement in the agricultural economy to rip it up. The Role of Trade Compounding the negative impact of adjustment were unfair trade practices on the part of the EU and the United States. Trade liberalization allowed low-priced subsidized EU beef to enter and drive many West African and South African cattle raisers to ruin. With their subsidies legitimized by the WTO’s Agreement on Agriculture, U.S. cotton growers offloaded their cotton on world markets at 20-55% of the cost of production, bankrupting West African and Central African cotton farmers in the process.2 These dismal outcomes were not accidental. As then-U.S. Agriculture Secretary John Block put it at the start of the Uruguay Round of trade negotiations in 1986, “the idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on U.S. agricultural products, which are available, in most cases at lower cost.”3 What Block did not say was that the lower cost of U.S. products stemmed from subsidies that were becoming more massive each year, despite the fact that the WTO was supposed to phase out all forms of subsidy. From $367 billion in 1995, the first year of the WTO, the total amount of agricultural subsidies provided by developed country governments rose to $388 billion in 2004. Subsidies now account for 40% of the value of agricultural production in the European Union (EU) and 25% in the United States. The social consequences of structural adjustment cum agricultural dumping were predictable. According to Oxfam, the number of Africans living on less than a dollar a day more than doubled to 313 million people between 1981 and 2001 – or 46% of the whole continent. The role of structural adjustment in creating poverty, as well as severely weakening the continent’s agricultural base and consolidating import dependency, was hard to deny. As the World Bank’s chief economist for Africa admitted, “We did not think that the human costs of these programs could be so great, and the economic gains would be so slow in coming.”4 That was, however, a rare moment of candor. What was especially disturbing was that, as Oxford University political economist Ngaire Woods pointed out, the “seeming blindness of the Fund and Bank to the failure of their approach to sub-Saharan Africa persisted even as the studies of the IMF and the World Bank themselves failed to elicit positive investment effects.”5 The Case of Malawi This stubbornness led to tragedy in Malawi. It was a tragedy preceded by success. In 1998 and 1999, the government initiated a program to give each smallholder family a “starter pack” of free fertilizers and seeds. This followed several years of successful experimentation in which the packs were provided only to the poorest families. The result was a national surplus of corn. What came after, however, is a story that will be enshrined as a classic case study in a future book on the 10 greatest blunders of neoliberal economics. The World Bank and other aid donors forced the drastic scaling down and eventual scrapping of the program, arguing that the subsidy distorted trade. Without the free packs, food output plummeted. In the meantime, the IMF insisted that the government sell off a large portion of its strategic grain reserves to enable the food reserve agency to settle its commercial debts. The government complied. When the crisis in food production turned into a famine in 2001-2002, there were hardly any reserves left to rush to the countryside. About 1,500 people perished. The IMF, however, was unrepentant; in fact, it suspended its disbursements on an adjustment program with the government on the grounds that “the parastatal sector will continue to pose risks to the successful implementation of the 2002/03 budget. Government interventions in the food and other agricultural markets…crowd out more productive spending.” When an even worse food crisis developed in 2005, the government finally had enough of the Bank and IMF’s institutionalized stupidity. A new president reintroduced the fertilizer subsidy program, enabling two million households to buy fertilizer at a third of the retail price and seeds at a discount. The results: bumper harvests for two years in a row, a surplus of one million tons of maize, and the country transformed into a supplier of corn to other countries in Southern Africa. But the World Bank, like its sister agency, still stubbornly clung to the discredited doctrine. As the Bank’s country director told the Toronto Globe and Mail, “All those farmers who begged, borrowed, and stole to buy extra fertilizer last year are now looking at that decision and rethinking it. The lower the maize price, the better for food security but worse for market development.” Fleeing Failure Malawi’s defiance of the World Bank would probably have been an act of heroic but futile resistance a decade ago. The environment is different today. Owing to the absence of any clear case of success, structural adjustment has been widely discredited throughout Africa. Even some donor governments that once subscribed to it have distanced themselves from the Bank, the most prominent case being the official British aid agency that co-funded the latest subsidized fertilizer program in Malawi. Perhaps the motivation of these institutions is to prevent the further erosion of their diminishing influence in the continent through association with a failed approach and unpopular institutions. At the same time, they are certainly aware that Chinese aid is emerging as an alternative to the conditionalities of the World Bank, IMF, and Western government aid programs. Beyond Africa, even former supporters of adjustment, like the International Food Policy Research Institute (IFPRI) in Washington and the rabidly neoliberal Economist acknowledged that the state’s abdication from agriculture was a mistake. In a recent commentary on the rise of food prices, for instance, IFPRI asserted that “rural investments have been sorely neglected in recent decades,” and says that it is time for “developing country governments [to] increase their medium- and long-term investments in agricultural research and extension, rural infrastructure, and market access for small farmers.” At the same time, the Bank and IMF’s espousal of free trade came under attack from the heart of the economics establishment itself, with a panel of luminaries headed by Princeton’s Angus Deaton accusing the Bank’s research department of being biased and “selective” in its research and presentation of data. As the old saying goes, success has a thousand parents and failure is an orphan. Unable to deny the obvious, the Bank has finally acknowledged that the whole structural adjustment enterprise was a mistake, though it smuggled this concession into the middle of the 2008 World Development Report, perhaps in the hope that it would not attract too much attention. Nevertheless, it was a damning admission: Structural adjustment in the 1980’s dismantled the elaborate system of public agencies that provided farmers with access to land, credit, insurance inputs, and cooperative organization. The expectation was that removing the state would free the market for private actors to take over these functions—reducing their costs, improving their quality, and eliminating their regressive bias. Too often, that didn’t happen. In some places, the state’s withdrawal was tentative at best, limiting private entry. Elsewhere, the private sector emerged only slowly and partially—mainly serving commercial farmers but leaving smallholders exposed to extensive market failures, high transaction costs and risks, and service gaps. Incomplete markets and institutional gaps impose huge costs in forgone growth and welfare losses for smallholders, threatening their competitiveness and, in many cases, their survival. In sum, biofuel production did not create but only exacerbated the global food crisis. The crisis had been building up for years, as policies promoted by the World Bank, IMF, and WTO systematically discouraged food self-sufficiency and encouraged food importation by destroying the local productive base of smallholder agriculture. Throughout Africa and the global South, these institutions and the policies they promoted are today thoroughly discredited. But whether the damage they have caused can be undone in time to avert more catastrophic consequences than we are now experiencing remains to be seen. Sources
The Anti-Climate Summit (15 July 2008)
While drafting the so-called Bali Roadmap during the UN Conference on climate change last December, delegates faced a painful choice. They could specifically mention the necessity of reducing greenhouse gas (GHG) emissions by 25-40% by 2020 and face the possibility of a U.S. walkout from the negotiations. Or they could drop all mention of targets to keep Washington in the negotiations – and risk of the United States fatally obstructing the process of coming up with a tough regime of mandatory emissions cuts that would have to be in place by the UN’s climate meeting in Copenhagen in December 2009.
The delegates went with the latter and appeased Washington by not mentioning any targets. After the declaration on climate issued by the G8 summit a few days ago in Hokkaido, Japan, it is clear that the delegates in Bali made a strategic mistake. The G8’s endorsement of a 50% reduction in emissions by 2050, which they have presented as a major step forward, is actually, as the South African government put it, a “regression from what is required to make a meaningful contribution to meeting the challenges of climate change.” In fact, “regression” is too polite. The G8 position is a giant step backward. It may have effectively undermined the prospects for an effective global climate strategy for the second commitment period of the Kyoto Protocol that is expected to be finalized at the crucial UN meeting in Copenhagen in December 2009. Deconstructing the G8 Position Given the massive confusion that the G8 climate communique has created globally, it is worthwhile to deconstruct the position in detail. The 25-40% reduction from 1990 emission levels by 2020 that could have been adopted in Bali grew out of a developing consensus. Based on the latest report of the Intergovernmental Panel on Climate Change (IPCC), this consensus holds that preventing global mean temperature from rising above the critical threshold of 2 degrees centigrade in the 21st century will require radical cuts in greenhouse gas emissions of 80-90% by 2050. The 25-40% reductions were an intermediate target on the path to achieving this goal. The G8 “commitment” of about half this final target is grossly inadequate. Several other considerations highlight the dangers of the Washington-driven formula First, the G8 proposes a global cut, not one that would be undertaken only by the industrialized or “Annex One” countries. As such, big polluters like the United States can actually free-ride on the rest of the world. Second, the cut has no clear baseline. When making the announcement, Japanese Prime Minister Yasuo Fukuda initially said the cut was from 1990 levels. Then he had to take back that statement and subsequently mentioned the higher levels of 2000 as the baseline. Third, this declaration of intent is not binding, and the G8 have given no indication that they want to bring their “pledge” fully under the UN climate negotiations framework that would bind its signatories. Indeed, the G8 announcement reinforces the G8 as a site for climate action that rivals the UN process and effectively subverts it. Not surprisingly, the G8 declaration emerged as part of a parallel process known as the “Major Economies Meeting.” The Major Economies Meeting is a U.S. initiative to wrest decision-making on climate from the UN framework and process. Anti-Climate United Front The G8 climate communiqué demonstrates that not only Washington but the other powerful economies of the world are opposed to effective climate action. And without the rich country governments committing themselves to obligatory radical cuts in carbon dioxide levels, it will be impossible to convince China, India, and other rapidly industrializing economies to agree to subject themselves to a mandatory regime in the near future. With Washington’s posture so retrograde, the policies of other developed country governments appear in a more positive light. But this is an illusion. While Washington has been the most visible obstacle to achieving effective action on climate, the obstructionist role of the other advanced industrial countries has not been insignificant. Japan and Canada, for instance, have retreated from their previous support for a regime of mandatory reductions and saved Washington from total isolation in the negotiations. The European Union, while it continues to support a mandatory regime, does not appear to be willing to support the cuts of up to 80-90% by 2050 that are necessary to prevent irreversible large-scale climate change. In terms of its approach to reducing carbon emissions, the EU, like the United States, has increasingly given a central role to the corporate-friendly market approach of carbon trading. On the critical issue of providing the South with assistance for technology and adaptation, the EU, again like United States, prefers to channel the relatively little money it has so far been willing to commit not through institutional mechanisms set up under UN auspices but through those established by the World Bank, such as the Bank’s Climate Investment Funds. The reason is simple: the North controls the World Bank. Most importantly, like the United States and Japan, the European governments continue to hang on to the position that economic growth can be “decoupled” from energy use. In other words, they think they can maintain current European consumption levels and only have to achieve the more efficient use of energy and replace oil with other energy sources. Thus, the EU has preferred to lull Europeans with panaceas. Brussels has championed biofuels, though its enthusiasm has been dampened somewhat by the increasingly evident negative impact of biofuels on global agricultural production. It has also increasingly come out in support of hard energy alternatives, such as mega-dams and carbon sequestration and storage technology, and has also reopened the discussion on nuclear energy. A Painless Transition? The focus on techno-fixes is not limited to the political and economic elites of the North but is shared by key members of its intellectual elite. I’m not talking about people like the Danish climate skeptic Bjorn Lomborg but influential opinion-makers like Jeffrey Sachs, who has attempted to transform himself from the author of economic shock therapy in Eastern Europe to a progressive partisan of the struggles to end poverty and to fight global warming. In his latest book Common Wealth, Sachs’ message is that technology can make the transition to a clean Green world a relatively painless one, with no major lifestyle change in the North and no change in the high-growth development paradigm in the South. “Rather than focusing, as some environmentalists do, on reducing the income and consumption of the rich world,” he asserts, “we should focus much more on raising the…sustainability of the world’s technologies.” For Sachs, the key technology is carbon capture and sequestration (CCS) “which will allow the world to continue to use low cost fossil fuels such as coal in a manner that does not wreck the climate.” With what can only be described as childlike techno-enthusiasm, Sachs says, “air capture would allow humanity to reverse a previous rise of CO2 by capturing and sequestering more carbon dioxide than is being emitted in any period! Put differently, the best that can be achieved at a power plant is to stop new emissions. With air capture, we could put into reverse what we’ve done up to this point.” That this technology is at least 20 years away from being a practical technology and comes with unknown risks does not enter Sachs’ sci-fi scenario. Capitalism and the Climate Crisis Herman Daly, the renowned environmentalist, calls this attitude -- that environmental action stops when it begins to impinge on the economy -- “growthmania.” Growthmania, however, goes beyond being a psychological fix. It is a cultivated ideological predisposition that serves as a protective shield for global capitalism. Capitalism is an expansive mode of production, and it can only reproduce itself by continually transforming living nature into dead commodities. This is essentially what growth is all about. This is why ever-increasing consumption is so central to the engine of profitability that drives capitalism. The G8 -- the directorate of global capitalism -- is trying hard to avoid just such radical controls on growth, consumption, profits, and the market that a viable strategy to stave off the looming climate catastrophe will necessitate. Voluntary cuts, technofixes, and carbon trading are desperate efforts to prevent the inevitable. Just like the U.S. economy during World War II, it will take planned economies with severely regulated markets and profits, strictly controlled consumption, and equitably shared sacrifice to win the war against climate change. The WTO's Raw Deal on Services (17 July 2008)
Desperate to clinch a new global trade deal, World Trade Organization chief Pascal Lamy is planning to convene a "mini-ministerial" meeting in the third week of July. The aim of the meeting is to come up with agreements to liberalize trade in agriculture, industry, and services. These sectors have been the focus of the so-called Doha Round of WTO negotiations that have dragged on since 2001.
Developing country governments have been rightly concerned about agreeing to texts that promise illusory reductions in agricultural subsidies in the European Union and United States and require them to cut their industrial tariffs proportionally more than the developed countries. They should also not allow themselves to be snookered into a bad agreement on services, which include such vital activities as the provision of water, energy, and financial intermediation. Insistence on Services While global attention has focused on the talks on agricultural subsidies and industrial tariffs, the United States and EU have made it clear that they will not settle for a trade package that does not include services. As U.S. Trade Representative Susan Schwab bluntly stated in a recent opinion piece, Washington "will not support a Doha package unless it includes an ambitious outcome on services that delivers commercially meaningful results." While Schwab portrays the services talks as the poor cousin of the agriculture and industry negotiations, an equally possible outcome is a services agreement unaccompanied by deals in industrial tariffs and agriculture. With the North-South polarization in agriculture and industry, salvaging Doha with a deal in services, which are said to account for 50-60% of economic activity in most developing countries, might be an attractive option for the EU and United States. The General Agreement on Trade in Services (GATS) requires countries to grant foreign service providers the same treatment as local firms. Developing countries are reluctant to do this, however, because of their current lack of capacity to regulate transnational businesses. Their fears have been fanned by troubles now in the global financial system, which are traceable to the absence of global regulation of developed country financial operators. While financial services are just one of many services covered by GATS, the United States and EU have made a liberalized financial sector their main demand on developing countries. It has been revealed, for instance, that the EU has demanded that some developing countries eliminate regulations that cover the activities of hedge funds, the financial groupings that are said to have triggered the collapse of the baht in 1997. The EU has also demanded that Mexico open up its market to trade in derivatives, the slippery financial instruments that have played such a key role in the current financial chaos. In the Absence of Regulation Most developing countries welcome foreign capital, but they have learned the hard way that a strong foreign financial presence demands a strong regulatory regime tailored to a particular country's needs and capacities. Indeed, the indiscriminate elimination of capital controls across the region at the behest of the International Monetary Fund and the U.S. Treasury Department brought on the devastating Asian financial crisis. With practically all capital controls lifted and investment rules liberalized, $100 billion flowed into the key Asian economies between 1993 and 1997, with the money gravitating toward areas of high and quick return, like the stock market and real estate. With few controls on where the funds went, over-investment soon swamped the stock and housing markets, causing prices to collapse and triggering follow-on dislocations in the exchange rate, the balance of payments, and the balance of trade. Gripped by panic, speculators scampered toward the exit. With both entry and exit rules liberalized, there was no way for governments - except for Malaysia, which defied the IMF and imposed capital controls - to stop the stampede, and the $100 billion that fled the region in a few short weeks in the summer of 1997 brought economic growth to a screeching halt from Korea all the way down to Indonesia. After the Asian financial crisis, the Argentine financial collapse, and the dot.com crash of 2000-2002, all of which were caused by speculative bubbles that developed because of a lack of financial regulation, one would have thought that developed country authorities would put the emphasis on seriously regulating the activities of global financial actors. Global finance, however, resisted any move toward effective regulation. Calls for controls on proliferating financial instruments such as derivatives went nowhere. Assessment and regulation of derivatives were to be left to market players who supposedly had access to sophisticated quantitative "risk assessment" models. Having been burned by the consequences of financial deregulation, many developing country governments were not surprised when "self-regulation" led to the massive housing bubble whose bursting has brought the global financial system to the edge of collapse. The Coming Train Wreck One of the stock scenarios of the old western movies was that of a train picking up speed toward a collision with another train as the lifeless hand of the engineer, already shot dead by outlaws, remained pressed on the accelerator. Current developments in global finance are reminiscent of this scene. A global consensus is forming around strongly re-regulating the financial sector. But in disregard of this emerging consensus and the financial chaos around them, developed country negotiators at the WTO, much like the dead hand of the engineer, continue to press developing countries for a services agreement that would drastically liberalize their financial sectors. Developing countries should steer clear of the train wreck that will certainly ensue from the U.S. and EU's determination to pursue global financial liberalization at any cost. They must not agree to a services deal that would compromise their ability to effectively regulate financial and other services. Just as they must say no to agricultural and industrial tariff agreements loaded down with inequitable conditions, they must also not be party to a services agreement that would have no other effect but to continually drag them into the terrifying maelstroms of unregulated global finance. Derail Doha, Save the Climate (28 July 2008)
There’s something surreal about the ongoing World Trade Organization talks in Geneva, which aim at coming up with a new agreement to bring down tariffs in order to expand world trade and resuscitate global growth. In the face of the looming specter of climate change, these negotiations amount to arguing over the arrangement of deck chairs while the Titanic is sinking.
Indeed, one of the most important steps in the struggle to come up with a viable strategy to deal with climate change would be the derailment of the so-called “Doha Round.” Global trade is carried out with transportation that is heavily dependent on fossil fuels. It’s estimated that about 60% of the world’s use of oil goes to transportation activities which are more than 95% dependent on fossil fuels. An OECD study estimated that the global transport sector accounts for 20-25% of carbon emissions, with some 66% of this figure accounted for by emissions in the industrialized countries. Global Trade: Deeply Dysfunctional From the point of view of environmental sustainability, global trade has become deeply dysfunctional. Take agricultural trade. As the International Forum on Globalization has pointed out, the average plate of food eaten in Western industrial food-importing nations is likely to have traveled 1,500 miles from its source. Long-distance travel contributes to the absurd situation wherein “three times more food is used to produce food in the industrial agricultural model than is derived in consuming it.” The WTO has been a central factor in increasing carbon emissions from transport. A study by the OECD done in the mid-nineties estimated that by 2004, the year marking the full implementation of free-trade commitments under the WTO’s Uruguay Round, there would have been an increase in the transport of internationally traded goods by 70% over 1992 levels. This figure, notes the New Economics Foundation, “would make a mockery” of the Kyoto Protocol’s mandatory emissions reduction targets for the industrialized countries. Transportation: More Fossil Intensive than Ever Ocean shipping accounts for nearly 80% of the world’s international trade in goods. The fuel commonly used by ships is a mixture of diesel and low-quality oil known as “Bunker C,” which has high levels of carbon and sulfur. As Jerry Mander and Simon Retallack point out, “If not consumed by ships, it would otherwise be considered a waste product.” Aviation, which has the highest growth rate as a mode of transport, is also the fastest growing source of greenhouse gas emissions, with its consumption of fuel expected to rise by 65% from 1990 levels by 2010, according to one study cited by the New Economics Foundation. Other estimates are more pessimistic, with the Intergovernmental Panel on Climate Change (IPCC) suggesting that fuel consumption by civil aviation is going up at the rate of three percent a year and could rise by nearly 350% from 1992 levels by 2050. Note Mander and Retallack: “Each ton of freight moved by plane uses forty nine times as much energy per kilometer as when it’s moved by ship….A two-minute takeoff by a 747 is equal to 2.4 million lawn mowers running for twenty minutes.” In support of trade expansion and global economic growth, authorities have by and large not taxed aviation fuel as well as marine bunker fuel, which now account for 20% of all emissions in the transport sector. Along with fossil-fuel-intensive air transport, fossil-fuel-intensive road transport has also been favored by the expansion of world trade, instead of modes with less emission intensities like rail and marine traffic. In the European Union, for instance, the focus on building up a road transport network led an OECD study to comment that “the way in which the EU liberalization policy has been implemented has favored the less environment-friendly modes and accelerated the decline of rail and inland waterways.” Decoupling Growth and Energy: a Panacea There has been talk about decoupling trade and growth from energy or shifting from fossil fuels to other, less carbon-intensive energy sources. The reality is that the other energy sources being seriously considered are either dangerous, like nuclear power; with deleterious side-effects, like biofuels’ negative impact on food production; or science fiction as this stage, like carbon sequestration and storage technology. For the foreseeable future, trade expansion and global growth will fall in line with their historical trajectory of being correlated with increased greenhouse gas emissions. A sharp U-turn in consumption and growth in the developed countries and a significant decrease in global trade are unavoidable if we are to have a viable strategy against climate change. This will set the stage for a reduction in greenhouse gas emissions, including from the energy-intensive transportation sector. The outcome of the Doha negotiations will determine whether free trade will intensify or lose momentum. A successful conclusion to Doha will bring us closer to uncontrollable climate change. It will continue what the New Economics Foundation describes as “free trade’s free ride on the global climate.” A derailment of Doha won’t be a sufficient condition to formulate a strategy to contain climate change. But given the likely negative ecological consequences of a successful deal, it’s a necessary condition. The Dracula Round (5 August 2008)
Like the good Count of Transylvania, the World Trade Organization’s Doha Round of negotiations has died more than once. It first collapsed during the WTO ministerial meeting held in Cancun in September 2003. After apparently coming back from the dead, many observers thought it passed away a second time during the so-called Group of Four meeting in Potsdam in June 2007 — only to come back yet again from the dead. Now the question is whether the unraveling of the most recent “mini-ministerial” gathering in Geneva was the silver stake that pierced the trade round’s heart, rendering Doha dead forever.
Stampeded into the WTO When the Uruguay Round that established the World Trade Organization (WTO) was negotiated from 1986 to 1994, developing countries were largely bystanders. Governments that had been members of the General Agreement on Tariffs and Trade (GATT) were dragooned into its successor organization by the threat that if they did not come in on the ground floor, they would be subjected to a painful accession process should they decide to join it later. In the meantime, they were told, they would, like North Korea, become isolated from global trade. Preferring the devil they knew to the devil they didn’t, most GATT members signed a document that subordinated all dimensions of a nation’s economic life to the goal of expanding international trade. Most had not had the time to really absorb the fine print of the 500-plus pages, something that was evident in Indonesia’s case. When the Indonesian government declared in 1997 that it would build up its car industry by applying the so-called “local content” policy, which mandated the sourcing of a growing portion of a car’s parts to local industries, the United States, European Union, and Japan —the big car corporations’ home countries — informed it that this would violate the Trade-Related Investment Measures Agreement (TRIMs) of the Uruguay Round and that they would haul Indonesia to a WTO dispute-settlement court. Smaller countries than Indonesia, with minuscule trade bureaucracies, were even more disadvantaged. From Seattle to Doha In any event, by November 1999, when the WTO’s third ministerial meeting occurred in Seattle, developing countries had come to a collective realization that they had bargained away significant space for development in signing on to the Uruguay Round and thus were in no mood to agree to launching another round to liberalize global trade, as the big trading powers demanded. At the same time, farmers, environmentalists, workers, anti-HIV-AIDS activists, and other global civil society movements were up in arms against the doctrine of “trade uber alles” – as Ralph Nader described it – that was enshrined in the WTO. It was this synergy between the massive protests in the streets and the rebellion of developing countries at the Seattle Convention Center that resulted in the spectacular collapse of the so-called Seattle Round before it could even launch. But the EU and United States were undeterred. The Fourth Ministerial Meeting in Doha, Qatar in November 2001 saw developing countries subjected to tremendous pressure to agree to the launching of a new round in order to “save” the global economy following the September 11 events. But there was more than moral pressure in the name of the anti-terrorist struggle that was involved. As Aileen Kwa and Fatoumata Jawara documented in their now classic book Behind the Scenes at the WTO, not-too subtle threats of retaliation for recalcitrance were combined with offers of massive aid packages. Most countries were excluded from decision-making, which was effectively confined to a select group of about 30-35 governments handpicked by the EU and United States. The result was the “Doha Development Round,” which had little to do with development and everything to do with expanding developed country access to developing country markets. The bitter experience of being subjected to divide-and-conquer tactics in Doha proved to be a turning point for the developing country politics in the WTO. Alliances were formed — among them, the Group of 20 led by Brazil, India, South Africa and China — to demand cuts in developed country agricultural subsidies and greater access to developed country markets, and the Group of 33 led by Indonesia and the Philippines to push for the creation of “special products” that would be exempted from tariff reductions and for “special safeguard mechanisms” like protective tariffs against surges of highly subsidized agricultural imports from the developed countries. Collapse in Cancun The lead-up to the 2003 Cancun Ministerial also featured debates among social movements engaged in the WTO process. Even after Seattle, there were still some non-government organizations that entertained the idea that the WTO could serve as a mechanism to bring about development. They believed that the designation “Doha Development Round” provided an opening. Greater market access to developed country markets for developing country products could be achieved if the WTO free trade agenda in agriculture was supported, some development organizations contended. Others argued that, on the contrary, Doha had shown that development was far down the list of concerns of the big trading powers and that the central task was to derail the WTO negotiations or to “get the WTO out of agriculture,” as the international peasant organization Via Campesina put it. The NGO reformers’ case wasn’t helped by the United States and EU, which became even more inflexible when it came to cutting their massive agricultural subsidies. The EU was also impatient to begin substantive WTO discussions on the creation of disciplines on the so-called “New Issues” of investment, government procurement, competition policy, and trade facilitation. This effort to bring into the WTO ambit what many regarded as non-trade-related issues sparked the creation of the Group of 90 that opposed inclusion of these items in the WTO agenda. It was the walkout by some members of this grouping when some developed countries insisted on discussing the “New Issues” that led to the collapse of the Cancun Ministerial on Sept 14, 2003, though the ground had been tilled by the stalemate in agriculture. If lack of organization led to their being outmaneuvered in Doha, effective coalition building enabled the developing countries to outmaneuver the developed countries in Cancun, with technical support from NGOs and moral support from social movements seeking to shut down the meeting in a protest atmosphere much like Seattle’s. Realizing that the WTO was no longer a playground the United States could control along with the EU, then-U.S. Trade Representative Robert Zoellick described the debacle in Cancun as one where “the rhetoric of the ‘won’t do’ overwhelmed the concerted efforts of the ‘can do.’ ‘Won’t do’ led to impasse.” A few days later, he warned, “As the WTO members ponder the future, the U.S. will not wait: we will move towards free trade with can-do countries.” That was taken to mean that the United States would now concentrate its efforts in obtaining bilateral free trade agreements. These words also marked the beginning of a U.S. assault on the G20 which succeeded in driving Colombia, Peru, El Salvador, Guatemala, and Costa Rica out of the formation a month after the Cancun collapse. The G20, however, held. From Cancun to Potsdam Cancun may have taken the wind out of Doha’s sails, but over 2004 and 2005, negotiations revived, with both the United States and EU trying a new tack. The two had brought in Brazil and India, the leaders of the G20, into a formation called FIPS or Five Interested Parties (the United States, the EU, and Australia, along with Brazil and India), which for a time managed to contain the opposition. Though the EU and the United States had their differences, especially on the question of agricultural subsidies, they nevertheless agreed on an approach whose contours were etched out in the so-called July 2004 Framework that the EU and the United States forced through, with the acquiescence of G-20 leaders Brazil and India, at a surprise General Council meeting in the dead of summer in Geneva: minor concessions on agricultural subsidies in return for big concessions from the developing countries in opening up their industrial sectors (or “non-agricultural market access”) and services. The Declaration of the Hong Kong Ministerial in December 2005 was based on this inequitable approach but the developed countries played the old divide and rule game by giving different sweeteners to different parties. They promised the G90 that it would get “The Round for Free” and “Aid for Trade.” The Round for Free referred to the promise that the G90 countries would have duty free, quota free market access to developed countries. Upon closer inspection of the agreement, however, it was revealed that the United States, in fact, maintained tariffs on those products that were of greatest interest to the G90 countries. The G20, on the other hand, received a “pledge” from the EU that it would end agricultural subsidies by 2013. But in the area of non-agricultural market access, the harsh “Swiss formula” was in place, which was a tariff reduction formula that would drastically bring down developing countries’ industrial tariffs. The Hong Kong Ministerial ended with a deal in place but with massive dissatisfaction among developing country delegates, with some raising objections that the format of the final plenary made it difficult for opposition to be heard. There were also massive protests in the streets that were only broken up by the police making more than 900 arrests. Still, the Hong Kong Ministerial could have ended up like Cancun had the Venezuelan government not reneged on its promise to NGOs that it would vote against the declaration, which would have rendered it null and void owing to the WTO’s consensus rule. The Hong Kong Declaration, however, masked continuing, indeed widening, divisions that were very difficult to bridge. In fact, in July 2006, a few months after the deal in Hong Kong, talks broke off in Geneva and were suspended for the rest of the year. In an effort to break the deadlock, the United States and EU tried to work out a deal with Brazil and India, the acknowledged leaders of the Group of 20, in talks at Potsdam in June 2007. The U.S. position was, however, a non-starter: not only did it not want to make substantive cuts in its domestic subsidies but it sought to discredit the agreement on the designation of Special Products and the implementation of a Special Safeguard Mechanism forged in Hong Kong. Both the United States and EU were also not willing to depart from their position that the industrializing countries of the South had to make proportionally greater cuts in their industrial tariffs than the industrialized countries in return for U.S. and EU “concessions” in agricultural subsidies. Geneva: the Final, Final Collapse? The collapse of the so-called “G 4” talks in Potsdam placed the Doha Round on life support. Faced with the prospect that any further postponement of a conclusion to the Round would make the organization he headed irrelevant, Director General Pascal Lamy took a gamble and roused the fatally weakened organization to another late summer tryst in Geneva, this time to a “mini-ministerial,” despite the fact that little had happened in the interim to bring the positions of the developed and developing countries any closer. Indeed, President Nicolas Sarkozy of France and other EU leaders told EU Trade Commissioner Peter Mandelson to stop talking about further bringing down the EU’s substantial subsidies. As the talks got underway, U.S. Trade Representative Susan Schwab also made it clear that the United States wouldn’t agree to reduce subsidies below $15 billion. More decisive in determining the outcome was Washington’s opposition to a very reasonable G33 formula tabled by India for imposing protective tariffs against agricultural import surges under the Special Safeguard Mechanism agreed to at the 2005 Hong Kong Ministerial. Completely underestimating developing country concerns that food imports had undermined food self sufficiency at a time of rising food prices owing to global food shortages, the United States brought on another WTO disaster with its single-minded focus on dumping its subsidized agricultural surpluses on foreign agricultural markets. Not helpful in bringing about a deal was Lamy’s maneuver of limiting the decision-making to seven countries, which drew sharp criticism from many among the already circumscribed number of 35 countries that had been invited to the mini-ministerial, including from host country Switzerland. If ever there was a global meeting that was dead on arrival, this was it. Lamy gambled and lost. The WTO is now in a worse position than before, with the prospect that it will evolve like the old League of Nations in the 1930’s: present but powerless. That is, it’s dead for all intents and purposes. The great need now is supplanting this anachronistic body with new institutional arrangements for global trade that promote equity and development along with sustainability. In retrospect, the United States and EU, used to getting their own way in global trade negotiations, went a bridge too far in the Doha talks. Instead of being open to real compromise, their intransigence and drive to expand their control of global markets brought about the organizing for self defense of the developing countries at the WTO. Greed backfired, instigating instead a change in the equation of global economic power. Nevertheless, just as Dracula could get resurrected in a B-movie sequel, there is no 100% guarantee that the WTO’s Doha Round won’t rise again. Toward a New American Isolationism (5 September 2008)
Despite the glitter that surrounded both the Olympics in Beijing and the Democratic National Convention in Denver, the messages coming to Asia from the two events were very different.
From Beijing the message was, to put it in the words of one pundit, China has had a few bad centuries but is back on its feet. From Denver, the word was that the United States has been on a desperate decade-long downspin that can only get worse if the Republicans keep the White House. For people in this part of the world, the weakening of U.S. power is most evident elsewhere: in the Middle East and Southwest Asia, where Washington is bogged down in unending wars in Iraq and Afghanistan; in Latin America, where the rebellion against neoliberalism and U.S. meddling is in full swing; and, most recently, in Central Asia, where Washington and the North Atlantic Treaty Organization (NATO) have been taught a painful lesson in overextension in Georgia. The erosion of Washington's position is less obvious in Asia. After all, the United States continues to maintain more than 300 military bases and facilities in the Western Pacific. Over the last decade, it has established a permanent troop presence in the Southern Philippines to make up for its giving up its two big military bases on Luzon Island in 1992. And in Indonesia, the Pentagon has reestablished its close ties with the Indonesian military after several years of uncertainty, using the opportunity provided by relief operations during the tsunami of 2004. Erosion of U.S. Power in East Asia Nevertheless, the region – and Southeast Asia in particular – is probably more independent of the United States today than at any other time in the last 60 years. Economics is the reason. Over the last two decades, several developments have eroded the U.S. position. First of all, its drive to create the trans-Pacific free-trade area known as the Asia-Pacific Economic Cooperation (APEC) failed. APEC was meant to be a westward extension of the North American Free Trade Agreement (NAFTA), and both were intended to serve as a geo-economic counterweight to the European Union. Japan, China, and the Association of Southeast Asian Nations (ASEAN), fearing U.S. economic domination in the name of free trade, scuttled President Bill Clinton's trans-Pacific dream at the APEC Summit in Osaka in 1995. APEC summits continue to be held, but these are remembered more as times when heads of state don the host country's national costume than as occasions for serious economic decision-making. Second, U.S. efforts to impose capital account and financial liberalization on the Asia Pacific economies as a key element of more thoroughgoing structural transformation backfired. Capital account liberalization led to the Asian financial crisis of 1997-1998. Instead of helping to shore up economies in crisis, Washington took advantage of the crisis to try to comprehensively transform the region's economies along neoliberal lines. As one of Clinton's economic lieutenants saw it, "Most of these countries are going through a dark and deep tunnel…But on the other end there is going to be a significantly different Asia in which American firms have achieved a much deeper market penetration, much greater access." The outcome proved to be different. Malaysia imposed capital controls. The International Monetary Fund (IMF) was discredited, with the Thai government declaring its intention never to go back to the agency after paying off its loans in 2003 and the Indonesian government resolving to do the same thing in 2008. While Washington and the IMF were able to kill Japan's proposal for an Asian Monetary Fund (AMF) at the height of the crisis, the East Asian governments formed the "ASEAN Plus Three" financial mechanism that excludes the United States and is likely to be the precursor of a full-blown regional financial agency. Neoliberal transformation has stalled in Japan and most Southeast Asian countries, with possibly only South Korea continuing to travel along the free-market path desired by the United States. Moreover, the Asian governments have built up massive foreign exchange reserves to protect themselves against future speculative crises provoked by the movements of global finance capital led by U.S. funds. And the United States has become dependent on these Asian reserves for funds to prop up its massive military expenditures and the middle-class spending that for a long time served as an artificial barrier against recession. With the unraveling of American financial institutions, the onset of recession, and the depreciation of the dollar, the U.S. economy has become hostage to these countries' decisions to continue to lend to Washington and Wall Street. In a third development not positive for the United States, the region has become increasingly dependent on the red-hot Chinese economic locomotive. According to a United Nations report, China has been a "major engine of growth for most of the economies in the region. The country's imports accelerated even more than its exports, with a large proportion coming from the rest of Asia." In fact, this Chinese demand pulled the Asia Pacific economies from the recession caused by the Asian financial crisis. China has not only surpassed the United States to become Japan's main trading partner but Chinese demand has helped keep the world's second-largest economy from falling back into recession. Conscious of its economic clout, China has moved to consolidate its position as East Asia's new economic center via smart economic diplomacy. In 2002, it convinced the ASEAN governments to create the ASEAN-China Free Trade Area that is scheduled to come into effect in 2010. Japan has tried to catch up by offering ASEAN countries "economic partnership agreements." Meanwhile, talks on a U.S.-Thailand free trade area have been frozen by popular opposition to Washington's strident championing of the so-called intellectual property rights of its corporations. All in all, the biggest beneficiary of the Bush administration's imperial and corporate misadventures over the last decade has been China, which has kept itself from military entanglements and devoted itself single-mindedly to economic development. Challenges Posed by China's Ascent The rise of China poses a number of fundamental challenges to different key actors in East Asia. For Japan, the key challenge is to move from being the springboard for U.S. power projection in the region to a mature relationship with China. A definitive acceptance of responsibility on the part of the Japanese people and their leaders for the atrocities committed by Japanese troops during World War II, including the infamous Nanjing Massacre, is an indispensable step in this move toward a mature relationship between Asia's leading economic powers. For Southeast Asia, the challenge is how to avoid becoming an appendage of the Chinese economy. Chinese demand was, as mentioned earlier, an immense force lifting Southeast Asia's economies from the depths of the Asian financial crisis. However, China's developing trade and investment relations with ASEAN also include some unpleasant aspects, for instance the experience of Thai vegetable and fruit producers under an "early harvest" free trade arrangement with China earlier this decade. Under the agreement, Thailand expected to export tropical fruits to China while eliminating tariffs on imports of winter fruits from China. The expectations of mutual benefit evaporated after a few months, however, as massive imports from China wiped out Thai producers of many fruits and vegetables such as garlic and red onions. But the fears of many in Southeast Asia go beyond lopsided trade agreements with China. With land and energy relatively scarce in China, Beijing has encouraged Chinese enterprises to seek deals to mine minerals and grow crops in Southeast Asian countries for exclusive export to the China market. For example, in a deal with the Philippines, the Chinese Fuhua Group plans to invest $3.83 billion over five to seven years to develop 1 million hectares of land to grow high-yielding strains of corn, rice, and sorghum. The Philippine government is currently identifying "idle lands" that can be incorporated into these Chinese plantations. This in a country where seven out of 10 farmers are landless. Some have been quick to call China's international economic policies "imperialistic." However, exploitative relations between China and other developing countries have not acquired an imperial structure and lack the element of force and coercion that accompanied the imposition of European and American economic power on weaker societies. Nevertheless, Southeast Asian governments need to balance their spontaneous feelings of South-South solidarity with cool-headed realism. Countries like China, Brazil, and India are led by developmentalist elites that are seeking to find their place in a new global capitalist order marked by the loosening of the economic hegemony of the old capitalist centers, that is, Japan, the United States, and the European Union. The pursuit of national economic interest, not regional cooperation for development, is the central concern of these elites. The intention of China, India, and Brazil in promoting trade and investment agreements with smaller countries or courting them to join regional economic formations is to advance their own regional and global aims. However, this does not mean that a trade agreement and regional economic formation linking China and ASEAN should be avoided at all costs. Rather, ASEAN governments must enter talks with China with eyes wide open and negotiate collectively, not as 10 separate governments. They must make it clear to China that they don't desire a trade agreement based on free trade–such as the arrangements that the U.S., EU, and Japan are pushing on them – but one in which the net benefits of the arrangement accrue to them, not China. Although China's relationship with Southeast Asia is not exploitative, the negotiation of economic relationships between Beijing and its neighbors could replicate the old structural patterns marking the relations between Southeast Asia and Europe, the United States, and Japan – unless considerations of equity are front and center. The U.S.-China Relationship The most critical regional relationship, however, is between the United States and China since the United States is the most powerful power in East Asia and China the next most powerful. In his stimulating book Adam Smith in Beijing, the eminent political economist Giovanni Arrighi of Johns Hopkins University writes that there are three alternative policies that the United States can adopt toward an ascendant China. The first is an updated version of the Cold War strategy of containment. In this strategy, China is seen as a strategic threat or, as the Bush administration puts it euphemistically, a "strategic competitor." The U.S. response would be to "dissuade China" from its military ambitions by boosting the massive American military presence in the Western Pacific, strengthening the bilateral agreements with U.S. allies that sustain this trans-Pacific garrison state, and building up defense cooperation with India, Asia's other big power. This response misconstrues the nature of the Chinese challenge, which is an economic rather than a strategic one, and would be disastrous for the whole world. According to the second strategy, the United States chooses not to confront China directly as it confronted the old Soviet Union but to put into motion balance of power politics to weaken China indirectly. Arrighi quotes James Pinkerton, a protagonist of this approach: Instead of confronting directly the rising Asian powers, the United States should play them off each other. As the Latin expression tertium gaudens – the happy third – reminds us, rather than getting in the middle of every fight, sometimes it is better "to hold the coats of those who do." For the U.S. national interest, "a better Asia would be one in which China, India, Japan, and possibly another 'tiger' or two contend with each other for power while we enjoy the happy luxury of third party by-standing." This strategy, too, would also have terrible consequences for the region. A third strategy, which Arrighi identifies with former national security advisers Henry Kissinger and Zbigniew Brzezinski, views China not as a revisionist power but as one that wants to join the global status quo. The appropriate response for Washington is to accept China as part of the elite of the global state system and work with it in pursuit of international stability, in the same way that Britain, the hegemon of the 19th century, cooperated and made way for the United States, the hegemon of the 20th century. Arrighi prefers this third strategy. And I do, too, though not enthusiastically since it still is in essence conservative, preserving the global status quo. This strategy is, however, the least likely of the three to be adopted. Imperial America is not like imperial Britain. The United States is ideologically an expansionist missionary democracy that will find it difficult to accept No. 2 status without provoking a reactionary populist reaction among key segments of its population. Aside from powerful corporate and strategic interests – which desire an accommodation with China – U.S. leaders have a messianic drive to remake the world along the lines of a liberal or neoliberal Lockean democracy. Civil Society, China, and America This conundrum inevitably leads to a discussion of how civil society, both in Asia and globally, ought to respond to the erosion of U.S. hegemony and the ascent of China. In the best of all possible worlds, the United States and China could be supporters of the drive to create a new world order built on peace, justice, and popular sovereignty. Unfortunately, we live in a less-than-ideal world. The task of civil society is to pressure China, as it intensifies its engagement with the world, to resist the temptation of following the destructive imperial path blazed by Europe and the United States. Social movements must also push China away from the fossil-fuel intensive, consumption-oriented path of development pioneered by the West and toward one that is more ecologically sustainable and sensitive to equity issues. This won't be easy. Nevertheless, there are signs of hope. For instance, Chinese leaders are currently rethinking the direction of the country's development. Notes Arrighi: If the reorientation succeeds in reviving and consolidating China's traditions of self-centered market-based development, accumulation without dispossession, mobilization of human rather than non-human resources, and government through mass participation in shaping policies, then the chances are that China will be in a position to contribute decisively to the emergence of a commonwealth of civilizations truly respectful of differences. But, if the reorientation fails, China may well turn into a new epicenter of social and political chaos that will facilitate Northern attempts to reestablish a crumbling global dominance. Given the Chinese leadership's concern for legitimacy both internally and internationally, the failure of the proponents of reorientation is not a foregone conclusion. This is why pressure from international civil society for a change in economic strategy, for pro-environment policies, for the expansion of democratic rights, and for equitable relations with the developing countries must be kept up. Toward a New American Isolationism Blunting Washington's innately hegemonic thrust will be much more difficult – but not impossible. Perhaps the best strategy for civil society at this point is not so much to rely on appeals to American ideals but to continually point to the very high costs of intervention, in terms of soldiers killed, money spent, domestic strife, and credibility lost. Part of this strategy must be pressure for the removal of the U.S. military bases from Asia and the Pacific and the neutralizing of the bilateral treaties between the United States and a number of Asian countries. Aside from being the pillars of Washington's containment of China, these institutions are the main factors that prevent China and other East Asian countries from evolving a more mature relationship. More broadly, the aim of civil society mobilization both in Asia and globally should be to encourage a new American isolationism. Barack Obama is definitely preferable to John McCain, but the world doesn't need a new American internationalism of the liberal and soft-power variety. We shouldn't tolerate a policy of withdrawing troops from Iraq only to send them to Afghanistan in the name of defending human rights. We don't want in place of military confrontation, an aggressive diplomatic isolation of Iran led by a Democratic elite that is uncritical, as Obama is, of Israel. We don't want an obsession with the Middle East to be replaced with an obsession with destabilizing Hugo Chavez and restoring U.S. influence in Latin America. And we should worry when Bill Clinton says, as he did during the Democratic Party convention, that one of Obama's objectives will be to "restore American leadership in the world." Asia doesn't need or want American leadership. What Asia, like the rest of the world, needs is a vacation from a messianic United States. A few decades of a withdrawn, self-absorbed, isolationist America, paying attention to its domestic troubles and deterred by the high costs of the continued pursuit of hegemony globally, would be good for the region and good for everybody. Wall Street Meltdown Primer (26 September 2008)
Many on Wall Street and the rest of us are still digesting the momentous events of the last 10 days. Between one and three trillion dollars worth of financial assets have evaporated. Wall Street has been effectively nationalized. The Federal Reserve and the Treasury Department are making all the major strategic decisions in the financial sector and, with the rescue of the American International Group (AIG), the U.S. government now runs the world’s biggest insurance company. At $700 billion, the biggest bailout since the Great Depression is being desperately cobbled together to save the global financial system.
The usual explanations no longer suffice. Extraordinary events demand extraordinary explanations. But first… Is the worst over? No. If anything is clear from the contradictory moves of the last week — allowing Lehman Brothers to collapse while taking over AIG, and engineering Bank of America’s takeover of Merrill Lynch — there’s no strategy to deal with the crisis, just tactical responses. It’s like the fire department’s response to a conflagration. The $700 billion buyout of banks’ bad mortgaged-backed securities is mainly a desperate effort to shore up confidence in the system, preventing the erosion of trust in the banks and other financial institutions and avoiding a massive bank run such as the one that triggered the Great Depression of 1929. Did greed cause the collapse of global capitalism’s nerve center? Good old-fashioned greed certainly played a part. This is what Klaus Schwab, the organizer of the World Economic Forum, the yearly global elite jamboree in the Swiss Alps, meant when he said in an interview earlier this year: “We have to pay for the sins of the past.” Was this a case of Wall Street outsmarting itself? Definitely. Financial speculators outsmarted themselves by creating more and more complex financial contracts like derivatives that would securitize and make money from all forms of risk — including such exotic futures instruments as “credit default swaps” that enable investors to bet on the odds that the banks’ own corporate borrowers would not be able to pay their debts! This is the unregulated multi-trillion dollar trade that brought down AIG. On December 17, 2005, when International Financing Review (IFR) announced its 2005 Annual Awards — one of the securities industry's most prestigious awards programs — it had this to say: "[Lehman Brothers] not only maintained its overall market presence, but also led the charge into the preferred space by...developing new products and tailoring transactions to fit borrowers' needs…Lehman Brothers is the most innovative in the preferred space, just doing things you won't see elsewhere." No comment. Was it lack of regulation? Yes. Everyone acknowledges by now that Wall Street’s capacity to innovate and turn out more and more sophisticated financial instruments had run far ahead of government’s regulatory capability. This wasn’t because the government was incapable of regulating but because the dominant neoliberal, laissez-faire attitude prevented government from devising effective regulatory mechanisms. But isn’t there something more that is happening? We’re seeing the intensification of one of the central crises or contradictions of global capitalism: the crisis of overproduction, also known as overaccumulation or overcapacity. In other words, capitalism has a tendency to build up tremendous productive capacity that outruns the population’s capacity to consume owing to social inequalities that limit popular purchasing power, thus eroding profitability. But what does the crisis of overproduction have to do with recent events? Plenty. But to understand the connections, we must go back in time to the so-called Golden Age of Contemporary Capitalism, the period from 1945 to 1975. This was a time of rapid growth both in the center economies and in the underdeveloped economies — one that was partly triggered by the massive reconstruction of Europe and East Asia after the devastation of World War II, and partly by the new socio-economic arrangements institutionalized under the new Keynesian state. Key among the latter were strong state controls over market activity, aggressive use of fiscal and monetary policy to minimize inflation and recession, and a regime of relatively high wages to stimulate and maintain demand. So what went wrong? This period of high growth came to an end in the mid-1970s, when the center economies were seized by stagflation, meaning the coexistence of low growth with high inflation, which wasn’t supposed to happen under neoclassical economics. Stagflation, however, was but a symptom of a deeper cause: the reconstruction of Germany and Japan and the rapid growth of industrializing economies like Brazil, Taiwan, and South Korea added tremendous new productive capacity and increased global competition. Meanwhile social inequality within countries and between countries globally limited the growth of purchasing power and demand, thus eroding profitability. The massive increase in the price of oil aggravated this trend in the 1970s. How did capitalism try to solve the crisis of overproduction? Capital tried three escape routes from the conundrum of overproduction: neoliberal restructuring, globalization, and financialization. What was neoliberal restructuring all about? Neoliberal restructuring took the form of Reaganism and Thatcherism in the North and structural adjustment in the South. The aim was to invigorate capital accumulation, and this was to be done by 1) removing state constraints on the growth, use, and flow of capital and wealth; and 2) redistributing income from the poor and middle classes to the rich on the theory that the rich would then be motivated to invest and reignite economic growth. This formula redistributed income to the rich and gutted the incomes of the poor and middle classes. It thus restricted demand while not necessarily inducing the rich to invest more in production. In fact, neoliberal restructuring, which was generalized in the North and South during the 1980s and 1990s, had a poor record in terms of growth: global growth averaged 1.1% in the 1990s and 1.4% in the 1980s, whereas it averaged 3.5% in the 1960s and 2.4% in the 1970s, when state interventionist policies were dominant. Neoliberal restructuring couldn’t shake off stagnation. How was globalization a response to the crisis? The second escape route global capital took to counter stagnation was “extensive accumulation” or globalization. This was the rapid integration of semi-capitalist, non-capitalist, or precapitalist areas into the global market economy. Rosa Luxemburg, the famous German revolutionary economist, saw this long ago as necessary to shore up the rate of profit in the metropolitan economies: by gaining access to cheap labor, by gaining new, albeit limited, markets, by gaining new sources of cheap agricultural and raw material products, and by bringing into being new areas for investment in infrastructure. Integration is accomplished via trade liberalization, removing barriers to the mobility of global capital and abolishing barriers to foreign investment. China is, of course, the most prominent case of a non-capitalist area that was integrated into the global capitalist economy over the last 25 years. To counter their declining profits, many Fortune 500 corporations have moved a significant part of their operations to China to take advantage of the so-called “China Price” — the cost advantage of China’s seemingly inexhaustible cheap labor. By the middle of the first decade of the 21st century, roughly 40-50% of the profits of U.S. corporations were derived from their operations and sales abroad, especially China. Why didn’t globalization surmount the crisis? This escape route from stagnation has exacerbated the problem of overproduction because it adds to productive capacity. A tremendous amount of manufacturing capacity has been added in China over the last 25 years, and this has had a depressing effect on prices and profits. Not surprisingly, by around 1997, the profits of U.S. corporations stopped growing. According to one index, the profit rate of the Fortune 500 went from 7.15% in 1960-69 to 5.3% in 1980-90 to 2.29% in 1990-99 to 1.32% in 2000-2002. What about financialization? Given the limited gains in countering the depressive impact of overproduction via neoliberal restructuring and globalization, the third escape route became very critical for maintaining and raising profitability: financialization. In the ideal world of neoclassical economics, the financial system is the mechanism by which the savers or those with surplus funds are joined with the entrepreneurs who have need of their funds to invest in production. In the real world of late capitalism, with investment in industry and agriculture yielding low profits owing to overcapacity, large amounts of surplus funds are circulating and being invested and reinvested in the financial sector. The financial sector has thus turned on itself. The result is an increased bifurcation between a hyperactive financial economy and a stagnant real economy. As one financial executive notes, “there has been an increasing disconnect between the real and financial economies in the last few years. The real economy has grown…but nothing like that of the financial economy — until it imploded.” What this observer doesn’t tell us is that the disconnect between the real and the financial economy isn’t accidental. The financial economy has exploded precisely to make up for the stagnation owing to overproduction of the real economy. What were the problems with financialization as an escape route? The problem with investing in financial sector operations is that it is tantamount to squeezing value out of already created value. It may create profit, yes, but it doesn’t create new value. Only industry, agricultural, trade, and services create new value. Because profit is not based on value that is created, investment operations become very volatile and the prices of stocks, bonds, and other forms of investment can depart very radically from their real value. For instance, in the 1990s, prices of stock in Internet startups skyrocketed, driven mainly by upwardly spiraling financial valuations rooted in theoretical expectations of future profitability. Share prices crashed in 2000 and 2001 when this strategy got completely out of hand. Profits then depend on taking advantage of upward price departures from the value of commodities, then selling before reality enforces a “correction.” Corrections are really a return to more realistic values. The radical rise of asset prices far beyond any credible value is what what fosters financial bubbles. Why is financialization so volatile? With profitability depending on speculative coups, it’s not surprising that the finance sector lurches from one bubble to another, or from one speculative mania to another. And because it’s driven by speculative mania, finance-driven capitalism has experienced scores of financial crises since capital markets were deregulated and liberalized in the 1980s. Prior to the current Wall Street meltdown, the most explosive of these were the string of emerging markets crises and the U.S.tech stock bubble’s implosion in 2000 and 2001. The emerging markets crises primarily included the Mexican financial crisis of 1994-95, the Asian financial crisis of 1997-1998, the Russian financial crisis in 1998, and the Argentine financial collapse that occurred in 2001 and 2002, but they also rocked other countries including Brazil and Turkey. One of President Bill Clinton’s Treasury Secretaries, Wall Streeter Robert Rubin, predicted five years ago that “future financial crises are almost surely inevitable and could be even more severe.” How do bubbles form, grow, and burst? Let’s first use the Asian financial crisis of 1997-98, as an example. First, capital account and financial liberalization took place Thailand and other countries at the urging of the International Monetary Fund (IMF) and the U.S. Treasury Department. Then came the entry of foreign funds seeking quick and high returns, meaning they went to real estate and the stock market. This overinvestment made stock and real estate prices fall, leading to the panicked withdrawal of funds. In 1997, $100 billion fled the East Asian economies over the course of just a few weeks. That capital flight led to an IMF bailout of foreign speculators. The resulting collapse of the real economy produced a recession throughout East Asia in 1998. Despite massive destabilization, international financial institutions opposed efforts to impose both national and global regulation of financial system on ideological grounds. What about the current bubble? How did it form? The current Wall Street collapse has its roots in the technology-stock bubble of the late 1990s, when the price of the stocks of Internet startups skyrocketed, then collapsed in 2000 and 2001, resulting in the loss of $7 trillion worth of assets and the recession of 2001-2002. The Fed’s loose money policies under Alan Greenspan encouraged the technology bubble. When it collapsed into a recession, Greenspan, to try to counter a long recession, cut the prime rate to a 45-year low of one percent in June 2003 and kept it there for over a year. This had the effect of encouraging another bubble — in real estate. As early as 2002, progressive economists such as Dean Baker of the Center for Economic Policy Research were warning about the real estate bubble and the predictable severity of its impending collapse. However, as late as 2005, then-Council of Economic Adviser Chairman and now Federal Reserve Board Chairman Ben Bernanke attributed the rise in U.S. housing prices to “strong economic fundamentals” instead of speculative activity. Is it any wonder that he was caught completely off guard when the subprime mortgage crisis broke in the summer of 2007? And how did it grow? According to investor and philanthropist George Soros: “Mortgage institutions encouraged mortgage holders to refinance their mortgages and withdraw their excess equity. They lowered their lending standards and introduced new products, such as adjustable mortgages (ARMs), ‘interest-only’ mortgages, and promotional teaser rates.” All this encouraged speculation in residential housing units. House prices started to rise in double-digit rates. This served to reinforce speculation, and the rise in house prices made the owners feel rich; the result was a consumption boom that has sustained the economy in recent years.” The subprime mortgage crisis wasn’t a case of supply outrunning real demand. The “demand” was largely fabricated by speculative mania on the part of developers and financiers that wanted to make great profits from their access to foreign money that has flooded the United States in the last decade. Big-ticket mortgages were aggressively sold to millions who could not normally afford them by offering low “teaser” interest rates that would later be readjusted to jack up payments from the new homeowners. But how could subprime mortgages going sour turn into such a big problem? Because these assets were then “securitized” with other assets into complex derivative products called “collateralized debt obligations” (CDOs). The mortgage originators worked with different layers of middlemen who understated risk so as to offload them as quickly as possible to other banks and institutional investors. These institutions in turn offloaded these securities onto other banks and foreign financial institutions. When the interest rates were raised on the subprime loans, adjustable mortgage, and other housing loans, the game was up. There are about six million subprime mortgages outstanding, 40% of which will likely go into default in the next two years, Soros estimates. And five million more defaults from adjustable rate mortgages and other “flexible loans” will occur over the next several years. These securities, the value of which run into the trillions of dollars, have already been injected, like virus, into the global financial system. But how could Wall Street titans collapse like a house of cards? For Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, and Bear Stearns, the losses represented by these toxic securities simply overwhelmed their reserves and brought them down. And more are likely to fall once their books — since lots of these holdings are recorded “off the balance sheet” — are corrected to reflect their actual holdings. And many others will join them as other speculative operations such as credit cards and different varieties of risk insurance seize up. The American International Group (AIG) was felled by its massive exposure in the unregulated area of credit default swaps, derivatives that make it possible for investors to bet on the possibility that companies will default on repaying loans. According to Soros, such bets on credit defaults now make up a $45 trillion market that is entirely unregulated. It amounts to more than five times the total of the U.S. government bond market. The huge size of the assets that could go bad if AIG collapsed made Washington change its mind and intervene after it let Lehman Brothers collapse. What’s going to happen now? There will be more bankruptcies and government takeovers. Wall Street’s collapse will deepen and prolong the U.S. recession. This recession will translate into an Asian recession. After all, China’s main foreign market is the United States, and China in turn imports raw materials and intermediate goods that it uses for its U.S. exports from Japan, Korea, and Southeast Asia. Globalization has made “decoupling” impossible. The United States, China, and East Asia in general are like three prisoners bound together in a chain-gang. In a nutshell…? The Wall Street meltdown is not only due to greed and to the lack of government regulation of a hyperactive sector. This collapse stems ultimately from the crisis of overproduction that has plagued global capitalism since the mid-1970s. The financialization of investment activity has been one of the escape routes from stagnation, the other two being neoliberal restructuring and globalization. With neoliberal restructuring and globalization providing limited relief, financialization became attractive as a mechanism to shore up profitability. But financialization has proven to be a dangerous road. It has led to speculative bubbles that produce temporary prosperity for a few but ultimately end up in corporate collapse and in recession in the real economy. The key questions now are: How deep and long will this recession be? Does the U.S. economy need another speculative bubble to drag itself out of this recession? And if it does, where will the next bubble form? Some people say the military-industrial complex or the “disaster capitalism complex” that Naomi Klein writes about will be the next bubble. But that’s another story. How to Spend the Honeymoon (7 November 2008)
It came together spontaneously, the rally at Lafayette Park across from the White House, even before the concession speech by John McCain. The crowd was multiracial, but the vast majority was white. And young. Lustily cheering "O-BA-MA, O-BA-MA," they were from a generation aching for a reason to hope. These young Americans were responding to Barack Obama's clarion call to abandon cynicism and the politics of division that Karl Rove and the Republicans had perfected as an art form over the last two decades.
The joy of victory — and a decisive one at that — caught up people throughout this vast country in a collective outpouring that, for a few hours and probably a few more days, will dispel the fears of joblessness and economic collapse that lie around the corner. Many overcame residual racial fears, in the past successfully stoked by the right, to throw in their lot with a 47-year-old African American, who offered not so much a detailed program as an earnest promise to toss into the ash-heap of history eight years of doctrinaire free-market policies that led to the evaporation of their jobs and communities. Obama asked for people to vote their hopes, while John McCain sought to mobilize their fears. But fear and hope came together in a way that squeezed out the Republicans: people inspired by Obama to enter a new post-partisan era came together with those who feared being driven to economic destitution by four more years of the Republican ideology of greed. Perhaps the most effective slogan, which Obama repeated tirelessly everyday throughout the last three months, was that a McCain victory would mean four more years of George Bush. Catharsis For this columnist, that one hour of being part of a communal outpouring at Lafayette Park was a personal catharsis. It was the fusing of several feelings: exhilaration that Americans had elected a Black man president, happiness that the bums that had brought so much misery to the world were finally being tossed out like the garbage they are, a strange but nice feeling of celebrating at a site where so often in the past I had stood in angry protest against U.S. policies, and, yes, a subversive hope that real change might after all be possible. True, by the end of the campaign, the economy had outstripped the immensely unpopular Iraq War as the key electoral issue. But opposition to the war, more than anything else, was responsible for Obama's decisive victory in Iowa, the primary that gave him a momentum he never lost. At that magical moment at Lafayette Park, this old anti-imperialist dog was infected by the audacity of hope, to use Obama's campaign refrain; maybe, just maybe, this was one of those times that, to borrow Marx's phrase, all that is solid could melt into thin air. The space for substantial change is perhaps greatest when it comes to the economy, where the Bush people have put into place some measures of government intervention they hate with a passion but had no choice but to impose. The election has given Obama a massive mandate to turn from policies meant to stabilize capitalism to policies to promote people's welfare. The question isn't whether there is space for innovation, but whether Obama will go farther and make transformative moves in the ownership and control of the economy. Will we simply have a return to old-fashioned Keynesianism or will we finally move decisively toward a social democratic regime that truly subordinates the market to society? That he is said to have surrounded himself with Democratic neoliberals like Larry Summers, Robert Rubin, and Paul Volcker is cause for concern but hardly alarm at this point. Obama knows that the vote was a referendum against neoliberalism, whether of the doctrinal Reagan variety or the more pragmatic Clinton kind. Foreign Policy Foreign policy is another matter. One of the key themes Obama hammered home during the campaign was that Iraq was the wrong war and Afghanistan was the place to draw the line in the sand against al-Qaeda and their allies, the Taliban. To outmaneuver McCain and the right during the campaign, he probably assessed this as tactically unavoidable, just like his awful pro-Zionist statements. But to translate this electoral rhetoric into policy would be to invite a disaster. Pouring more troops into Afghanistan, which has one of the most ideal terrains for guerrilla war, won't work. And buying off some commanders of the Taliban the way Gen. David Petraeus bought off some of the Sunni tribes in Iraq won't work either, since the Taliban are a very cohesive force ideologically, with Islamic fundamentalism and Afghan nationalism serving the function that communism and nationalism played in Vietnam. Afghanistan, in short, can no longer be stabilized with either hard power or soft power, or both together. The fate of both the British and the Soviets, who had to hightail it out of the country in defeat and shame, stares America in the face. The only alternative is to cut and cut cleanly right now, and withdraw with a modicum of honor and order. During the campaign, Obama showed himself to be a pragmatist who was willing to court unpopularity by going back on his word in order to reach his strategic goal. This was the case when he reversed himself on public financing for his campaign. The negative fallout was slight, since progressives understood the aim was to win the election and the huge outpouring of financial support via the Internet was key to overcoming the financial advantage traditionally enjoyed by Republicans. Following through with his promise to withdraw from Iraq with a firm timetable and reversing himself on Afghanistan will elicit thunder on the right. But at a time when most of the population cares little about "American credibility," the consequences will be manageable. With the costs of the Iraq War alone now hitting $1 trillion, the economic rationale for extrication from the Middle East at a time of domestic distress is quite powerful. The first 100 days of Obama's presidency will be, in the usual fashion, a honeymoon with the American people. This would be the time to decisively get rid of two millstones — Iraq and Afghanistan — the Bush administration would love to foist on him and break up the coalition that carried him to the White House. This will clear the way for focusing on the truly gigantic task ahead, which is to transform the American economy and the global economy. But he has to act fast, taking advantage of the heady days of his romance with American people and the disarray of the Right. Will he do it? Probably not. But then again, one of the man's greatest assets has been his ability to reverse course, to surprise. |