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Walden Bello - 2009
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.
As goods pile up in wharves from Bangkok to Shanghai, and workers are laid off in record numbers, people in East Asia are beginning to realize they aren't only experiencing an economic downturn but living through the end of an era. For over 40 years now, the cutting edge of the region's economy has been export-oriented industrialization (EOI). Taiwan and Korea first adopted this strategy of growth in the mid-1960s, with Korean dictator Park Chung-Hee coaxing his country's entrepreneurs to export by, among other measures, cutting off electricity to their factories if they refused to comply. The success of Korea and Taiwan convinced the World Bank that EOI was the wave of the future. In the mid-1970s, then-Bank President Robert McNamara enshrined it as doctrine, preaching that "special efforts must be made in many countries to turn their manufacturing enterprises away from the relatively small markets associated with import substitution toward the much larger opportunities flowing from export promotion." EOI became one of the key points of consensus between the Bank and Southeast Asia's governments. Both realized import substitution industrialization could only continue if domestic purchasing power were increased via significant redistribution of income and wealth, and this was simply out of the question for the region's elites. Export markets, especially the relatively open U.S. market, appeared to be a painless substitute. Japanese Capital Creates an Export Platform The World Bank endorsed the establishment of export processing zones, where foreign capital could be married to cheap (usually female) labor. It also supported the establishment of tax incentives for exporters and, less successfully, promoted trade liberalization. Not until the mid-1980s, however, did the economies of Southeast Asia take off, and this wasn't so much because of the Bank but because of aggressive U.S. trade policy. In 1985, in what became known as the Plaza Accord, the United States forced the drastic revaluation of the Japanese yen relative to the dollar and other major currencies. By making Japanese imports more expensive to American consumers, Washington hoped to reduce its trade deficit with Tokyo. Production in Japan became prohibitive in terms of labor costs, forcing the Japanese to move the more labor-intensive parts of their manufacturing operations to low-wage areas, in particular to China and Southeast Asia. At least $15 billion worth of Japanese direct investment flowed into Southeast Asia between 1985 and 1990. The inflow of Japanese capital allowed the Southeast Asian "newly industrializing countries" to escape the credit squeeze of the early 1980s brought on by the Third World debt crisis, surmount the global recession of the mid-1980s, and move onto a path of high-speed growth. The centrality of the endaka, or currency revaluation, was reflected in the ratio of foreign direct investment inflows to gross capital formation, which leaped spectacularly in the late 1980s and 1990s in Indonesia, Malaysia, and Thailand. The dynamics of foreign-investment-driven growth was best illustrated in Thailand, which received $24 billion worth of investment from capital-rich Japan, Korea, and Taiwan in just five years, between 1987 and 1991. Whatever might have been the Thai government's economic policy preferences protectionist, mercantilist, or pro-market this vast amount of East Asian capital coming into Thailand could not but trigger rapid growth. The same was true in the two other favored nations of northeast Asian capital, Malaysia and Indonesia. It wasn't just the scale of Japanese investment over a five-year period that mattered, however; it was the process. The Japanese government and keiretsu, or conglomerates, planned and cooperated closely in the transfer of corporate industrial facilities to Southeast Asia. One key dimension of this plan was to relocate not just big corporations like Toyota or Matsushita, but also small and medium enterprises that provided their inputs and components. Another was to integrate complementary manufacturing operations that were spread across the region in different countries. The aim was to create an Asia Pacific platform for re-export to Japan and export to third-country markets. This was industrial policy and planning on a grand scale, managed jointly by the Japanese government and corporations and driven by the need to adjust to the post-Plaza Accord world. As one Japanese diplomat put it rather candidly, "Japan is creating an exclusive Japanese market in which Asia Pacific nations are incorporated into the so-called keiretsu [financial-industrial bloc] system." China Masters the Model If Taiwan and Korea pioneered the model and Southeast Asia successfully followed in their wake, China perfected the strategy of export-oriented industrialization. With its reserve army of cheap labor unmatched by any country in the world, China became the "workshop of the world," drawing in $50 billion in foreign investment annually by the first half of this decade. To survive, transnational firms had no choice but to transfer their labor-intensive operations to China to take advantage of what came to be known as the "China price," provoking in the process a tremendous crisis in the advanced capitalist countries labor forces. This process depended on the U.S. market. As long as U.S. consumers splurged, the export economies of East Asia could continue in high gear. The low U.S. savings rate was no barrier since credit was available on a grand scale. China and other Asian countries snapped up U.S. treasury bills and loaned massively to U.S. financial institutions, which in turn loaned to consumers and homebuyers. But now the U.S. credit economy has imploded, and the U.S. market is unlikely to serve as the same dynamic source of demand for a long time to come. As a result, Asia's export economies have been marooned. The Illusion of "Decoupling" For several years China has seemed to be a dynamic alternative to the U.S. market for Japan and East Asia's smaller economies. Chinese demand, after all, had pulled the Asian economies, including Korea and Japan, from the depths of stagnation and the morass of the Asian financial crisis in the first half of this decade. In 2003, for instance, Japan broke a decade-long stagnation by meeting China's thirst for capital and technology-intensive goods. Japanese exports shot up to record levels. Indeed, China had become by the middle of the decade, "the overwhelming driver of export growth in Taiwan and the Philippines, and the majority buyer of products from Japan, South Korea, Malaysia, and Australia." Even though China appeared to be a new driver of export-led growth, some analysts still considered the notion of Asia "decoupling" from the U.S. locomotive to be a pipe dream. For instance, research by economists C.P. Chandrasekhar and Jayati Ghosh, underlined that China was indeed importing intermediate goods and parts from Japan, Korea, and ASEAN, 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," they asserted, "this will not only affect Chinese manufacturing production, but also Chinese demand for imports from these Asian developing countries." The collapse of Asia's key market has banished all talk of decoupling. The image of decoupled locomotives one coming to a halt, the other chugging along on a separate track no longer applies, if it ever had. Rather, U.S.-East Asia economic relations today resemble a chain-gang linking not only China and the United States but a host of other satellite economies. They are all linked to debt-financed middle-class spending in the United States, which has collapsed. China's growth in 2008 fell to 9%, from 11% a year earlier. Japan is now in deep recession, its mighty export-oriented consumer goods industries reeling from plummeting sales. South Korea, the hardest hit of Asia's economies so far, has seen its currency collapse by some 30% relative to the dollar. Southeast Asia's growth in 2009 will likely be half that of 2008. The Coming Fury The sudden end of the export era is going to have some ugly consequences. In the last three decades, rapid growth reduced the number living below the poverty line in many countries. In practically all countries, however, income and wealth inequality increased. But the expansion of consumer purchasing power took much of the edge off social conflicts. Now, with the era of growth coming to an end, increasing poverty amid great inequalities will be a combustible combination. In China, about 20 million workers have lost their jobs in the last few months, many of them heading back to the countryside, where they will find little work. The authorities are rightly worried that what they label "mass group incidents," which have been increasing in the last decade, might spin out of control. With the safety valve of foreign demand for Indonesian and Filipino workers shut off, hundreds of thousands of workers are returning home to few jobs and dying farms. Suffering is likely to be accompanied by rising protest, as it already has in Vietnam, where strikes are spreading like wildfire. Korea, with its tradition of militant labor and peasant protest, is a ticking time bomb. Indeed, East Asia may be entering a period of radical protest and social revolution that went out of style when export-oriented industrialization became the fashion three decades ago. U-20: Will the Global Economy Resurface? (30 March 2009)
The Group of 20 (G20) is making a big show of getting together to come to grips with the global economic crisis. But here's the problem with the upcoming summit in London on April 2: It's all show. What the show masks is a very deep worry and fear among the global elite that it really doesn't know the direction in which the world economy is heading and the measures needed to stabilize it.
The latest statistics are exceeding even the gloomiest projections made earlier. Establishment analysts are beginning to mention the dreaded "D" word and there is a spreading sense that a tidal wave just now gathering momentum will simply overwhelm the trillions of dollars allocated for stimulus spending. In this environment, the G20 conveys the impression that they're more commanded by than in command of developments (In addition to the seven wealthy industrial nations that belong to the G7, the G20 includes China, India, Indonesia, Mexico, Brazil, Argentina, Russia, Saudi Arabia, Australia, South Korea, Turkey, Italy, and South Africa.). Indeed, perhaps no image is more evocative of the current state of the global economy than that of a World War II German U-Boat depth-charged in the North Atlantic by British destroyers. It's going down fast, and the crew doesn't know when it will hit rock bottom. And when it does hit the ocean floor, the big question is: Will the crew be able to make the submarine rise again by pumping compressed air into the severely damaged ballast tanks, like the sailors in Wolfgang Petersen's classic film Das Boot? Or will the U-Boat simply stay at the bottom, its crew doomed to contemplate a fate worse than sudden death? The current capitalist crew manning the global economy doesn't know whether Keynesian methods can re-inflate the global economy. Meanwhile, an increasing number of people are asking whether using a clutch of Social Democratic-like reforms is enough to repair the global economy, or whether the crisis will lead to a new international economic order. A New Bretton Woods? The G20 meeting has been trumpeted as a new "Bretton Woods." In July 1944, in Bretton Woods, New Hampshire, representatives of the state-managed capitalist economies designed the postwar multilateral order with themselves at the center. In fact, the two meetings couldn't be further apart. The London meeting will last one day; the Bretton Woods conference was a tough 21-day working session. The London meeting is exclusive, with 20 governments arrogating to themselves the power to decide for 172 other countries. The Bretton Woods meeting tried hard to be inclusive to avoid precisely the illegitimacy that dogs the G20's London tryst. Even in the midst of global war, it brought together 44 countries, including the still-dependent Commonwealth of the Philippines and the tiny, now-vanished Siberian state of Tannu Tuva. The Bretton Woods Conference created new multilateral institutions and rules to manage the postwar world. The G20 is recycling failed institutions: the G20 itself, the Financial Stability Forum (FSF), the Bank of International Settlements and "Basel II," and the now 65-year-old International Monetary Fund (IMF). Some of these institutions were established by the elite Group of 7 after the 1997 Asian financial crisis to come up with a new financial architecture that would prevent a repetition of the debacle brought about by IMF policies of capital account liberalization. But instead of coming up with safeguards, all these institutions bought the global financial elite's strategy of "self-regulation." Among the mantras they thus legitimized were that capital controls were bad for developing economies; short-selling, or speculating on the movement of borrowed stocks, was a legitimate market operation; and derivatives or securities that allow betting on the movements of an underlying asset "perfected" the market. The implicit recommendation of their inaction was that the best way to regulate the market was to leave it to market players, who had developed sophisticated but allegedly reliable models of "risk assessment." In short, institutions that were part of the problem are now being asked to become the central part of the solution. Unwittingly, the G20 are following Marx's maxim that history first repeats itself as tragedy, then as farce. Resurrecting the Fund The most problematic component of the G20 solution is its proposals for the International Monetary Fund (IMF). The United States and the European Union are seeking an increase in the capital of the IMF from $250 billion to $500 billion. The plan is for the IMF to lend these funds to developing countries to use to stimulate their economies, with U.S. Treasury Secretary Tim Geithner proposing that the Fund supervise this global exercise. If ever there was a non-starter, this is it. First of all, the representation question continues to exercise much of the global South. So far, only marginal changes have been made in the allocation of voting rights at the IMF. Despite the clamor for greater voting power for members from the global South, the rich countries are still overrepresented on the Fund's decision-making executive board and developing countries, especially those in Asia and Africa, are vastly underrepresented. Europe holds a third of the chairs in the executive board and claims the feudal right to have a European always occupy the role of managing director. The United States, for its part, has nearly 17% of voting power, giving it veto power. Second, the IMF's performance during the Asian financial crisis of 1997, more than anything, torpedoed its credibility. The IMF helped bring about the crisis by pushing the Asian countries to eliminate capital controls and liberalize their financial sectors, promoting both the massive entry of speculative capital as well as its destabilizing exit at the slightest sign of crisis. The Fund then pushed governments to cut expenditures, on the theory that inflation was the problem, when it should have been pushing for greater government spending to counteract the collapse of the private sector. This pro-cyclical measure ended up accelerating the regional collapse into recession. Finally, the billions of dollars of IMF rescue funds went not to rescuing the collapsing economies but to compensate foreign financial institutions for their losses a development that has become a textbook example of "moral hazard" or the encouragement of irresponsible lending behavior. Thailand paid off the IMF in 2003 and declared its "financial independence." Brazil, Venezuela, and Argentina followed suit, and Indonesia also declared its intention to repay its debts as quickly as possible. Other countries likewise decided to stay away, preferring to build up their foreign exchange reserves to defend themselves against external developments rather than contract new IMF loans. This led to the IMF's budget crisis, for most of its income was from debt payments made by the bigger developing countries. Partisans of the Fund say that the IMF now sees the merit of massive deficit spending and that, like Richard Nixon, it can now say, "we are all Keynesians now." Many critics do not agree. Eurodad, a non-governmental organization that monitors IMF loans, says that the Fund still attaches onerous conditions to loans to developing countries. Very recent IMF loans also still encourage financial and banking liberalization. And despite the current focus on fiscal stimulus with some countries, like the United States, pushing for governments to raise their stimulus spending to at least 2% of GDP the IMF still requires low income borrowers to keep their deficit spending to no more than 1% of GDP. Finally, there is the question of whether or not the Fund knows what it's doing. One of the key factors discrediting the IMF has been its almost total inability to anticipate the brewing financial crisis. In concluding the 2007 Article IV consultation with the United States, the IMF board stated that "[t]he financial system has shown impressive resilience, including to recent difficulties in the subprime mortgage market." In short, the Fund hasn't only failed miserably in its policy prescriptions, but despite its supposedly top-flight stable of economists, it has drastically fallen short in its surveillance responsibilities. However large the resources the G20 provide the IMF, there will be little international buy-in to a global stimulus program managed by the Fund. The Way Forward The North's response to the current crisis, which is to revive fossilized institutions, is reminiscent of Keynes' famous saying: "The difficulty lies not so much in developing new ideas as in escaping from old ones." So, in Keynes' spirit, let's try to identify ways of abandoning old ways of thinking. First of all, since legitimacy is a very scarce commodity at this point, the UN secretary general and the UN General Assembly rather than the G20 should convoke a special session to design the new global multilateral order. A Commission of Experts on Reforms to the International Monetary and Financial System, set up by the president of the General Assembly and headed by Nobel Prize laureate Joseph Stiglitz, has already done the preparatory policy work for such a meeting. The meeting would be an inclusive process like the Bretton Woods Conference, and like Bretton Woods, it should be a working session lasting several weeks. One of the key outcomes might be the setting up of a representative forum such as the "Global Coordination Council" suggested by the Stiglitz Commission that would broadly coordinate global economic and financial reform. Second, to immediately assist countries to deal with the crisis, the debts of developing countries to Northern institutions should be cancelled. Most of these debts, as the Jubilee movement reminds us, were contracted under onerous conditions and have already been paid many times over. Debt cancellation or a debt moratorium will allow developing countries access to greater resources and will have a greater stimulus effect than money channeled through the IMF. Third, regional structures to deal with financial issues, including development finance, should be the centerpiece of the new architecture of new global governance, not another financial system where the countries of the North dominate centralized institutions like the IMF and monopolize resources and power. In East Asia, the "ASEAN Plus Three" Grouping, or "Chiang Mai Initiative," is a promising development that needs to be expanded, although it also needs to be made more accountable to the peoples of the region. In Latin America, several promising regional initiatives are already in progress, like the Bolivarian Alternative for the Americas and the Bank of the South. Any new global order must have socially accountable regional institutions as its pillars. These are, of course, immediate steps to be made in the context of a longer-term, more fundamental and strategic reconfiguration of a global capitalist system now on the verge of collapsing. The current crisis is a grand opportunity to craft a new system that ends not just the failed system of neoliberal global governance but the Euro-American domination of the capitalist global economy, and put in its place a more decentralized, deglobalized, democratic post-capitalist order. Unless this more fundamental restructuring takes place, the global economy might not be worth bringing back to the surface. Will China Save the World from Depression? (19 May 2009)
Will China be the "growth pole" that will snatch the world from the jaws of depression?
This question has become a favorite topic as the heroic American middle class consumer, weighed down by massive debt, ceases to be the key stimulus for global production. Although China's GDP growth rate fell to 6.1% in the first quarter the lowest in almost a decade optimists see "shoots of recovery" in a 30% surge in urban fixed-asset investment and a jump in industrial output in March. These indicators are proof, some say, that China's stimulus program of $586 billion which, in relation to GDP, is much larger proportionally than the Obama administration's $787 billion package--is working. Countryside as Launching Pad for Recovery? With China's export-oriented urban coastal areas suffering from the collapse of global demand, many inside and outside China are pinning their hopes for global recovery on the Chinese countryside. A significant portion of Beijing's stimulus package is destined for infrastructure and social spending in the rural areas. The government is allocating 20 billion yuan ($3 billion) in subsidies to help rural residents buy televisions, refrigerators, and other electrical appliances. But with export demand down, will this strategy of propping up rural demand work as an engine for the country's massive industrial machine? There are grounds for skepticism. For one, even when export demand was high, 75% of China's industries were already plagued with overcapacity. Before the crisis, for instance, the automobile industry's installed capacity was projected to turn out 100% more vehicles than could be absorbed by a growing market. In the last few years, overcapacity problems have resulted in the halving of the annual profit growth rate for all major enterprises. There is another, greater problem with the strategy of making rural demand a substitute for export markets. Even if Beijing throws in another hundred billion dollars, the stimulus package is not likely to counteract in any significant way the depressive impact of a 25-year policy of sacrificing the countryside for export-oriented urban-based industrial growth. The implications for the global economy are considerable. Subordinating Agriculture to Industry Ironically, China's ascent during the last 30 years began with the rural reforms Deng Xiaoping initiated in 1978. The peasants wanted an end to the Mao-era communes, and Deng and his reformers obliged them by introducing the "household-contract responsibility system." Under this scheme, each household received a piece of land to farm. The household was allowed to retain what was left over of the produce after selling to the state a fixed proportion at a state-determined price, or by simply paying a tax in cash. The rest it could consume or sell on the market. These were the halcyon years of the peasantry. Rural income grew by over 15% a year on average, and rural poverty declined from 33% to 11% of the population. This golden age of the peasantry came to an end, however, when the government adopted a strategy of coast-based, export-oriented industrialization premised on rapid integration into the global capitalist economy. This strategy, which was launched at the 12th National Party Congress in 1984, essentially built the urban industrial economy on "the shoulders of peasants," as rural specialists Chen Guidi and Wu Chantao put it. The government pursued primitive capital accumulation mainly through policies that cut heavily into the peasant surplus. The consequences of this urban-oriented industrial development strategy were stark. Peasant income, which had grown by 15.2% a year from 1978 to 1984, dropped to 2.8% a year from 1986 to 1991. Some recovery occurred in the early 1990s, but stagnation of rural income marked the latter part of the decade. In contrast, urban income, already higher than that of peasants in the mid-1980s, was on average six times the income of peasants by 2000. The stagnation of rural income was caused by policies promoting rising costs of industrial inputs into agriculture, falling prices for agricultural products, and increased taxes, all of which combined to transfer income from the countryside to the city. But the main mechanism for the extraction of surplus from the peasantry was taxation. By 1991, central state agencies levied taxes on peasants for 149 agricultural products, but this proved to be but part of a much bigger bite, as the lower levels of government began to levy their own taxes, fees, and charges. Currently, the various tiers of rural government impose a total of 269 types of tax, along with all sorts of often arbitrarily imposed administrative charges. Taxes and fees are not supposed to exceed 5% of a farmer's income, but the actual amount is often much greater. Some Ministry of Agriculture surveys have reported that the peasant tax burden is 15% three times the official national limit. Expanded taxation would perhaps have been bearable had peasants experienced returns such as improved public health and education and more agricultural infrastructure. In the absence of such tangible benefits, the peasants saw their incomes as subsidizing what Chen and Wu describe as the "monstrous growth of the bureaucracy and the metastasizing number of officials" who seemed to have no other function than to extract more and more from them. Aside from being subjected to higher input prices, lower prices for their goods, and more intensive taxation, peasants have borne the brunt of the urban-industrial focus of economic strategy in other ways. According to one report, "40 million peasants have been forced off their land to make way for roads, airports, dams, factories, and other public and private investments, with an additional two million to be displaced each year." Other researchers cite a much higher figure of 70 million households, meaning that, calculating 4.5 persons per household, by 2004, land grabs have displaced as many as 315 million people. Impact of Trade Liberalization China's commitment to eliminate agricultural quotas and reduce tariffs, made when it joined the World Trade Organization in 2001, may yet dwarf the impact of all the previous changes experienced by peasants. The cost of admission for China is proving to be huge and disproportionate. The government slashed the average agricultural tariff from 54 to 15.3%, compared with the world average of 62%, prompting the commerce minister to boast (or complain): "Not a single member in the WTO history has made such a huge cut [in tariffs] in such a short period of time." The WTO deal reflects China's current priorities. If the government has chosen to put at risk large sections of its agriculture, such as soybeans and cotton, it has done so to open up or keep open global markets for its industrial exports. The social consequences of this trade-off are still to be fully felt, but the immediate effects have been alarming. In 2004, after years of being a net food exporter, China registered a deficit in its agricultural trade. Cotton imports skyrocketed from 11,300 tons in 2001 to 1.98 million tons in 2004, a 175-fold increase. Chinese sugarcane, soybean, and most of all, cotton farmers were devastated. In 2005, according to Oxfam Hong Kong, imports of cheap U.S. cotton resulted in a loss of $208 million in income for Chinese peasants, along with 720,000 jobs. Trade liberalization is also likely to have contributed to the dramatic slowdown in poverty reduction between 2000 and 2004. Loosening the Property Regime In the past few years, the priority placed on a capitalist transformation of the countryside to support export-oriented industrialization has moved the party to promote not only agricultural trade liberalization but a loosening of a semi-socialist property regime that favors peasants and small farmers. This involves easing public controls over land in order to move toward a full-fledged private property regime. The idea is to allow the sale of land rights (the creation of a land market) so that the most "efficient" producers can expand their holdings. In the euphemistic words of a U.S. Department of Agriculture publication, "China is strengthening farmers' rights although stopping short of allowing full ownership of land so farmers can rent land, consolidate their holdings, and achieve efficiencies in size and scale." This liberalization of land rights included the passage of the Agricultural Lease Law in 2003, which curtailed the village authorities' ability to reallocate land and gave farmers the right to inherit and sell leaseholds for arable land for 30 years. With the buying and selling of rights to use land, the government essentially reestablished private property in land in China. In talking about "family farms" and "large-scale farmers," the Chinese Communist Party was, in fact, endorsing a capitalist development path to supplant one that had been based on small-scale peasant agriculture. As one partisan of the new policy argued, "The reform would create both an economy of scale raising efficiency and lowering agricultural production costs but also resolve the problem of idle land left by migrants to the cities." Despite the Party's assurance that it was institutionalizing the peasants' rights to land, many feared that the new policy would legalize the process of illegal land grabbing that had been occurring on a wide scale. This would, they warned, "create a few landlords and many landless farmers who will have no means of living." Given the turbulent transformation of the countryside by the full-scale unleashing of capitalist relations of production in other countries, these fears were not misplaced. In sum, simply allocating money to boost rural demand is unlikely to counteract the powerful economic and social structures created by subordinating the development of the countryside to export-oriented industrialization. These policies have contributed to greater inequality between urban and rural incomes and stalled the reduction of poverty in the rural areas. To enable the rural areas of China to serve as the launching pad for national and global recovery would entail a fundamental policy shift, and the government would have to go against the interests, both local and foreign, that have congealed around the strategy of foreign-capital-dependent, export-oriented industrialization. Beijing has talked a lot about a "New Deal" for the countryside over the last few years. But there are few signs that it has the political will to adopt policies that would translate its rhetoric into reality. So don't expect Beijing to save the global economy any time soon. Keynes: A Man for This Season? (8 July 2009)
One of the most significant consequences of the collapse of neoliberal economics, with its worship of the "self-regulating market," has been the revival of the great English economist John Maynard Keynes.
Not only do his writings make Keynes very contemporary. There is also the mood that permeates them, which evokes the loss of faith in the old and the yearning for something that is yet to be born. Aside from their prescience, his reflections on the condition of Europe after World War I resonate with our current mix of disillusion and hope: In our present confusion of aims, is there enough clear-sighted public spirit left to preserve the balanced and complicated organization by which we live? Communism is discredited by events; socialism, in its old-fashioned interpretation, no longer interests the world; capitalism has lost its self confidence. Unless men are united by a common aim or moved by objective principles, each one's hand will be against the rest and the unregulated pursuit of individual advantage may soon destroy the whole. Governing the Market Government must step in to remedy the failure of the market. This is, of course, the great lesson that Keynes imparted, one derived from his wrestling with the problem of how to bring the world out of the Great Depression of the 1930s. Keynes argued that the market, left to itself, would achieve equilibrium between supply and demand far below full employment and could stay there indefinitely. To kick-start the economy into a dynamic process that would move it toward full employment, the government had to serve as a deus ex machina by spending massively to create the "effective demand" that would restart and sustain the engine of capital accumulation. As preemptive measures to stave off a depression, President Barack Obama's $787 billion stimulus package, as well as those of Europe and China, is classically Keynesian. The measure of Keynes' triumph after nearly 30 years in the wilderness is the marginal impact that Republicans, Russ Limbaugh, the Cato Institute and other species of neoliberal dinosaurs have made on the public discourse with their talk of "passing on a huge debt to coming generations." The revival of Keynes is not, however, simply a policy matter. Two ideas have displaced the theoretical assumption of the individual rationally maximizing his or her interest from the center of economic analysis. One of these ideas driving current thinking is the pervasiveness of uncertainty in the making of decisions, which investors try to deal with by assuming (improbably) that the future will be like the present, and by coming up with techniques to predict and manage the future based on these assumption. The related Keynesian notion is that the economy is driven not by rational calculus but by "animal spirits" on the part of economic actors, that is, by their "spontaneous urge to action." Key among these animal spirits is confidence, the presence or absence of which is at the center of the collective action that drives economic expansions and contractions. Not rational calculation but behavioral or psychological factors predominate. From this standpoint, the economy is like a manic depressive driven by chemical imbalances from one pole to the other, with government intervention and regulation playing a role akin to that of chemical mood-stabilizers. Investment isn't a matter of rational calculus but a manic process that Keynes described as "a game of Snap, of Old Maid, of Musical Chairs, the object of which to pass on the Old Maid the toxic debt to one's neighbor before the music stops." Here, notes Keynes' biographer Robert Sidelsky, "is the recognizable anatomy of the 'irrational exuberance,' followed by blind panic, which has dominated the present crisis." Unbridled investors and submissive regulators are not the only protagonists in the recent tragedy. The hubris of neoliberal economists also played a part, and here Keynes had some very relevant insights for our times. He saw economics as "one of these pretty, polite techniques which tries to deal with the present by abstracting from the fact that we know very little about the future." Indeed, he was, as Skidelsky notes, "famously skeptical about econometrics," with numbers for him being "simply clues, triggers for the imagination," rather than the expressions of certainties or probabilities of past and future events. With their model of rational homo economicus in tatters and econometrics in disrepute, contemporary economists would do well to pay heed to Keynes' advice that if only "economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid." Yet, even as many welcome the resurrection of Keynes, others have doubts about his relevance to the current period. And these doubters are not limited to neoliberal diehards. Limitations of Keynsianism For one thing, Keynesianism is mainly a tool for reviving national economies, and globalization has severely complicated this problem. In the 1930s and 1940s, reviving industrial capacity in relatively integrated capitalist economies revolved around the domestic market. Nowadays, with so many industries and services transferred or outsourced to low wage areas, the effects of Keynesian-type stimulus programs that put money into the hand of consumers to spend on goods has much less impact as a mechanism of sustained recovery. Transnational corporations and TNC-host China may reap profits, but the "multiplier effect" in de-industrialized economies like the United States and Britain might be very limited. Second, the biggest drag on the world economy is the massive gulf in terms of income distribution, the pervasiveness of poverty, and the level of economic development between the North and the South. A "globalized" Keynesian program of stimulus spending, funded by aid and loans from the North, is a very limited response to this problem. Keynesian spending may prevent economic collapse and even spur some growth. But sustained growth demands radical structural reform the kind that involves a fundamental recasting of economic relations between the central capitalist economies and the global periphery. Indeed, the fate of the periphery the "colonies" in Keynes' day didn't elicit much concern in his thinking. Third, Keynes' model of managed capitalism merely postpones rather than provides a solution to one of capitalism's central contradictions. The underlying cause of the current economic crisis is overproduction, in which productive capacity outpaces the growth of effective demand and drives down profits. The Keynesian-inspired activist capitalist state that emerged in the post-World War II period seemed, for a time, to surmount the crisis of overproduction with its regime of relatively high wages and technocratic management of capital-labor relations. However, with the addition of massive new capacity from Japan, Germany, and the newly industrializing countries in the 1960s and 1970s, its ability to do this began to falter. The resulting stagflation the coincidence of stagnation and inflation swept throughout the industrialized world in the late 1970s. The Keynesian consensus collapsed, as capitalism sought to revive its profitability and overcome the crisis of overaccumulation by tearing up the capital-labor compromise, liberalization, deregulation, globalization, and financialization. In this sense, these neoliberal policies constituted an escape route from the conundrum of overproduction on which the Keynesian welfare state had foundered. As we now know, they failed to bring back a return to the "golden years" of post-war capitalism, leading instead to today's economic collapse. It is not, however, likely that a return to pre-1980's Keynesianism is the solution to capitalism's persistent crisis of overproduction. The Great Lacuna Perhaps the greatest obstacle to a revived Keynesianism is its key prescription for revitalizing capitalism in the context of the climate crisis, namely the revving up of global consumption and demand. While the early Keynes had a Malthusian side, his later work hardly addressed what has now become the problematic relationship between capitalism and the environment. The challenge to economics at this point is raising the consumption levels of the global poor with minimal disruption of the environment, while radically cutting back on environmentally damaging consumption or overconsumption in the North. All the talk of replacing the bankrupt American consumer with a Chinese peasant engaged in American-style consumption as the engine of global demand is both foolish and irresponsible. Given the primordial drive of the profit motive to transform living nature into dead commodities, capitalism is unlikely to reconcile ecology and economy even under the state-managed technocratic capitalism promoted by Keynes. "We are all Keynesians Again?" In other words, Keynesianism provides some answers to the current situation, but it does not provide the key to surmounting it. Global capitalism has been laid low by its inherent contradictions, but a second bout of Keynesianism is not what it needs. The deepening international crisis calls for severe checks on capital's freedom to move, tight regulation of financial as well as commodity markets, and massive government spending. However, the needs of the times go beyond these Keynesian measures to encompass massive income distribution, a sustained attack on poverty, a radical transformation of class relations, deglobalization, and perhaps the transcendence of capitalism itself under the threat of environmental cataclysm. "We are all Keynesians again" to borrow but slightly modify Richard Nixon's much-quoted phrase is the theme that unites Barack Obama, Paul Krugman, Joseph Stiglitz, George Soros, Gordon Brown, and Nicholas Sarkozy, though in the implementation of the master's prescriptions, they may have differences. But an uncritical revival of Keynes might simply end up with another confirmation of Marx's dictum that that history first occurs as tragedy, then repeats itself as farce. To solve our problems, we don't just need Keynes. We need our own Keynes. Robert McNamara's Second Vietnam (13 July 2009)
The conventional view of Robert McNamara, who passed away a few days ago, is that after serving as the chief engineer of the disastrous U.S. war in Vietnam, he went on in 1968, to serve as president of the World Bank. In this way, he sought to salve his troubled conscience by delivering development assistance to poor countries.
The reality is, as usual, more complex. Development from Above? As president of the Bank, the world's premier channel for multilateral aid, McNamara did quadruple the institution's lending portfolio to $12 billion. The key beneficiaries, however, were authoritarian dictatorships. Indeed, the rise to hegemony of authoritarian regimes in the developing world cannot be separated from the massive funding that the World Bank under McNamara provided them. By the late 1970s, five of the top seven recipients of World Bank aid were military, presidential-military, or military-controlled regimes: Indonesia, Brazil, South Korea, Turkey, and the Philippines. Why did the Bank under McNamara feel a special affinity to military-dominated regimes? A major reason stems from McNamara's own background. He was one of the prototypes of the "technocrat," a term coined in the early 1960s to refer to the seemingly apolitical practitioner of the science of political and economic management. As chief executive of the Ford Motor Company and later head of the Defense Department, McNamara ran organizations that were hierarchical and non-democratic in structure. Not surprisingly, he was susceptible to the rhetoric of authoritarian regimes that promised to sanitize the political arena in order, according to them, to allow economic managers the space to modernize the country. The Marcos Connection Philippine President Ferdinand Marcos was one of the leaders who most successfully cultivated the image of bringing "development from above." In 1972, he imposed martial law in order, in his words, to "break the democratic deadlock" that had become a barrier to development. "All that people ask," Marcos explained, "is some kind of authority that can enforce the simple law of civil society. Only an authoritarian system will be able to carry forth the mass consent and to exercise the authority necessary to implement new values, measures, and sacrifices." Skillfully deploying a cadre of technocrats to impress the World Bank president, Marcos won McNamara over to backing his regime in a major way. The country was upgraded to what the Bank called a "country of concentration." Between 1950 and 1972, the Philippines received a meager $326 million in Bank assistance. In contrast, between 1973 and 1981, the Bank funneled more than $2.6 billion into the country. Whereas prior to martial law, the Philippines ranked about 30th among recipients of Bank loans, by 1980 it placed eighth among 113 developing countries. In return for this massive increase in aid, the Bank was given carte blanche to forge a comprehensive economic development plan for the Philippines. The two pillars of the strategy were "rural development" and "export oriented industrialization." Containing the Countryside "Rural development" was the Bank's response to the agricultural crisis. The centerpiece of the strategy was increasing the productivity of small farmers through the delivery of "technological packages" and upgrading agricultural support services like credit systems. Rural development, however, had implications that went beyond improved efficiency. As McNamara explained to the Bank's board of governors, the strategy would "put the emphasis not on redistribution of income and wealth as justified as that may be in our member countries but rather on increasing the productivity of the poor, thereby providing for an equitable sharing in the benefits of growth." In short, rural development was partly counterinsurgency, directed at defusing the appeal of the revolutionary movement among the restive rural masses. It was, as one development specialist close to the Bank described it, "defensive modernization" which, if successful, will create a smallholder sector closely integrated with the national economy. Bank projects will encourage subsistence farmers to become small-scale market producers. With economic ties to other sectors, the farmers will be loath to link their interests to those not yet modernized and will hesitate to disrupt the national economy for fear of losing their own markets. Export-oriented Industrialization When it came to industry, McNamara pushed Marcos and other World Bank clients to "turn their manufacturing enterprises away from the relatively small markets associated with import substitution toward the much larger opportunities flowing from export promotion." Quotas were to be eliminated and tariffs brought down to expose protected local industries to the winds of international competition; exporters were to be given incentives; export processing zones were to be set up; and wages were to be kept low to attract foreign investors. The Bank shot down a plan by Marcos' more nationalistic technocrats to set up "11 big industrial projects," including an integrated steel industry and a petrochemical complex. The Bank did not consider this attempt to create a strategic industrial core to be in line with export promotion. As in the case with rural development, there was a social logic to export-oriented industrialization. Persisting in industrialization based on the internal market would have meant having to undertake massive income redistribution in order to expand the market necessary to sustain it, a move opposed by the local elite. By instead hitching the industrialization process to growing export markets, the Bank broke the link between industrialization and domestic income redistribution. The cost, however, was intensifying class conflict as governments attempted to keep wages low and exports competitive. The World Bank vision was grand, but implementation of a project that favored foreign interests and the traditional elites met mass resistance. The project was also dogged by corruption, cronyism, incompetence, and when it came to land reform, lack of political will. Then there was the special problem of Philippine First Lady Imelda Marcos, who wanted to corner more and more World Bank money for her projects. "Mrs. Marcos," one Bank bureaucrat wrote in a briefing paper for McNamara, "has identified herself with a few showcase projects that we consider ineffective and which are a bit of a joke among knowledgeable Filipinos." Crisis and the Advent of Structural Adjustment By the early 1980s, the World Bank program was floundering, prompting management to commission political risk analyst William Ascher to assess the situation. Ascher's findings were grim. The Marcos regime was marked by "increasing precariousness" and "the World Bank's imprimatur on the industrial program runs the risk of drawing criticism of the Bank as the servant of multinational corporations and particularly of US economic imperialism." In a desperate effort to salvage a deteriorating situation, the Bank forced Marcos to appoint a cabinet of technocrats headed by Prime Minister Cesar Virata, its most trusted agent in the country. But the cure that Virata and company administered was worse than the disease. The country was subjected, along with only three other countries that agreed to be guinea pigs, to an experimental Bank program called "structural adjustment" that involved the comprehensive liberalization and deregulation of the economy. The program, one of McNamara's last innovations before he retired in 1981, sought to fully expose developing economies to international market forces in order make them more efficient. In the Philippines, this adjustment entailed bringing down the effective rate of protection for manufacturing from 44 to 20%. Instead of invigorating the economy, however, this shock liberalization combined with the international recession of the early 1980s to bring about deep economic contraction from 1983 to 1986. Indeed, structural adjustment led not only to deindustrialization; according to one study, it also created so much unemployment that migration patterns changed drastically. The large migration flows to Manila declined, and most migrants could turn only to open access forests, watersheds, and artisanal fisheries. Thus the major environmental effect of the economic crisis was overexploitation of these vulnerable resources. Adjustment led to a decade of stagnation from which the country never really recovered, even as its neighbors, who were smart enough to avoid being saddled with the program, were registering 6-10% growth rates in 1985-1995. Familiar Ending Yet there was one unintended benefit for the Philippines: The economic chaos that structural adjustment provoked was one of the key factors that brought about the ouster of Marcos in the combined civil-military uprising of February 1986. By that time, McNamara had been out of the Bank for five years. Ensconced in retirement, he must, however, have seen parallels between the last U.S. helicopters leaving Saigon in 1975 and Marcos going into exile in Hawaii on a U.S. aircraft in 1986. The Philippines was McNamara's second Vietnam. Like the first, it was a memory the once-celebrated whiz-kid of the Kennedy administration would probably have preferred to bury. The Virtues of Deglobalization (3 September 2009)
The current global downturn, the worst since the Great Depression 70 years ago, pounded the last nail into the coffin of globalization. Already beleaguered by evidence that showed global poverty and inequality increasing, even as most poor countries experienced little or no economic growth, globalization has been terminally discredited in the last two years. As the much-heralded process of financial and trade interdependence went into reverse, it became the transmission belt not of prosperity but of economic crisis and collapse.
End of an Era In their responses to the current economic crisis, governments paid lip service to global coordination but propelled separate stimulus programs meant to rev up national markets. In so doing, governments quietly shelved export-oriented growth, long the driver of many economies, though paid the usual nostrums to advancing trade liberalization as a means of countering the global downturn by completing the Doha Round of trade negotiations under the World Trade Organization. There is increasing acknowledgment that there will be no returning to a world centrally dependent on free-spending American consumers, since many are bankrupt and nobody has taken their place. Moreover, whether agreed on internationally or unilaterally set up by national governments, a whole raft of restrictions will almost certainly be imposed on finance capital, the untrammeled mobility of which has been the cutting edge of the current crisis. Intellectual discourse, however, hasn't yet shown many signs of this break with orthodoxy. Neoliberalism, with its emphasis on free trade, the primacy of private enterprise, and a minimalist role for the state, continues to be the default language among policymakers. Establishment critics of market fundamentalism, including Joseph Stiglitz and Paul Krugman, have become entangled in endless debates over how large stimulus programs should be, and whether or not the state should retain an interventionist presence or, once stabilized, return the companies and banks to the private sector. Moreover some, such as Stiglitz, continue to believe in what they perceive to be the economic benefits of globalization while bemoaning its social costs. But trends are fast outpacing both ideologues and critics of neoliberal globalization, and developments thought impossible a few years ago are gaining steam. "The integration of the world economy is in retreat on almost every front," writes the Economist. While the magazine says that corporations continue to believe in the efficiency of global supply chains, "like any chain, these are only as strong as their weakest link. A danger point will come if firms decide that this way of organizing production has had its day." "Deglobalization," a term that the Economist attributes to me, is a development that the magazine, the world's prime avatar of free market ideology, views as negative. I believe, however, that deglobalization is an opportunity. Indeed, my colleagues and I at Focus on the Global South first forwarded deglobalization as a comprehensive paradigm to replace neoliberal globalization almost a decade ago, when the stresses, strains, and contradictions brought about by the latter had become painfully evident. Elaborated as an alternative mainly for developing countries, the deglobalization paradigm is not without relevance to the central capitalist economies. 11 Pillars of the Alternative There are 11 key prongs of the deglobalization paradigm:
The aim of the deglobalization paradigm is to move beyond the economics of narrow efficiency, in which the key criterion is the reduction of unit cost, never mind the social and ecological destabilization this process brings about. It is to move beyond a system of economic calculation that, in the words of John Maynard Keynes, made "the whole conduct of life into a paradox of an accountant's nightmare." An effective economics, rather, strengthens social solidarity by subordinating the operations of the market to the values of equity, justice, and community by enlarging the sphere of democratic decision making. To use the language of the great Hungarian thinker Karl Polanyi in his book The Great Transformation, deglobalization is about "re-embedding" the economy in society, instead of having society driven by the economy. The deglobalization paradigm also asserts that a "one size fits all" model like neoliberalism or centralized bureaucratic socialism is dysfunctional and destabilizing. Instead, diversity should be expected and encouraged, as it is in nature. Shared principles of alternative economics do exist, and they have already substantially emerged in the struggle against and critical reflection over the failure of centralized socialism and capitalism. However, how these principles the most important of which have been sketched out above are concretely articulated will depend on the values, rhythms, and strategic choices of each society. Deglobalization's Pedigree Though it may sound radical, deglobalization isn't really new. Its pedigree includes the writings of the towering British economist Keynes who, at the height of the Depression, bluntly stated: "We do not wish to be at the mercy of world forces working out, or trying to work out, some uniform equilibrium, according to the principles of laissez faire capitalism." Indeed, he continued, over "an increasingly wide range of industrial products, and perhaps agricultural products also, I become doubtful whether the economic cost of self-sufficiency is great enough to outweigh the other advantages of gradually bringing the producer and the consumer within the ambit of the same national, economic and financial organization. Experience accumulates to prove that most modern mass-production processes can be performed in most countries and climates with almost equal efficiency." And with words that have a very contemporary ring, Keynes concluded, "I sympathize with those who would minimize rather than with those who would maximize economic entanglement between nations. Ideas, knowledge, art, hospitality, travel these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible; and, above all, let finance be primarily national." G20: Form, Not Substance (24 September 2009)
As the self-appointed economic guardians of the world and thousands of protesters converge on Pittsburgh for the third summit of the Group of 20 (G20), expectations are low that a breakthrough will take place in the form of a coordinated action to address the global economic crisis.
French President Nicolas Sarkozy has threatened to walk out of the summit if leaders do not agree to put a cap on executive pay and bonuses, one of the key causes of the financial implosion. However, consensus on this issue is likely to be more rhetorical than substantial, owing to Washington's continuing preference for voluntary compliance on the part of bankers. As some observers have pointed out, recourse to voluntary compliance is akin to asking alcoholics to abstain from alcohol. Financial Regulation: A Mirage? There will also be agreement in principle over the need for higher reserve requirements on the part of financial institutions, which government leaders hope will curb reckless investment. But the devil is in the details, and here the Europeans want higher reserve requirements than Washington is willing to support. The stated reason for Washington's hesitation: It doesn't want to impose rules that might impede the "efficiency" of the financial system. The real reason: The banks continue to constitute a formidable lobby that enjoys the sympathy of U.S. Treasury Secretary Tim Geithner who, as head of the New York Federal Reserve, participated in some of the momentous decisions that led to the 2007-2008 financial debacle. The stark reality is that over two years after the subprime crisis broke in the summer of 2007, the U.S. government has not issued any new broad financial regulations to curb the propensity of Wall Street's overleveraged institutions to play with an estimated $600 trillion worth of unregulated derivatives. Indeed, bankers are inventing new speculative instruments, such as derivatives that would allow investors to make money on the sale of life insurance plans by old people who can no longer afford them. Debate over Stimulus Spending The summit declaration will probably exhort countries to keep up their stimulus spending to sustain demand and counteract economic contraction. But the reality is that under pressure from fiscal conservatives, the U.S. government has little appetite for more stimulus spending, despite the continuing contraction of the economy. Thus, Federal Reserve Chairman Ben Bernanke and other officials have been hyping the idea that the light is visible at the end of the tunnel and the global recession is likely to end soon, implying that there might be less need now for stimulus spending. As a White House memo to European governments revealed by reporter Greg Palast put it, each nation should be allowed to "unwind" anti-recession efforts "at a pace appropriate to the circumstances of each economy." This memo was in response to fears in Europe that the United States might turn off the spending tap prematurely, creating problems for Europe and everyone else owing to the centrality of the U.S. economy. Underscoring the difference, a note from a European Union official quoted by Palast asserts: "'It is essential that the Heads of State and Government, at this summit, continue to implement the economic policy measures they have adopted,' and not act unilaterally. 'Exit strategies [must] be implemented in a coordinated manner.'" Despite these important differences, which could result in divergent policies, the G20 leaders will try to paper over points of disagreement and claim that the meeting is a great success. Asia's Dependent Export Economies The stimulus plans on the part of the United States and the European countries will be of special concern to the Asian participants. Sustained recovery in Asia is a long way off. But some countries have blunted the worst effects of the recession and even grown a bit in the last few months, thanks to aggressive stimulus spending. In China, for instance, the economy grew by 7.9% in the second quarter, a phenomenon driven mainly by the stimulus of $585 billion the government injected into the economy earlier this year. For the export-driven economies of China and other East Asian countries, however, a sustained recovery will depend on the resumption of robust consumer demand in the United States and Europe. But even if Washington continues to prop up the economy with more stimulus dollars, it will be a long while before American consumers, many of whom are now severely in debt, again became the engine of the global economy. In other words, global stagnation will be a long-term phenomenon. Illegitimate Forum After three summits have produced only broad policy statements of a voluntary nature, the G20 is not a credible policymaking body to address the global economic crisis. There certainly is little in the way of political will to make the hard decisions that will turn around the downturn or mitigate its impact, whether in the form of massive aid to poor countries, bigger amounts and greater coordination of stimulus spending in the major capitalist countries, greater representation in the International Monetary Fund for developing countries, or tighter regulation of reckless financial institutions. On the other hand, with its lack of legitimacy as an international forum and its image as a club of the rich and powerful albeit expanded to include China, India, and a number of other large developing countries the G20 has become a perfect target for protesters, several thousand of whom have been marching against free market economics, for global justice, and for other causes over the last week. Over the next decade, will the G20 serve as the lightning rod for the rebirth of the anti-globalization movement that the WTO performed in the late 1990s? Climate and Capitalism in Copenhagen (1 December 2009)
Beginning in the second week of December, representatives to the United Nations Climate Conference in Copenhagen will wrestle with the challenge of climate change. This week, influential actors in the World Trade Organization Seventh Ministerial Conference taking place in Geneva are trying to push for a conclusion to the nine-year-old Doha Round of trade negotiations.
The two meetings are at cross-purposes and their juxtaposition highlights a profound reality: The world has to choose between free trade and effective climate management. The Global Downturn: Relief for the Climate The last 12 months have seen the unraveling of a particular type of international economy: export-oriented and marked by the accelerated integration of production and markets. This globalized economy has been transportation-intensive, greatly dependent on ever-increasing long-distance transportation of goods. For instance, a plate of food consumed in the United States travels an average of 1,500 miles from source to table. Transportation, in turn, is fossil-fuel intensive, accounting in 2006 for 13% of global greenhouse gas emissions (GHG) and 23% of global carbon dioxide emissions. A downturn in the export-dependent global economy thus brings about a significant downturn in carbon emissions as well. It spells relief for the climate. In 2009, the drop in the level of greenhouse gas emissions (GHG) has been the largest in the last 40 years. The thousands of ships marooned by lack of global demand in ports such as New York, Singapore, Rio de Janeiro, and Seoul means a significant reduction in the use of high-carbon Bunker C oil, which is used in 80% of ocean shipping. The cutback in air freight has meant a significant reduction in the use of aviation fuel, which has been the fastest growing source of GHG emissions in recent years. Deglobalization as Opportunity In response to the collapse of the export-oriented global economy, many governments have fallen back on their domestic markets, revving them up via stimulus programs that put spending money in the hands of consumers. This move has been accompanied by a retreat from globalized production structures or "deglobalization." "The integration of the world economy is in retreat on almost every front," writes the Economist. While the magazine says that corporations continue to believe in the efficiency of global supply chains, "like any chain, these are only as strong as their weakest link. A danger point will come if firms decide that this way of organizing production has had its day." For many environmentalists and ecological economists in the South and the North, the unraveling of the export-oriented global economy spells opportunity. It opens up the transition to more climate-friendly and ecologically sensitive ways of organizing economic life. But the fossil fuel-intensiveness of global transport and freight is merely one dimension of the problem. Environmentalists insist there must be a change in the reigning economic model itself. The global economy must make a transition from being driven fundamentally by overproduction and overconsumption to being geared to real needs, marked by moderate or low consumption, and based on sustainable and decentralized production processes. Accordingly, the assumption of most policymakers in the North that consumption trends can continue and that the only challenge is the transformation of the energy mix and the adoption of technofixes such as biofuels, "clean coal," nuclear power, carbon sequestration and storage, and carbon trading is not only based on illusions but positively dangerous. Indeed, the climate problem cannot be addressed strategically without addressing the inherently environmentally destabilizing dynamics of capitalism its incessant drive, motivated by the search for profit, to transform living nature into dead commodities. Instead of heralding this transition to a much less fossil-fuel-intensive and ecologically sustainable production, most technocrats and economists see only a temporary retreat from export-led growth until global demand makes the latter viable again. The policy debate in establishment circles focuses on who will replace the bankrupt American consumer as the engine of global demand. With Europe stagnant and Japan in almost permanent recession, the hope is that China's growth will be the basis of global reflation. This is a mirage. China's 8.9% annualized growth in the last quarter is due to their current stimulus, a $585 billion program that has been funneled mainly to the countryside. Domestic demand will likely cease to grow once the money is spent. A limited spurt of cash will not transform Chinese peasants into the saviors of the global economy. After all, because they bore the costs of the country's export-oriented economy, these peasants have seen their incomes and welfare severely erode over the last quarter of a century. The Doha Dead End But however this debate over the global consumer of last resort is resolved, the World Trade Organization and its most influential members, both from the North and the South, hope that completing the Doha Round at the Seventh Ministerial Meeting in Geneva will bring about a resumption of the carbon-intensive march toward globally integrated production and markets. The preoccupation of economists and policymakers with the export engine to revive the global economy, which often excludes concerns about the negative impact of export-led globalization on the climate, is a dangerous divide leading up to Copenhagen. Says John Cavanagh, director of the Institute for Policy Studies: "We have economic policymakers concerned with reversing recession and ecological economists concerned with strategic ways of reversing climate change talking past one another." The climate negotiations have their own share of problems, even without the WTO threat. In the lead-up to Copenhagen, the focus of the climate discussions has been on two issues: mitigation and adaptation. Both are stymied, largely owing to the positions of the industrialized (Annex 1) countries. On mitigation, pivotal developed countries have so far resisted offering legally binding cuts. And what voluntary cuts they have offered are slight. In the case of the United States, President Obama's nonbinding commitment is to reduce greenhouse gas emissions (GHG) by 17% from 2005 levels. This translates into an insignificant 4% reduction from 1990 levels, which serve as the benchmark for serious cuts. The Intergovernmental Panel on Climate Change has asserted that a 25-40% cut in GHG by 2020 is the minimum figure that would keep global mean temperature from rising above two degrees centigrade during this century. And, already, the latter is said to be an underestimate. In the area of adaptation assisting the poorer countries to prepare themselves for the consequences of climate change the negotiations have been held up by the rich countries' reluctance to come up with the minimum amounts of aid necessary, to transfer technology unconditionally, and to channel the sums to the developing world through institutions apart from the World Bank, which they control. The challenges in these two areas are daunting enough. And yet, unless the question of which economic model or strategy the countries of the world should move toward is front and center in Copenhagen, even the most ambitious agreements arrived at on mitigation and adaptation will be simply a Band-Aid. Unless the negotiators in Copenhagen dethrone the Doha model, the fundamental driver of climate change an export-oriented globalized capitalist economy based on perpetually rising consumption will continue to reign. |