G-20 or G-192: Fear of the South

The Real News, July 13, 2009

Western governments shutting UN out of global crisis response, as Southern governments question pillars of the world economy.

Developing nations’ appeals unheard at UN Summit on Global Economic Crisis

AlJazeera, June 26, 2009

More than 140 countries have agreed on a blueprint to respond to the global economic crisis.

The paper calls for the inclusion of developing countries in finding solutions to the financial meltdown.

But some say the 15-page document is short on specifics, and has been undercut by indifference from the world’s largest economies.

Al Jazeera’s Cath Turner reports from the United Nations.

Is West Undermining Summit on Financial Crisis?

By Thalif Deen, Inter Press Service, June 17, 2009

UNITED NATIONS, Jun 17 (IPS) – When a Western diplomat was asked whether his country would be represented by a head of state at next week’s U.N. summit meeting on the global financial crisis, his response was tinged with sarcasm and contempt.

We will send only our note takers,” he was quoted as saying.

In diplomatic jargon, “note takers” are equivalent to glorified stenographers who religiously take down everything said at a meeting but have no authority to intervene or take decisions.

The decision to hold a U.N. summit on the global economic crisis was taken by all 192 member states – by consensus – at an international conference on financing for development held in the Qatari capital of Doha last November.

The participants at next week’s summit were expected to be “at the highest political levels”, meaning heads of state and government.

But Western nations have apparently backed out of the decision which they themselves took in Doha.

Speaking on condition of anonymity, an Asian diplomat told IPS: “The Western states are trying to undermine the meeting by sending low-level representatives.”

“The reason is obvious,” he explained. “The West feels the General Assembly is not the appropriate forum to discuss the global financial crisis.”

“They think the crisis belongs to the World Bank, and more importantly, the International Monetary Fund (IMF),” he added.

Asked if there were any Western heads of state or heads of government scheduled to participate in the summit, Enrique Yeves, spokesman for the president of the General Assembly, told IPS: “None from the West.”

But there are around 30 heads of state and government (out of 192), mostly from developing nations, who have confirmed attendance, he added.

“We (will) have a strong presence of Latin America and the Caribbean – especially from the Caribbean, we have several heads of state and government coming,” Yeves said. “We’ll (also) have a good attendance, I’ve been told, from Africa and Asia.”

“And then, as they have already been said in public, the developed countries, especially the Europeans and the United States and some others, have indicated they might not be represented at the level of heads of state, but certainly at the level of ministers or whoever is the chief of delegation,” Yeves added.

The summit meeting of the General Assembly, due to take place Jun. 24-26, was originally scheduled for Jun. 1-3.

But delegates wanted more time to negotiate the draft outcome document that will be adopted at the meeting.

The negotiating process on the document has been painfully slow and is expected to continue till the eve of the summit next week.

After consultations with the various regional groups, the president of the General Assembly, Father Miguel d’Escoto Brockmann, the organiser of the three-day summit, decided to postpone the meeting from the original date to next week.

Meanwhile, there have been several stories in the mainstream media, quoting Western diplomats as saying they are very unhappy with the left-wing agenda of D’Escoto, a former foreign minister in the Sandinista government in Nicaragua.

Asked about this, Yeves told reporters Monday: “But let me – because I have been quoted in some of these articles, as well – tell you what I find strange in the last two or three articles that we have seen, is that we keep hearing these anonymous sources quoting diplomats of the developed countries basically saying that the meeting is not a good idea.”

“It’s going to be a failure or that they don’t think it is going to accomplish anything or whatever,” Yeves said. “I would like to make two comments on this particular issue. The first one, it is very difficult to discuss anonymous sources because, you know, we don’t know who said what, and in what context.”

“However, the president (of the General Assembly) speaks for himself – or I speak for myself – on the record all the time, and our record is very clear.”

“And the second part that I wanted to say is on substance,” because the criticisms are strange, because the summit, and the entire process leading to the summit, have been approved by consensus by all 192 member states,” he said.

Thoroughly modern Marx

The Real News, June 1, 2009

Part # 1

Leo Panitch: Marx was a realist; the real romantics think you can have capitalism without great crisis.

Part # 2

Leo Panitch: Marx’s theories are seeing new light as the debate over bank nationalization continues

Part # 3

Leo Panitch: Marx, socialism and individual rights

Overhauling Global Finance

Alex Wilks | May 28, 2009 Foreign Policy in Focus

The global financial crisis has discredited the financial institutions that played a part in causing it. Discussions of radical alternatives are beginning to flourish, with the world’s governments rushing to consult experts who previously found themselves out in the cold.

If only. In fact many of the same financial experts as a decade ago populate finance ministries, review panels, and talk shows. The commission of experts convened by the president of the United Nations General Assembly represents one rare exception.

This commission includes 18 researchers, politicians, former officials, and activists from all the world’s regions. Their mandate is to recommend “needed institutional reforms required to ensure sustained global economic progress and stability which will be of benefit to all countries, developed and less developed.” The body is popularly known as the “Stiglitz Commission” because it’s led by Nobel laureate and former World Bank chief economist Joseph Stiglitz. But it’s most notable for the participation of high-level experts from developing countries.

The commission is slated to release its 110-page report within days to foster public debate and to improve the outcome of the forthcoming United Nations conference on the world financial and economic crisis and its impact on development.

Clean Break

In much tougher language than we’ve seen from other official bodies this year, the commission wholeheartedly condemns the fundamentals of the mainstream thinking over the last 30 years. The commission’s draft report, released May 21, seeks to bury “previously fashionable economic doctrines, which held that unfettered markets are, on their own, quickly self-correcting and efficient.” It finds that the globalization constructed on these flawed hypotheses enabled defects in one economic system to spread quickly around the world, bringing recessions and impoverishment to developing countries.

The commission points out that inequality has left many people unable to buy what they need, even in richer countries. Working-class people in wealthy nations have gone deeper and deeper into debt, contributing to the severe financial imbalances between nations which were a major cause of the crisis.

Yaga Reddy, former governor of the Reserve Bank of India and Yu Yongding, director of the Institute of World Economics and Politics at Chinese Academy of Social Sciences, two of the commission’s members gave a preview of its findings at a meeting my network organised in Brussels. Reddy and his fellow speaker repeatedly stressed that politicians are currently too focused on fiscal stimulus measures, rather than plugging the gaping holes in policies and institutions. Without structural reforms, they warned, the world economy will continue to suffer repeated crises. The Stiglitz Commission appeals, sensibly, for short-term economic stimulus measures to help introduce, and above all not obstruct, required long-term changes.

The commission also points out that at present poorer countries are effectively lending to the richer countries at low interest rates because of the way the global monetary system works.Global financial redistribution is going the wrong way.Now, following a period where private funding was readily available, many developing countries are seeing massive outflows as rich country banks and investors repatriate funds. They can be expected to do little else, having been bailed out by politicians who want to ensure they make money available in their home economies.

Practical and Visionary Proposals

The commission will make a very comprehensive series of proposals — covering reforms to development funding, tax policies, regulation, and environmental investment. Most innovatively, the commission suggests some new structures that are required to make the world economy more stable and equitable.

Developing countries need access to extra sources of funding to plug the hole in their finances which may amount to $200 billion this year for the world’s 40 poorest countries. These countries are facing shocks from reduced investment, remittances and export earnings. The commission points out that countries such as China, which have money available, are reluctant to channel funding through existing multilateral organizations such as the World Bank because they don’t have enough say on the Bank’s board, the institution’s decision-making body that’s currently dominated by the United States, Europe, and Japan. This is the principle of “no taxation without representation,” well-established at the local and national level in most countries, but still lacking at the international level.

The commission concludes that the only way forward is to create a new “facility” to transfer money from richer to poorer countries. But it unfortunately recommends that this new facility might be housed in an existing institution, administered by the existing institution’s staff, albeit under a new kind of governance arrangement. It’s true that — in the unlikely event that significant sums of money are mobilized this year — the most pragmatic way to proceed is the channel them through the World Bank and the International Monetary Fund (IMF). However, there is a clear danger that giving them more money now will consolidate their power. This is worrying, unless accompanied by a transformation of the Bank and Fund’s governance and economic policy approach.   

The commission recommends building up regional financial cooperation and regional financial institutions at the same time global ones are transformed. This is positive, although the European Union — the most mature regional grouping at the present time — hasn’t excelled itself in dealing with the current crisis.

To address the imbalances and injustices caused by the dollar being the world’s reserve currency, Stiglitz’s group of experts suggests creating a new global reserve system. This is a worthwhile discussion to initiate, but the commission isn’t likely to be very specific about it.

The commission creatively borrows from other policy areas that its members think can teach a sound lesson to finance officials. The Stiglitz experts recommend setting up a “Financial Products Safety Commission” similar to the U.S. Food and Drug Administration. Rather than assess new medical or edible products, this new body would scrutinize new financial products to see if they are safe to sell to unsuspecting consumers. The approach until now has been different: allow any kind of financial innovation and hope that consumers would wise up or regulators keep up. Many homeowners, credit card holders, and others can see the disastrous consequences.

The commission borrows another idea from the UN’s Intergovernmental Panel on Climate Change. This body of scientists has sounded the alarm on the need to address human-caused changes to our atmosphere, getting ahead of and driving the political consensus. Such a body could now be created on financial and economic issues. The body would produce public reports pointing out issues which need to be dealt with, and give advice to the United Nations General Assembly and other international organizations. If it’s constituted many of us would be happy to propose some of the Stiglitz panel’s commissioners as candidates.

Fearing a new and dangerous phase of the ongoing debt crisis in the next couple of years, the Commission recommends a Foreign Debt Commission, an International Debt Restructuring Court, and a Global Economic Coordination Council, all under the aegis of the United Nations. The latter would review the activities of the World Bank, IMF, and United Nations, as well as regional and other financial institutions, ensuring that gaps are filled and problems identified early.

Implementation Prospects

The commission is slated to release its final report soon. One of the main strategies of General Assembly President Miguel d’Escoto Brockmann when he established the panel was to inform the inter-governmental negotiations for the UN conference on the world financial and economic crisis and its impact on development, scheduled previously for the first week of June now postponed until June 24-26. And one of the commission’s findings is that decisions concerning necessary reforms in global institutional arrangements must be made not by a self-selected group, such as the Group of the world’s eight richest countries (G-8), but by all the countries of the world working in concert.

The unfolding crisis should provide an opportunity to abolish the G-8, slim down the International Monetary Fund, and bring forward the United Nations as the more legitimate and therefore more effective forum to set global economic policies and priorities. Over the last six months this has looked unlikely, as the G-8 began to expand into the somewhat more inclusive G-20. This sounds more democratic, as it involves many countries with large populations including India, China, and Brazil. But most other countries are left out. The G-20′s view of what the United Nations should do at this time was merely “to monitor the impact of the crisis on the poorest and most vulnerable,” rather than actively do anything about it.

Diplomats in New York are still arguing fiercely over the text that will define the UN conference. Civil society groups organizing around the process have raised their concerns that the conference may prove a major missed opportunity, but are urging heads of state to attend to raise the chances of a success. Several of the Stiglitz Commission’s innovations are already present in the panel’s latest draftalthough there is still much negotiating to be done. A lively public launch of the commission’s findings should help energize public discussions about how to build political will to make a decisive break with the institutions, thinking, and policies that created this crisis.

 *Alex Wilks is the director of the European Network on Debt and Development in Brussels.

Sino-US economic ties ‘crucial’ to world economy

AlJazeera, June 1, 2009

Timothy Geithner, the US treasury secretary, praised China’s response to the global economic downturn during his visit to the country.

He also sought to reassure leaders that China’s $1 trillion portfolio of US government debt was a safe investment.

Al Jazeera’s Melissa Chan reports.

Civil society wants substance, not procedural delays at UN conf on crisis

A statement calling upon governments not to take procedural arguments as an excuse to further delaying the substantive negotiations on the urgently needed global policy responses to the current crisis is being circulated to negotiators at the UN. 

Statement on the negotiations about the outcome of the UN Conference on the World Financial and Economic Crisis and its Impact on Development 

Choike.org May 15, 2009 

Download: Draft outcome document for the June UN Conference on the crisis

1. We are facing a global systemic crisis, which originated in the rich countries of the North, their unsustainable consumption and production patterns and the irresponsible economic behavior of their dominant social actors. The crisis affects billions of people all over the world, pushing many millions of them into unemployment and poverty, and violating their economic, social and cultural rights. 

2. The response of the G20 was not sufficient to address the root causes of these multiple crises of food, climate, financial markets and sustainable development. 

3. The global crisis needs a global response involving all societies that are affected by crisis. Therefore, the United Nations is the only legitimate forum through which the crisis can be resolved. This is the reason why we highly welcomed the decision of governments in Doha to hold a UN Conference on the world economic and financial crisis and its impact on development. 

4. Since the Doha Conference it has taken diplomats in New York more than 16 weeks to agree on the modalities of the “Crisis Conference“. They are responsible for the delay, they are responsible for the lack of time for the substantive negotiations on the outcome of the conference. 

5. Civil Society Organizations and Networks produced comprehensive statements listing their recommendations and demands on how to address the current crisis, starting with the “Civil Society Benchmark Paper” in the run-up to the Doha Conference 2008. 

6. Many of our demands are reflected in the recommendations presented by the “Stiglitz Commission” in March 2009. For this reason we regard these recommendations as a good basis on which to build a new global economic and financial system . 

7. Many of our positions are also reflected in the first draft outcome document presented by the President of the General Assembly (PGA) on 8 May 2009. We understand that the recommendations in this document contain short-term measures that have to be implemented immediately as a response to the current crisis, such as the sufficient funding for a global stimulus package, and long-term measures, such as the establishment of a new Global Reserve System or the proposal for a Global Tax Authority. We agree that the UN conference in June has to come up with immediate responses to the crisis and simultaneously decide on an intergovernmental time-bound process towards the long-term reforms. 

8. In contrast, the draft document by the Co-Facilitators, dated 6 May 2009 neither specifies the necessary short-term actions nor does it contain concrete commitments for longer-term structural reform measures. It mainly reconfirms – by recycling already agreed language – decisions taken at the Doha Conference and the G20 Summits. The policy recommendations in this document lack any sense of urgency. The recommendations on institutional reforms (para. 47) are interesting but, according to the Co-Facilitators, they only “might be considered”. Such a diplomatic phrase makes any recommendation completely useless. If governments agreed on such an outcome document, they would further weaken the UN as the global forum for economic policy coordination and decision making and would completely fail to find meaningful answers to the current crisis. 

9. We understand that under the current time pressure it will be difficult for governments to agree on a comprehensive set of radical reform measures as outlined in the draft of the PGA. But, a consensus on many concrete reform proposals that are on the table can still be reached. Among the decisions that are of high priority and could be taken at the UN Conference without any further delay are the following: 

- The initiative to establish a Global Panel on Systemic Risks in the World Economy, following the model of the Intergovernmental Panel on Climate Change, bringing together academics, civil society and policy makers. 

- The decision to upgrade the Committee of Experts on International Cooperation on Tax Matters to an intergovernmental Commission on Tax Matters as a functional commission of ECOSOC by the end of 2009. 

- The political commitment to introduce an internationally coordinated Financial Transaction Tax in order to mobilize additional resources for a short-term Global Stimulus Fund and the longer-term implementation of the Internationally Agreed Development Goals, including the MDGs. 

- The establishment of a Global Economic Coordination Council within the UN system. 

- The decision to review the Agreement between the UN and the Bretton-Woods-Institutions (BWIs) in order to enhance coordination and policy coherence by integrating the BWIs as specialized agencies completely into the UN system. 

10. We call upon governments not to take procedural arguments as an excuse to further delaying the substantive negotiations on the urgently needed global policy responses to the current crisis. 

Signatures 
Jens Martens and James Paul, Global Policy Forum 
Roberto Bissio, Social Watch 
Beverly Keene, Jubilee South 
Andrea Baranes and Antonio Tricarico, Campagna per la Reforma della Banca Mondiale 
Mirjana Dokmanovic, Women and Development Europe (WIDE) 
Gigi Francisco, Development Alternatives wirh Women for a New Era (DAWN) 
Patricia Blankson Akakpo, Network for Women’s Rights in Ghana (NETRIGHT) and ABANTU for Development (ROWA) 
Josep Xercavins i Valls 
Philo Morris, Medical Mission Sisters 
Aldo Caliari, Center of Concern 
Rudy De Meyer, 11.11.11 
Verena Winkler and Simon Stocker, Eurostep 
Eva Friedlander, IWAC, the International Women’s Anthropology Conference 
Luke Fletcher, Jubilee Australia 
Anne Jellema, Action Aid 
Mark Herkenrath, Alliance Sud, Switzerland 
Klaus Schilder, terre des hommes Germany 
Magaly Pineda, CIPAF, Rep.Dominicana 
Feminist Task Force of the Global Call to Action against Poverty 
Arjun Karki, LDC Watch 
Sarba Khadka, South Asia Alliance for Poverty Eradication-SAAPE 
Mana Dahal Rural Reconstruction Nepal-RRN 
Edward Oyugi, Social Development Network, Nairobi, Kenya 
Oksana Kisselyova, Liberal Society Institute, Ukraine 
Cartas A. Kapele, Children Education Society (CHESO), DAR ES SALAAM – TANZANIA 
Fernanda Carvalho, IBASE – Brazilian Institute for Social and Economic Analysis 
European Network on Debt and Development (EURODAD) 
ATTAC Hungary 
Milan Smrz, Czech section of Eurosolar 
Joseph M. Sammut, Social Watch, Malta 
Christine Andela – COSADER (Collectif des ONG pour la Sécurité Alimentaire et le Développement Rural) – Cameroun 
Marta Benavides – Instituto Internacional de Cooperación entre Pueblos (IICP) – El Salvador 
GCAP – Sudan 
Jubilee Debt Campaign (UK) 
Tom Kucharz, Ecologistas en Acción (Spain) 
Transnational Institute 
Institute for Policy Studies, Global Economy Project 
Dr. Hassan Abdel Ati – National Civic Forum – Sudan 
Malgorzata Tarasiewicz – Network of East-West Women, NEWW-Polska 
AWID (Association for Women¹s Rights in Development) 
Rede Brasil sobre Instituições Financeiras Multilaterais 
Marek Hrubec, Centre of Global Studies, Czech Republic 
Zelená Pro Planetu, Czech Republic 
Henri Valot, Policy Advisor CIVICUS: World Alliance for Citizen Participation 
Professor Aijaz Qureshi: Social Watch Pakistan- IDF 
Zulfiqar Halepoto- Sindh Democratic Forum (SDF) and Social Watch Pakistan 
Nazeer Memon- Sindh Agriculture Forum 
Abrar Kazi – SDF- water expert and technocrat 
Rural Reconstruction Nepal (RRN) 
Public Finance Monitoring Center 
Women’s Working Group on Financing for Development 
Egyptian Association For Community Participation Enhancement (EACPE) 
CARDET, Cyprus 
National Social Watch Coalition – India 
Action for Economic Reforms 
Philippine Rural Reconstruction Movement (PRRM) 
Arab NGO Network for Development (ANND) 
Ziad Abdel Samad 
Mariama Williams, Integrated Policy Research Institute (IPRI) 
Yves Conze, Integrated Policy Research Institute (IPRI) 
Carla Bakboord, MSc Cultural Anthropologist, Executive Director Equality & Equity for Gender&Social Development, Suriname 
El Amel Association For Social Development in Algeria 
Women for Change 
Genoveva Tisheva- Bulgarian Gender Research Foundation 
Development Network of Indigenous Voluntary Associations (DENIVA), J.B. Kwesiga 
Network of Ugandan Researchers and Research Users (NURRU), David Obot 
Tomas Tozicka – Jubilee Czech 
Hanaa Edwar, Iraqi AlAmal Association 
David Obot (NURRU), Kampala-Uganda 
J.B.Kwesiga (DENIVA), Uganda 
Hamarneh, Vanda, Syria 
Consumers Association of Penang 
Friends of the Earth, Malaysia 
KOPIN (Koperazzjoni Internazzjonali) Malta 
Instituto Latinoamericano de Servicios legales Alternativos (ILSA) – Colombia 
Klaus Heidel, Werkstatt Ökonomie e.V., spokesperson Social Watch Deutschland/Forum Weltsozialgipfel (Social Watch Germany) 
International Gender and Trade Network (IGTN). 
Rene Suša, Humanitas, Society for human rights and supportive action, Slovenia 
Africa Development Interchange Network (ADIN) 
Sanayee Development Organization (SDO). Kabul, Afghanistan 
UK Coalition Against Poverty. Eileen Devaney 
Baudouin Schombe, Coordonnateur National Reprontic 
Bretton Woods Project (UK) 
FOCO – Foro Ciudadano de Participación por la Justicia y los Derechos Humanos 
DECIDAMOS, Campaña por la Expresión Ciudadana, Paraguay 
Social watch Mocambique 
Jiri Silny, Ecumencial Academy Prague, Czech Republic 
Vagn Berthelsen, Secretary General of IBIS 
Sisters of Mercy (of the Americas) 
Marta Scarpato, Consultora sindical, Italia 
Mayalu Matos Silva, Brazil 
Carlos Martinez Garcia, Presidente de ATTAC España 
Martín Pascual, Fundación Cenda, Chile 
CIDEP, Asociación Intersectorial para el Desarrollo Económico y el Progreso Social (El Salvador)I 
Reseau Marocain pour le Droit a la Sante, Dr Aziz RHALI. Maroc 
Antonio J. González Plessmann, Activista venezolano de Derechos Humanos 
WEDO (Women’s Environment and Development Organization) 
Red de Control Ciudadano, Costa Rica 
Secours-Catholique/Caritas France 
Instituto de Estudos Sócioeconômicos – INESC, Brasil 
Lunaria, Italy 
War on Want 
Carlos Martinez Garcia, Presidente de ATTAC España 
Socio Economic Rights Initiaitive/Social Watch Nigeria 
Global Economy Program 
Coordinación de ONG y cooperativas – CONGCOOP 
Uganda Coalition for Sustainable Development 
SLUG – The Norwegian Coalition for Debt Cancellation 
African Women’s Development and Communication Network/FEMNET Africa 
K.U.L.U.-Women and Development, Denmark 
Plataforma 2015 y más, España 
Third World Network 
CAP 
SAM 
Red Latinoamericana sobre Deuda, Desarrollo y Derechos – LATINDADD 
Women Headed Households Empowerment (PEKKA)

Further Resources: 

UN Conference on the World Financial and Economic Crisis and its Impact on Development

Official Website of the Conference

Breaking News: UN postpones summit over crisis

UN General Assembly postponed the celebration of the UN Conference on the World Financial and Economic Crisis and its Impact on Development, to happen in late June, sources reported Friday. According to UN spokesperson Spanish Enrique Yeves, recently many delegations asked the President of the Assembly Miguel D Escoto to postpone the already scheduled date of the encounter, since it coincided with other several international events. He also stressed the delegations to participate are still involved in the negotiations on the project of the event, convened by D Escoto, so that the crisis can be intensively debated by the 192 UN member countries. The Summit, previously scheduled for Jun.1-3, will take place on June 24-26, as it stated a missive sent to UN countries member, from the Head of Cabinet of the President of General Assembly Norman Miranda

Will China Save the World from Depression?

Walden Bello*, Foreign Policy in Focus, May 19, 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.

*Walden Bello is a member of the Philippine House of Representatives, president of the Freedom from Debt Coalition, a senior analyst of the Bangkok-based Focus on the Global South, and a columnist withForeign Policy In Focus. The issues touched on in this commentary are discussed in greater depth in the author’s book The Food Wars, published by Verso, which will be available by July 2009.

Who’s and why’s of a stimulus

Tanim Ahmed*, NewAge, April 23, 2009

It is evident from the outlay of the stimulus package and the specific measures focusing upon export sectors that the package presumes a continuation of strong outward orientation of the economy, although a more inward orientation might help Bangladesh to fare better through the financial crisis.

WITH limited resources, the government’s recently announced stimulus package was bound to disappoint some quarters. The money, a little over Tk 3,425 crore, could only go so far. And towards that end it only appears to have hurt the sentiments of those directly involved with readymade garments. Economists and experts have been conspicuously silent on this issue which should be enough of an indication that few sympathised with the demands of the garment manufacturers, although the knitwear sector could have used some assistance which even the finance minister later agreed at a meeting with the knitwear manufacturers.
   

It is evident from the outlay of the stimulus package and the specific measures focusing upon export sectors that the package presumes a continuation of strong outward orientation of the economy, although a more inward orientation might help Bangladesh to fare better through the financial crisis should it begin to tell upon Bangladesh’s international trade prospects. Then again a stimulus package aimed at countering the effects of an international financial meltdown that might only affect the economy indirectly, the government would, for the short term, look towards providing assistance to the export sectors.
   

However, on the outward orientation, even as much as can be gathered from the projections for the next fiscal year, the government does not appear much concerned about creating employment, generating demand or boosting local consumption in order to sustain the economy. The sole exception is the poultry industry perhaps only to prove the rule. This industry is hardly export-oriented and aimed fully for local consumption. Having been doubly hit many poultry plants were forced to shut down with thousands losing their jobs. 
   

When the military-controlled interim regime brought about sweeping tariff measures, apparently upon the advice of the International Monetary Fund, increasing the tariffs for a number of industrial raw materials and decreasing them for finished consumer and luxury goods, the poultry sector saw its production costs soar with feed, chicks and equipment becoming much costlier almost overnight. This was followed by the avian flu scare. Thus, assistance to this sector would generate some employment and subsidies would also help keep production costs low that would eventually result in lowering chicken prices on the market thus increasing consumer welfare.
   

Similar to poultry, the dairy sector, which is apparently going through a tough time, could have been included in the package with cash assistance and higher incentives in order for the cost of dairy production, especially milk, to become cheaper. Apparently, the major brands of dairy milk suppliers are refusing to purchase milk as powder milk has all of a sudden become cheaper. There is a strong demand for dairy milk in the cities, where people are compelled to choose from milk brands with the nagging suspicion of feeding their children with melamine-tainted milk. A large section of residents in Dhaka would be willing to pay a handsome premium for dairy milk of good quality. This is perhaps one of those few sectors that would show immediate results with some government assistance.
   

The increased cash assistance to the export sectors would surely contribute to their competitiveness, especially when considering that manufacturers and producers of like products in other countries might get similar assistance. But this assistance also presumes that the export market will remain as it is with its demand as before. The package does not suggest that the government apprehends the consumption of foreign consumers who are more directly hit by the financial meltdown would shrink at all. But that will very likely happen in case of high-end products while low-end high-volume products might fare better. That is perhaps one reason that the garment sector continues to exhibit little sign of being affected.
   The matter that begs further explanation is how the government would raise these funds as they have been allocated in addition to what there was in the budget. This would either have to be through higher taxes or through new money. Both would have strong implications for an economy where the government is trying to stimulate the market. Alternatively, of course and perhaps that is a more practical solution, the sourcing of these funds might only need some paperwork. It is only common knowledge that funds allocated for the annual development programmes under the budget seldom get spent. In fact, this year a large portion of those funds will almost surely remain unspent and all the government would have to do is reallocate them. But since it would be the same lethargic bureaucracy managing and channelling the funds and the same government machinery trying to spend the money, at least a portion of the funds might very well end up unused as is typically the case. As has been pointed out before by economists and experts, the problem is more to do with efficient and effective spending of funds rather than the act of allocating these funds.
   

If the rate of implementation of the stimulus package is anything similar to that of the annual development plan that the government has displayed in the last two years, then the business quarters would not have much to look forward to. One can only hope that political direction would help the bureaucracy become somewhat more earnest.
   

Interestingly, agriculture was included in the stimulus and allocated a large chunk, Tk 1,500 crore, as subsidies. One wonders how that subsidy is going to be used. At the very end of boro season, the farmers would not require funds for either irrigation or fertiliser as it would hardly help the yield at this point. An announcement by the agriculture minister, Matia Chowdhury, that fearing corruption and irregularity the government has decided against it precludes the possibility of direct cash assistance to the farmers. 
   

Corruption or irregularities, however, do not seem to deter the government from providing direct assistance to the exporters. Surely it is a much more complicated and a far more taxing exercise for the government to execute such a programme for farmers, but the benefits would also be equally rewarding, for the government as well the people, its constituents. With rice prices falling through the floor, farmers are dreading the time that they will have to harvest their crop and take it to the market to sell.
   

The other measure to help the lot of poor farmers was an additional outlay of Tk 500 crore for the recapitalisation of small loans. However, there are no indications that this effort will be coupled with that to relax the prohibitive amount of paperwork and requirements for the small and marginal farmers to avail such facilities. But the bigger question still remains the price of rice, which according to a number of observers has plummeted not entirely due to economic reasons but due to the government’s agreement with the garment factory owners’ request to sell the allotted rice through open market sales instead of rationing it to the garment workers. This had apparently caused the prices to plummet in the market as well. But the allotted rice remains unsold and the government is now burdened with substantial stock of rice procured from the last boro yield. Unless this is off loaded soon, the government will be unable to carry out fresh procurement this boro season, which is likely to be another good harvest.
   

The package, which is worth less than even one per cent, closer to half a per cent in fact, of the entire GDP does not address the prospect of increasing employment generation in the domestic market. It is important because one of the major unsettling impacts of financial crisis or recession is an increase in unemployment also giving rise to social tension. Employment generation could well be one of the main tools counter those effects. In that respect that package remains almost entirely silent. Although one would hope that the budget for the next fiscal year would lay strong emphasis on the domestic economy, creating employment, raising demand and boosting consumption, there is little indication that it would receive the kind of attention it deserves.

*Contact: tanimahmed@gmail.com

Capitalism’s Crisis and our Response

By Walden Bello*

Speech delivered at the Conference on the Global Crisis sponsored by Die Linke Party and Rosa Luxemburg Foundation, Berlin, March 20-21, 2009.

Week after week, we see the global economy contracting at a pace worse than predicted by the gloomiest analysts. We are now, it is clear, in no ordinary recession but are headed for a global depression that could last for many years.

What I would like to do here today is first, to briefly discuss the origins and dynamics of this crisis; and, second, to explore a strategy for the global left that would respond to the current crisis in the context of the challenges coming from the technocratic capitalist center and the populist capitalist right.

The fundamental crisis: overaccumulation
Orthodox economics has long ceased to be of any help in understanding the crisis. Non-orthodox economics, on the other hand, provides extraordinarily powerful insights into the causes and dynamics of the current crisis. From the progressive perspective, what we are seeing is the intensification of one of the central crises or “contradictions” of global capitalism: the crisis of overproduction, also known as overaccumulation or overcapacity.  This is the tendency for capitalism to build up, in the context of heightened inter-capitalist competition, tremendous productive capacity that outruns the population’s capacity to consume owing to income inequalities that limit popular purchasing power. The result is an erosion of profitability, leading to an economic downspin. 

To understand the current collapse, we must go back in time to the so-called Golden Age of Contemporary Capitalism, the period from 1945 to 1975. This was a period 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 the Second World War, and partly by the new socioeconomic arrangements and instruments based on a historic class compromise between Capital and Labor that were institutionalized under the new Keynesian state

But 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 was not 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, while income inequality within countries and between countries limited the growth of purchasing power and demand, thus eroding profitability. This was aggravated by the massive oil price rises of the seventies.

The most painful expression of the crisis of overproduction was global recession of the early 1980s, which was the most serious to overtake the international economy since the Great Depression, that is, before the current crisis.

Capitalism tried three escape routes from the conundrum of overproduction: neoliberal restructuring, globalization, and financialization

Escape Route # 1: Neoliberal Restructuring
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.

The problem with this formula was that in redistributing income to the rich, you were gutting the incomes of the poor and middle classes, thus restricting demand, while not necessarily inducing the rich to invest more in production. In fact, it could be more profitable to invest in speculation.  Moreover, this strategy, in the long run, aggravated the basic problem, in that investment in production would add to already installed productive capacity.

In fact, neoliberal restructuring, which was generalized in the North and south during the eighties and nineties, had a poor record in terms of growth: Global growth averaged 1.1 percent in the 1990s and 1.4 percent in the ‘80s, compared with 3.5 percent in the 1960s and 2.4 percent in the ‘70s, when state interventionist policies were dominant. Neoliberal restructuring could not shake off stagnation.

Escape Route # 2: Globalization
The second escape route global capital took to counter stagnation was “extensive accumulation” or globalization, or the rapid integration of semi-capitalist, non-capitalist, or pre-capitalist areas into the global market economy. Rosa Luxemburg, who was not only a great radical but a great economist, saw this long ago in her classic “The Accumulation of Capital” as necessary to shore up the rate of profit in the metropolitan economies.

How? 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 to be integrated into the global capitalist economy over the last 25 years.By the middle of the first decade of the 21st century, roughly 40-50 percent of the profits of US corporations came from their operations and sales abroad, especially in China.

The problem with this escape route from stagnation is that it exacerbates 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 US corporations stopped growing. According to one calculation, the profit rate of the Fortune 500 went from 7.15 in 1960-69 to 5.30 in 1980-90 to 2.29 in 1990-99 to 1.32 in 2000-2002. By the end of the 1990s, with excess capacity in almost every industry, the gap between productive capacity and sales was the largest since the Great Depression.  From this perspective, that of overproduction, globalization was not, contrary to the interpretations of many of those who celebrated it and those who criticized it, a higher stage of capitalism but as a desperate effort by capital to escape the conundrum of overproduction.  There was nothing progressive about globalization.

Escape Route # 3: Financialization
Given the limited gains in countering the depressive impact of overproduction via neoliberal restructuring and globalization, the third escape route — financialization — became very critical for maintaining and raising profitability.

With investment in industry and agriculture yielding low profits owing to overcapacity, large amounts of surplus funds were circulating in or were being invested and reinvested in the financial sector — that is, the financial sector was turning on itself.

The result was an increased bifurcation between a hyperactive financial economy and a stagnant real economy. As one financial executive noted in the pages of the Financial Times, “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 did not tell us was that the disconnect between the real and the financial economy is not accidental — that the financial economy exploded precisely to make up for the stagnation owing to overproduction of the real economy

One indicator of the super-profitability of the financial sector is that while profits in the US manufacturing sector came to one percent of US gross domestic product (GDP), profits in the financial sector came to two percent. Another was the fact that 40 percent of the total profits of US financial and non-financial corporations was accounted for by the financial sector although it was responsible for only five percent of US gross domestic product (and even that was likely to be an overestimate.

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 does not 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 prices of stocks, bonds, and other forms of investment can depart very radically from their real value — for instance, the stock of Internet startups may keep rising to heights unknown, driven mainly by upwardly spiraling financial valuations.

Profits then depend on taking advantage of upward price departures from the value of commodities, then selling before reality enforces a “correction,” that is a crash back to real values. The radical rise of prices of an asset far beyond real values is what is called the formation of a bubble.

Profitability being dependent on speculative coups, it is not surprising that the finance sector lurches from one bubble to another, or from one speculative mania to another.

Because it is driven by speculative mania, finance driven capitalism has experienced about 100 financial crises since capital markets were deregulated and liberalized in the 1980s, the most serious before the current crisis being the Asian Financial Crisis of 1997.

Dynamics of the Subprime Implosion
I will not go in detail into the dynamics of the current crisis, which stemmed from the collapse of the US housing market, also known as the Subprime Implosion.  Some key dimensions of it, like Alan Greenspan’s encouraging the housing bubble by cutting the prime rate to a 45-year-low of 1 per cent in June 2003 and keeping it there for over a year to counter the recessionary effects of the bursting of the technology bubble of the earlu 1990’s, were already mentioned yesterday.  Let me just highlight a few other points.

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 — most of it Asian and Chinese in origin — that flooded the US 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.

How did problematic mortgages become such a massive problem? The reason is that these assets were then “securitized” — that is converted into spectral commodities called “collateralized debt obligations” (CDOs) that enabled speculation on the odds that the mortgage would not be paid. These assets were then bundled with other assets and traded 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. These institutions in turn offloaded these securities onto other banks and foreign financial institutions.

The idea was to make a sale quickly, get your money upfront and make a tidy profit, while foisting the risk on the suckers down the line — the hundreds of thousands of institutions and individual investors that bought the mortgage-tied securities. This was called “spreading the risk,” and it was actually seen as a good thing because it lightened the balance sheet of financial institutions, enabling them to engage in other lending activities.

When the interest rates were raised on the subprime loans, adjustable mortgage, and other housing loans, the game was up. There are about four million subprime mortgages which will likely go into default in the next two years, and five million more defaults from adjustable rate mortgages and other “flexible loans” that were geared to snag the most reluctant potential homebuyer will occur over the next several years. But securities whose value run into as much as $2 trillion had already been injected, like virus, into the global financial system. Global capitalism’s gigantic circulatory system was fatally infected. And, as with a plague, we don’t know who and how many are fatally infected until they keel over because the whole financial system has become so non-transparent owing to lack of regulation.

Collapse of the Real Economy
We are now at that juncture where instead of performing their primordial task of lending to facilitate productive activity, the banks are holding on to their cash or buying up rivals to strengthen their financial base. Not surprisingly, with global capitalism’s circulatory system seizing up, it was only a matter of time before the real economy would contract, as it has with frightening speed in the last few weeks. Woolworth, a retail icon, has folded in Britain, the US auto industry is on emergency care, BMW’s profits went down by nearly 90 per cent, and even mighty Toyota has suffered an unprecedented decline in its profits. With American consumer demand plummeting, China and East Asia have seen their goods rotting on the docks, bringing about a sharp contraction of their economies and massive layoffs.

Globalization has ensured that economies that went up together in the boom would also go down together, with unparalleled speed, in the bust, the end of which is nowhere to be discerned.  

Let me just pause here to say that the reason I have gone into some detail about the causes and dynamics of the crisis is to underline the fact that what we have unfolding before us is not a crisis of the neoliberal variant of capitalism but the crisis of capitalism.  

Global Social Democracy: the Capitalist Response
With the collapse of globalization and the deregulated market going haywire, the neoliberal metaphysics that propped up contemporary capitalism has been thoroughly discredited, though it will undoubtedly engage in some rearguard action.  

I think that there is a real panic out there among the establishment and real disarray and a sinking feeling that things will get worse before they get better and that the old neoliberal institutions, like the IMF, WTO, and G 20 have become irrelevant, even as Keynesian methods of deficit spending and monetary easing might have very limited effects.  Increasingly the more intelligent intellectuals of the establishment  are realizing that we are just at the beginning of the global freefall and don’t really know when we are going to hit rock bottom and once we reach it, how long the global economy will lie there.  Indeed, the best image I can conjure of the global economy is that of a German World War II U-Boat that has been depthcharged in the mid-Atlantic by British destroyers, and it’s descending rapidly to the ocean bottom, and once it reaches the bottom, you don’t know how the crew is going to get the submarine back up.  Will the crew’s tortuous maneuvers to get some compressed air into the damaged ballast tanks get it back to the surface, as in Wolfgang Petersen’s classic film Das Boot, or will the U-boat just stay at the bottom?  Will Keynesian methods of reflation work today?  The more critical thinkers of capital like Martin Wolf and Paul Krugman are not taking bets on it. 

The two things we can be certain of is that one, neoliberal approaches are thoroughly discredited, and two, the facts on the ground will dictate what those who wish to save the system will do, not any predetermined ideological limits.  So let us disabuse ourselves of the notion that neoliberal principles will constitute red lines beyond which they will not go.

Let me be more specific.  I think that the actions of the new Obama administration in Washington clearly constitute a break with neoliberalism.  One important question, of course, is how decisive and definitive the break with neoliberalism will be. Other questions, however, go to the heart of capitalism itself. Will government ownership, intervention, and control be exercised simply to stabilize capitalism, after which control will be given back to the corporate elites? Are we going to see a second round of Keynesian capitalism, where the state and corporate elites along with labor work out a partnership based on industrial policy, growth, and high wages–though with a green dimension this time around? Or will we witness the beginnings of fundamental shifts in the ownership and control of the economy in a more popular direction? There are limits to reform in the system of global capitalism, but at no other time in the last half century have those limits seemed more fluid.

At this point, massive stimulus spending at record-breaking levels—something anathema to neoliberals—has become practice, the only difference among Northern elites being how much stimulus spending it will take to refloat the submarine..  On this, Obama has become the super-Keynesian.  Nationalization of the banks—another practice condemned by neoliberalism—is also well in progress, and the questions that divide the elites is how aggressively the government will exercise its control of the majority shares of the stocks and whether it will return the banks to private management once the crisis is over.  

Reprivatization is not, contrary to some of the comments here yesterday, is not a predetermined fact.  The facts on the ground will determine the answer to these questions, for the task at hand for the state managers of capitalism is not whether or not the solutions are in line with a discredited doctrine but what it will take to save capitalism.

Beyond deficit spending and nationalization, I think that there will increasingly be a debate within the establishment on whether to go on the path of what I call “Global Social Democracy”, or GSD, in order to respond to capitalism’s desperate dual needs for stabilization and legitimacy.

Even before the full unfolding of the financial crisis, partisans of GSD had already been positioning it as alternative to neoliberal globalization in response to the stresses and strains being provoked by the latter. One personality associated with it is British Prime Minister Gordon Brown, who led the initial European response to the financial meltdown via the partial nationalization of the banks. Widely regarded as the godfather of the “Make Poverty History” campaign in the United Kingdom, Brown, while he was still the British chancellor, proposed what he called an “alliance capitalism” between market and state institutions that would reproduce at the global stage what he said Franklin Roosevelt did for the national economy: “securing the benefits of the market while taming its excesses.” This must be a system, continued Brown, that “captures the full benefits of global markets and capital flows, minimizes the risk of disruption, maximizes opportunity for all, and lifts up the most vulnerable – in short, the restoration in the international economy of public purpose and high ideals.”

Joining Brown in articulating the Global Social Democratic discourse has been a diverse group consisting of, among others, the economist Jeffrey Sachs, George Soros, former UN Secretary General Kofi Annan, the sociologist David Held, Nobel laureate Joseph Stiglitz, and even Bill Gates. There are, of course, differences of nuance in the positions of these people, but the thrust of their perspectives is the same: to bring about a reformed social order and a reinvigorated ideological consensus for global capitalism.

Among the key propositions advanced by partisans of GSD are the following:
•    Globalization is essentially beneficial for the world; the neoliberals have simply botched the job of managing it and selling it to the public; 
•    It is urgent to save globalization from the neoliberals because globalization is reversible and may, in fact, already be in the process of being reversed; 
•    Growth must not be accompanied by increasing inequality;
•    Trade must be promoted but subjected to social and environmental conditions; 
•    Unilateralism must be avoided while at the same time preserving while fundamentally reforming he multilateral institutions and agreements; 
•    Global social integration, or reducing inequalities both within and across countries, must accompany global market integration; 
•    The global debt of developing countries must be cancelled or radically reduced, so the resulting savings can be used to stimulate the local economy, thus contributing to global reflation; 
•    Poverty and environmental degradation are so severe that a massive aid program or “Marshall Plan” from the North to the South must be mounted within the framework of the “Millennium Development Goals”; 
•    A “Second Green Revolution” must be put into motion, especially in Africa, through the widespread adoption of genetically engineered seeds. 
•    Huge investments must be devoted to push the global economy along more environmentally sustainable paths, with government taking a leading role (“Green Keynesianism” or “Green Capitalism”); 

The Limits of Global Social Democracy
Global Social Democracy has not received much critical attention, perhaps because, like the French generals at the start of the Second World War, many progressives are still fighting the last war, that is, against neoliberalism. A critique is urgent, and not only because GSD is neoliberalism’s most likely successor. More important, although GSD has some positive elements, it has, like the old Social Democratic Keynesian paradigm, a number of problematic features.

A critique might begin by highlighting problems with four central elements in the GSD perspective.

First, GSD shares neoliberalism’s bias for globalization, differentiating itself mainly by promising to promote globalization better than the neoliberals. Globalization, that is the rapid integration of production and markets but with effective regulation as EU Director General for Finance Jan Koopman, who describes himself as a Keynesian, puts it.  This amounts to saying, however, that simply by adding the dimension of regulation, along with that of “global social integration,” an inherently socially and ecologically destructive and disruptive process can be made palatable and acceptable. GSD assumes that people really want to be part of a functionally integrated global economy where the barriers between the national and the international have disappeared. But would they not in fact prefer to be part of economies that are subject to local control and are buffered from the vagaries of the international economy? Indeed, today’s swift downward trajectory of interconnected economies underscores the validity of one of anti-globalization movement’s key criticisms of the globalization process..

Second, GSD shares neoliberalism’s preference for the market as the principal mechanism for production, distribution, and consumption, differentiating itself mainly by advocating state action to address market failures. The kind of globalization the world needs, according to Jeffrey Sachs in The End of Poverty, would entail “harnessing…the remarkable power of trade and investment while acknowledging and addressing limitations through compensatory collective action.” This is very different from saying that the citizenry and civil society must make the key economic decisions and the market, like the state bureaucracy, is only one mechanism of implementation of democratic decision-making.

Third, GSD is a technocratic project, with experts hatching and pushing reforms on society from above, instead of being a participatory project where initiatives percolate from the ground up.

Fourth, GSD, while critical of neoliberalism, accepts the framework of monopoly capitalism, which rests fundamentally the concentrated private control of the means of production, deriving profit from the exploitative extraction of surplus value from labor, is driven from crisis to crisis by inherent tendencies toward overproduction, and tends to push the environment to its limits in its search for profitability. Like traditional Keynesianism in the national arena, GSD seeks in the global arena a new class compromise that is accompanied by new methods to contain or minimize capitalism’s tendency toward crisis. Just as the old Social Democracy and the New Deal stabilized national capitalism, the historical function of Global Social Democracy is to iron out the contradictions of contemporary global capitalism and to relegitimize it after the crisis and chaos left by neoliberalism. 

GSD is, at root, about social management.  What the left is about is about social liberation.  GSD is about technocratic management, the left is about participatory democracy down to the level of economic enterprises.  GSD is about making reconfiguring monopoly capitalism like the old Keynesianism did, though at a global level this time around.  The left is about creating a post-capitalist system when it comes to property relations.  GSD is about perfecting globalization.   The left is about deglobalizing.  GSD sees the future in Green Capitalism.  The left sees decapitalization as a precondition for a truly ecologically benign social organization of the planet.

Like President Lula of Brazil, President Obama has a talent for rhetorically bridging different political discourses. He is also a “blank slate” when it comes to economics. Like FDR, he is not bound to the formulas of the ancien regime. Like Lula and FDR, he is a pragmatist whose key criterion is success at social management. As such, he is uniquely positioned to lead this ambitious reformist enterprise.  Our task will not merely be how to support the positive aspects of the GSD program that promote the  people’s welfare while opposing those that lead to a restabilization of capitalism, but more important how, in the process, we differentiate our enterprise from the GSD enterprise and win people over to our strategic vision and program.

The Challenge from the Right
However, the choice in the coming period is not going to boil down between the Left and global social democracy.  Would that it were that simple!  In fact, there could be a response that would be anti-neoliberal in its economics, at least rhetorically, populist in its social policy, but exclusionist in its politics, evoking tribal as opposed to people’s solidarity.   We can already see some of this in the approach of President Nicolas Sarkozy in France.  . Declaring that “laissez-faire capitalism is dead,” he has created a strategic investment fund of 20 billion euros to promote technological innovation, keep advanced industries in French hands, and save jobs. “The day we don’t build trains, airplanes, automobiles, and ships, what will be left of the French economy?” he recently asked rhetorically. “Memories. I will not make France a simple tourist reserve.” This kind of aggressive industrial policy aimed at shoring up key sectors of the French capitalist class and winning over the country’s traditional white working class can go hand-in-hand with the exclusionary anti-immigrant policies with which the French president has been associated.

Sarkozy’s conservative populism is relatively mild.  There are more radical ones waiting in the wings, like the anti-Muslim movement of Gerd Wilders in the Netherlands, which is said to be poised to win 28 per cent of the seats in the coming parliamentary elections, again with the same mix of communal solidarity, populist economics, and authoritarian leadership.  We know of such movements everywhere in the developed and developing world, and my worry is that it maybe be in the developing crisis that they might make their breakthrough to becoming a critical mass.

The point is that things will become worse, much worse, before they become better, and the global crisis is not something that can be managed technocratically to a soft landing like the US Airways flight that was eased into a soft landing on the Hudson River in New York a few weeks ago.  If Global Social Democracy fails in its effort to reinvigorate capitalism and the Left is unable to come out with a vision and program built on equality, justice, participatory democracy that appeals to people in a period of severe and prolonged crisis, then other forces will step in to fill the vacuum, as they did in the 1930’s.  If there is anything that Rosa Luxemburg and Gramsci and Lenin can teach us today, it is that, good will, values, and vision are not enough, that in the end, politics in the sense of a powerful vision, an effective strategy of coalition building, and wise supple tactics of building up a critical mass for winning power, with parliamentary and extra-parliamentary dimensions, is decisive.  Nature abhors a vacuum, and we must be ready to fill that vacuum or we lose, decisively, and this we cannot afford to this time around.

Reveille for Progressives
Let me sum up.  While progressives were engaged in full-scale war against neoliberalism, reformist thinking was percolating in critical establishment circles. This thinking is now becoming policy, and progressives must work double time to engage it. It is not just a matter of moving from criticism to prescription. The challenge is to overcome the limits to the progressive political imagination imposed by the aggressiveness of the neoliberal challenge in the 1980s combined with the collapse of the bureaucratic socialist regimes in the early 1990s. Progressives should boldly aspire once again to paradigms of social organization that unabashedly aim for equality and participatory democratic control of both the national economy and the global economy as prerequisites for collective and individual liberation and, one must add, ecological stabilization.

That is a perspective that we must might fight for not simply in a battle for people’s minds but for their hearts and souls, and here the struggle is, on the one hand, against the technocratic capitalist restabilization schemes of Global Social Democracy and, on the other, the mass-based heated capitalist restabilization schemes of nationalist and fundamentalist populism.  Ideas are not enough, and what will be decisive is how one translates our ideas and our values and our vision into a winning strategy and tactics that can triumph democratically.  We must move away from the economism to which the global left was reduced in the neoliberal era.  Politics, in short, must once more be in command.

*Walden Bello is president of the Freedom from Debt Coalition, senior analyst at Focus on the Global South, and professor of sociology at the University of the Philippines.  He is also an honorary member of Die Linke.