Wednesday, May 09, 2012

Failures of Capitalism!

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Predatory Capitalism Failed
by Stephen Lendman
Global Research
May 9, 2012
http://globalresearch.ca/index.php?context=va&aid=30763
Independent observers knew it long ago. Today's global economic crisis provides added confirmation. In 2008, a staunch champion of the system expressed second thoughts. More on him below.
An ideology based on inequality, injustice, exploitation, militarism, and imperial wars eventually self-destructs or gets pushed.
Growing evidence in America and Europe show systemic unaddressed problems too grave to ignore. They remain so despite millions without jobs, savings, homes or futures.
Imagine nations governed by leaders letting crisis conditions fester. Imagine voters reelecting them despite demanding change. OWS aside, one day perhaps rage will replace apathy in America. The latest jobs report alone provides incentive enough to try and then some.
On May 4, the Labor Department reported 115,000 new jobs. It way overstated the true number. Official figures belie the dire state of things. At most, two-thirds the headline total were created. Even that's in doubt.
Most were low-pay, part-time, or temp positions with few or no benefits. Decades ago, workers would have avoided them. Today, there's no choice.
The report also showed economic decline. Expect much worse ahead. In 2008, Main Street Americans experienced Depression. It rages today. Poverty's at record levels. Real unemployment approaches 1930s numbers. Dire conditions are worsening.
Announced job cuts are increasing. Hiring plans are down. Compared to year ago levels, they're off 80%. Income is stagnant for those lucky to have work. The private diffusion index measuring growth fell sharply month-over-month.
The unemployment rate decline reflects discouraged workers dropping out. They want jobs but can't find them. The Labor Department considers them non-persons. They're not counted to make official figures look better.
Moreover, the broad based Household Survey showed employment dropping 169,000. It was the second consecutive monthly decline. The Labor Department uses a "population and payroll concept adjusted" calculation. Doing so tries to compare monthly payroll and household figures.
The measure plunged 495,000 in April after dropping 418,000 in March. The calculation represented the largest back-to-back decline since late 2009.
At 63.6%, America's labor force hit its lowest level since September 1981. Since then, population totals grew from 229 million to about 312 million today. The state of the nation today reflects lots of people facing few jobs, and no policy to create them.
The employment/population ratio stands at 58.4%. Alone, it represents a shocking testimony to failure. So do other data. Long-term unemployment remains near record levels. Credit deleveraging continues. Housing's in its worst ever depression. Prices keep falling. Inventories of unsold homes are huge. Foreclosures are at epidemic levels.
State and local downsizing continues. Personal income suffers. Conditions are bad and worsening.
On May 4, Pimco's Mohamed El-Erian headlined his Financial Times article "Confirmed: America's jobs crisis," saying:
"Friday’s US jobs data sound a warning that should be heard well beyond economists and market watchers."
Americans with jobs have poor ones. Wage growth is stagnant. Purchasing power can't keep up with inflation. For ordinary Americans, secular income headwinds blow at gale force strength.
Crisis conditions today make "a mockery of the published unemployment rate of 8.1 per cent....The economic implications are clear." At a time, Europe's recession deepens, America's declining.
Risks are increasing. A "potential (austerity caused) year-end 'fiscal cliff' (may) suck out some 4 per cent of GDP in purchasing power, and do so in a disorderly fashion."
Instead of addressing crisis conditions responsibly, political Washington campaigns for reelection, and plans huge domestic budget cuts when stimulus help is needed.
Main Street Americans are pushed to the edge. Potential "social consequences" suggest "the possibility....of a lost generation."
Unemployed teenagers "face the risk of going from being unemployed to becoming unemployable." Today's reality is bleak. It reflects "a multi-faceted unemployment crisis that politicians, both in America and Europe, are failing to comprehend, unite around, and respond to."
"I worry greatly that facts on the ground will unfortunately warrant future analyses to be even more disheartening."
Alan Greenspan's Too Late to Matter Mea Culpa
As Fed chairman for nearly two decades (1987 - 2006), he engineered today's crisis. Some call him the Maestro of Misery for good reason. Those benefitting most sing his praises. In 2008, he had second thoughts.
A longtime Ayn Rand disciple, he strayed noticeably in October 2008 House testimony. Her libertarian views influenced his. She championed regulatory free markets. So did Greenspan. He practiced what she preached.
Perhaps House Oversight and Government Reform Committee members couldn't believe their ears. He acknowledged his worldview failure, saying:
"You know, that's precisely the reason I was shocked, because I have been going for 40 yeas or more with very considerable evidence that it was working exceptionally well."
While trying to have it both ways, he admitted his faith in regulatory free markets was shaken, saying:
"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms."
"The Federal Reserve had as good an economic organization as exists. If all those extraordinarily capable people were unable to foresee the development of this critical problem...we have to ask ourselves: Why is that? And the answer is that we're not smart enough as people. We just cannot see events that far in advance."
In his book "Secrets of the Temple: How the Federal Reserve Runs the Country" William Grieder called Greenspan one of "the most duplicitous figures to serve in modern American government."
He used "his exalted status as economic wizard (to) regularly corrupt the political dialogue by sowing outrageously false impressions among gullible members of Congress and adoring financial reporters."
His ideology was hokum. Somehow he managed a Columbia doctorate without its dissertation requirement. His economic consulting firm flopped. It faced liquidation. He closed shop to join the Fed after serving earlier in the Reagan, Nixon and Ford administrations.
His background in government got him his job. His inability to forecast made him a perfect Fed choice. So did his reliability to serve monied interests over populist ones.
Saying he got it wrong after the fact hardly matters. Where was he when it counted. In 2006, Bernanke replaced him. He made a bad situation worse. Since 2008, he more than tripled the Fed's balance sheet from about 6% of GDP to 20%.
His day of reckoning approaches. Perhaps in future congressional testimony, he'll address his own shortcomings. Doing it when it counts matters. After the fact turns memoirs into best-sellers.
His cross to bear and Greenspan's could fill volumes. Millions their policies harmed won't line up to buy them.
How can they? They're broke, on their own, out of luck, and unreceptive to hear defrocked Fed chairmen say they're sorry. If so, they'd have done it right in the first place.
Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. His new book is titled "How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War" http://www.claritypress.com/Lendman.html
Visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.
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Incoming French President Signals Budget Cuts Handouts to Banks
by Kumaran Ira and Alex Lantier
Global Research
May 9, 2012
After winning the French presidential election on Sunday, the Socialist Party’s (PS) François Hollande is already positioning himself to drop his limited election promises on social spending and attack the working class with deep budget cuts.
Hollande’s victory reflected a broad popular rejection of incumbent President Nicolas Sarkozy’s austerity policies and his unpopular imperialist wars. However, any hopes for change from the incoming government will be rapidly disappointed by Hollande, who is moving to carry out reactionary policies. During his campaign, Hollande vowed to slash over €100 billion in deficit spending to have a balanced budget by 2017, while making a few proposals for social measures, like increasing school subsidies and hiring more teachers.
On Tuesday, Hollande’s campaign team told Reuters that Hollande’s advisers are pressing him to use a report from France’s leading audit body, the Cour des comptes, to justify ditching his limited campaign promises and intensify social cuts.
The report is due to be released after the June 10-17 legislative election. This would allow the PS to conceal its agenda of social austerity from the voters, while it seeks to put together a government, then rapidly move on with cuts after it has assembled a parliamentary majority and formed a cabinet on the basis of deceitful promises.
According to Reuters, “aware of the political risk of angering left-wing voters, Hollande’s advisors say he must act within two months of taking office on May 15, allowing the Socialists to point the finger at Sarkozy’s outgoing government. Any announcement would likely be after the June 10 and 17 parliamentary elections, essential for Hollande to gain a working majority for legislation.”
Reuters cited PS parliamentary leader Jean-Marc Ayrault, saying of the audit: “There are certainly deficits, things hidden in the shadows. … We will discover the reality and strike a balance between fostering growth and making the necessary efforts to reduce the debt.”
Reuters noted that the PS would rely on the trade unions, which applauded Hollande’s victory, to impose the cuts and block working class opposition. It noted that PS officials’ “closer ties with them—particularly the moderate CFDT [French Democratic Labor Federation]—may allow them to accomplish bolder reforms.”
The Hollande team’s announcement on the Cour des Comptes report recalls how Greek Prime Minister Giorgios Papandreou in 2009 justified ditching his campaign promises of a stimulus package for the Greek economy, embarking instead on years of devastating social cuts. He also claimed the Greek budget deficit was larger than expected and then turned to massive attacks on the working class.
Significantly, during a televised campaign debate, Hollande defended Papandreou’s record on this point (See: “Sarkozy, Hollande outline right-wing policies in French presidential debate”).
Berlin also plans to intervene in June to push for austerity measures, according to press reports, giving Hollande more support for attacks against the working class after the legislative elections.
According to Le Monde, German Chancellor Angela Merkel’s advisors “consider that the new French president will not be in a position to make significant concessions before the second round of legislative elections on June 17. In this scenario, everything will start moving between June 18 and the European meeting of June 28-9.”
While they agree on attacks against the working class, Merkel and Hollande seem set for a sharp clash over Hollande’s plans to renegotiate the European fiscal pact, which commits European governments to strict limits on budget deficits.
Hollande has stressed that he does not oppose budget limits that force anti-working class cuts, but that he wants to add a “growth component” to the fiscal pact. Merkel repeated on Monday that in her opinion, “The budget pact is not negotiable.”
This debate on “growth” is a political fraud. It aims not to provide jobs for workers, but to guarantee more handouts of public money to banks that have loaned money to European governments. Hollande wants the repayment of funds to the banks to be guaranteed—either via “eurobonds” jointly backed by the countries of the European Union, or money printed by the European Central Bank (ECB).
Berlin has opposed both measures. They would either force Germany to subsidize other states’ debts, in the case of eurobonds, or to accept significant price inflation.
Hollande has said that Berlin’s policy is unacceptable. In an interview withSlate.fr, he commented: “We will discuss with our partners and particularly with our German friends, but they cannot rule out two policies at once, the first being eurobonds and the second the financing of debt by the European Central Bank.”
It appears that Hollande is acting with the support of the Obama administration. Washington opposes Berlin’s austerity policy on the grounds that, by blocking rapid payouts of public funds to the banks, Berlin undermines confidence in the banks and aggravates the financial crisis. In contrast to the US, where the Federal Reserve printed an estimated $7.7 trillion after the 2008 crisis to loan at low rates to Wall Street, the ECB has intervened more sparingly—often after diplomatic clashes between Berlin and Paris.
In an article titled “Change in Paris may better fit US economic positions,” theNew York Times wrote: “Mr. Sarkozy has parted from the White House in his support of the German-led austerity project in the debt-soaked euro zone, a project that the White House objects to on the grounds that cutting budgets too soon will lead to sluggish growth and high unemployment across Europe, without satisfying the demands of skittish bond investors.”
The policies demanded by Hollande and US imperialism would not be any more favorable to the working class than the austerity policies demanded by Berlin. In the US, the decision by the US government and the Federal Reserve to hand over massive public funds to the banks was the basis for deep attacks on the working class: slashing wages in the auto bailout, mass social cuts, and a sharp rise in unemployment.
The anti-working class policies that the incoming Hollande administration is planning constitute a devastating indictment of the bankrupt policies of the petty bourgeois “left” parties, including Jean-Luc Mélenchon’s Left Front and the New Anti-Capitalist Party (NPA). These parties called for a Hollande vote, without any conditions. When Hollande begins to impose social cuts, it is not difficult to foresee that these forces will do everything they can to demobilize working class opposition, as they did during Sarkozy’s term.
These forces are also complicit in Hollande’s continuation of Sarkozy’s alignment toward US foreign policy. Hollande supported the war against Libya, and has made clear in press interviews that he supports Sarkozy’s policy of threatening war with Iran and military intervention in Syria.
He has promised not to reverse Sarkozy’s decision to integrate France into the NATO command structure. Commenting on France’s role in NATO, Hollande told Slate: “I do not intend to return to the previous situation. I will request an evaluation of France’s role and the responsibilities we have received in the military command.”
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Economic Austerity in America: The Portland Community Begins to Fight Austerity
by Shamus Cooke
Global Research
May 7, 2012
On May 5th in Portland, Oregon, a group of 80 activists from a broad array of labor and community groups met to discuss the region's ongoing budget crises. Instead of simply complaining of cuts, however, the meeting was meant to discuss alternatives, both immediate and more structural. Groups that endorsed the event included the Service Employees International Union Local 49, American Federation of State County and Municipal Employees Local 88, International Alliance of Theatrical Stage Employees Local 28, International Brotherhood of Electrical Workers Local 48, Laborers Local 483, Communication Workers of America Local 7901, Jobs With Justice, Occupy Portland, Organizing People-Activating Leaders, Right to Survive, and several others.
What spurred the meeting was a combination of regional deficits, including the city budget, transportation budget and education budget. Proposed for all three budgets were "cuts only" solutions, including school closures, layoff of teachers, raises in bus fares and cuts in bus routes, layoff of city workers and reductions to street maintenance, parks, and community centers. These cuts were just the most recent wave, compounding the cuts from budgets past.
In other words, the city government of Portland, like governments all over Europe, has embraced an austerity program, meaning that it is addressing budget deficits by cuts only. But in the recent elections in France and Greece, the people soundly rejected these austerity measures. Given the tenor of the Portland meeting, the people here are beginning to do the same. Victims of these cuts, from save our schools, library groups, and public housing advocates, attended the meeting and shared their stories as well as their organizing campaigns against the cuts, while learning how their situations were related.
For example, the meeting discussed the mainstream, pro-corporate thinking behind "cuts only" budgets, a perspective held by Democrats and Republicans alike. Budget deficits are now commonly defined as an excess in spending, needing the false cure of public sector cuts, combined with an attack on public sector jobs and unions.
In reality, however, budget deficits are shortfalls in revenue, needing, instead, the cure of revenue increases. The revenue shortfalls are due to over thirty years of growing tax cuts for the wealthy and corporations and to the economic recession and its twin, the "jobless recovery” where mass unemployment promises a continuing shrinking tax base and consequent budget deficits.
New revenue, therefore, must be generated. And money is best found where it's accumulated in large amounts: the wealthy and corporations — benefactors of decades of increasing inequality in wealth itself, again due to shrinking taxes for the rich and businesses.
But raising new taxes on the wealthy and corporations has been rejected by the Democrats, and consequently is "off the table" for those groups that have "partnerships" with the Democrats, including most unions and many community groups.
This makes the idea of independent collective action all the more important for those groups interested in fighting against cuts to essential public services: education, health care, housing, transportation, jobs and safety net services.
Those who caused the recession — Wall Street, the big banks and corporations — must be made to pay for it. The broader population can achieve this goal only if it is united and acts collectively. In Portland the first step was taken in this direction at this recent community meeting, where working people saw each others’ struggles as their own, understood the necessity of united action by the vast majority towards a common goal, and were inspired by the prospects of working together.
Many options for "next steps" were discussed at the meeting, including the possibility of working towards a statewide ballot measure which taxes the rich to fund education and social services. Follow-up meetings will determine the ultimate goals of the group, which now feels empowered by the meeting to organize for change.
Shamus Cooke is a social worker, trade unionist, and writer for Workers Action (www.workerscompass.org)
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Contesting Finance Capitalism in Turkey
by Thomas Marois
Global Research
May 7, 2012
Turkey has been touted as one of the great ‘emerging market’ success stories. As the advanced capitalisms like the U.S. and UK sunk into the Great Recession, Turkey pulled out of crisis earning the moniker of a key ‘growth market’ in 2011 by Jim O'Neill, the chair of Goldman Sachs Asset Management who originated the term ‘BRIC.’
Over the last decade Turkey's GDP per capita has skyrocketed from about $8500 to about $14,000 as annual growth stayed in the range of 6-8 per cent. Yet such broad indicators often obscure underlying and growing inequality of income and power among social classes. The OECD ranks Turkey dead last in its social justice indicator. Inequality has increased faster in Turkey than in almost all other OECD member states. Turkey also has the lowest employment rate among member states at 44.3 per cent. While GDP growth appears rosy the average Turk made 21 per cent less on average in 2009 than in 2005.[1] By contrast the banks in Turkey have made record profits year after year, averaging more than double that in most other OECD countries. The balance of power between labour and capital has never been more imbalanced in favour of finance.
The analytical thread linking these seemingly disparate facts is that Turkish leadership and domestic elites remain firmly committed to a neoliberal and finance-led strategy of development. The neoliberal element is premised on the defeat and on-going repression of organized labour's capacity to resist market-oriented structural adjustment alongside the intensification of profit and labour productivity imperatives since the 1980s. The finance-led element involves Turkish state and government elites developing new institutional capacity to absorb, socialize, and manage the accumulation of risks of foreign and domestic financial capital at times of crisis.[2] This solidified in the post-2001 banking crisis and recovery period under the ruling AKP as emerging finance capitalism (EFC).[3] In States, Banks and Crisis: Emerging Finance Capitalism in Mexico and Turkey I define EFC as “the fusion of the interests of domestic and foreign financial capital in the state apparatus as the institutionalized priorities and overarching social logic guiding the actions of state managers and government elites, often to the detriment of labour.” EFC as the current phase of capital accumulation is distinctive but not distinct from the three decades of finance-led neoliberal transformation processes leading up to it. I want to focus here on the book's historical materialist analytical framework, which I frame the argument around four premises: (1) states as social relations; (2) banks as social relations; (3) crises as constitutive of EFC; and (4) labour is vital to the nature of EFC. I'll explore these premises in turn with illustrative examples drawn from Turkey.
Premise one: States are social relations
That states are class-based social relations is a historically grounded on analytical premise of political Marxist thought, particularly Poulantzian. This way of thinking also sees each phase of capitalism as crystallized in the form of given states. Seeing the Turkish state in these terms is important for the overall interpretation of EFC because it allows for non-deterministic analysis insofar as the form of state results from historically specific collective social and class struggles undertaken within the wider context of capitalist world market and associated competitive imperatives. The state is neither a timeless black box of competing individuals, as in liberal thought, nor simply the executive committee of the bourgeoisie, as in more orthodox Marxian accounts. Rather there is an understanding of struggle-induced change built into the notion of ‘state’ that varies historically according to different institutionalizations of power. This too opens the way for conceptualizing alternatives to EFC without resorting to the trope of ‘smashing’ of the state.
What are some examples of the institutionalization of EFC in the Turkish state? The opening of the Saving Deposit Insurance Fund (TMSF) in 1983 following the 1982 Kastelli financial crisis demonstrated a new commitment to protecting financial stability in Turkey. Through the 1980s neoliberal restructuring relied on currency depreciation, export subsidies, and wage suppression but this proved insufficient to ensure growth by 1988. Elites responded by pushing financial liberalization as a means of ensuring continued market-oriented restructuring, which led to capital account liberalization in 1989. This sparked a period of bank centralization and concentration along with heightened financial stability that soon culminated in the 1994 financial crisis and IMF-crafted stabilization package. Instability persisted which the 1999 Disinflation Program was meant to resolve. One aspect involved creating the Banking Regulation and Supervision Agency (BDDK) in June 1999. As is well known, the 1999 Program worsened matters and the BDDK took on the role of crisis manager by 2000-01 under the Banking Sector Restructuring Program. The 2001 crisis was significant insofar as it led to Central Bank independence, a proliferation of cross border financial supervisory agreements, the increasing centralization of domestic financial authority around the Treasury, and the massive build-up of foreign reserves to ward off foreign capital fears. The AKP has privileged state financial capacity since then often couched in terms of European Union harmonization.
The details are of course more extensive. However the point is that far from the neoliberal idealizations and discourses of a minimal state the post 1980s turn to market-oriented capital accumulation in Turkey was constituted by a process of state restructuring to bolster state financial capacity building. Given the rich tradition of critical state analysis in Turkey, this is not necessarily a controversial premise.
Premise two: Banks, too, are social relations
Unlike in Marxian state theory the premise that banks, too, are social relations is something relatively novel to Marxian research on banking and development (if not necessarily alien to historical materialist thought). Yet so too does this premise involve unpacking banks’ historically specific institutionalized operations relative to the wider phase of development in Turkey. This occurs on at least two levels of conceptualization. At the level of Turkey's banking system and domestic market, this first means thinking about the material foundations of the banks and the credit system as based on drawing together many people's money savings for use by a few in order to overcome the barriers that individual private property poses for capitalist production.[4] That is, there is an essentially social and class foundation to banking operations rooted in the exploitative processes of capital accumulation. At the level of Turkey's banking institutions, this then means also seeing how the banks are social relations at the institutional level. That is, banks too are historically specific institutionalizations of power within given social formations. This conceptualization applies to all banks regardless of ownership categories (be it foreign, domestic, state, or mixed ownership). Posing banking institutions as historically constituted by social relations challenges mainstream empiricist understandings that dominate the literature on banks. Far from presupposing a bank's operations as determined by ownership, this premise demands an investigation of the banks’ practices and procedures of the banks. Most Marxian accounts unfortunately mirror liberal a priori interpretations of bank ownership. Yet there is something more genuinely historical materialist to an analytical practice of historicizing the banks in Turkey.
Thinking of banks as institutionalized social relations of class power (embedded in wider capitalist social relations of production) allows you to think quite differently about Turkey's developmental history and the role of banks therein. I find that perhaps the most interesting and unique example of this rethinking involves the Turkish state-owned banks. The Turkish state banks were key agents of Turkey's post-war capitalist industrialization strategies. The Turkish government configured the banks’ operations to help overcome barriers to national capital formation and accumulation via central government supported ‘duty losses.’ In this period the state banks coexisted alongside large private domestic and some foreign banks in Turkey, but they had a distinctive developmental operational logic not subordinated to profit maximization. The transition to neoliberalism in Turkey began to change matters. Under the unstable and increasingly indebted governments of Çiller, Yilmaz, and Erbakan during the mid- to late-1990s the post-war developmental duty losses evolved into distinctively neoliberal duty losses. That is, by the time the 2001 banking crisis struck these governments had hidden away $20-billion in the state banks in cheap credits. During the same period state authorities had forced a number of failed private banks into the state-owned banks. Both measures helped ensure continuity in Turkey unstable neoliberal transformation and in doing so, paradoxically, helped to politically protect the state banks from IMF privatization demands.
The subsequent 2001 banking crisis and 2001 Banking Sector Restructuring Program provided an opportunity for neoliberal advocates to push through with severe market-oriented reforms to commercialize the state banks’ operations by institutionalizing profit and labour productivity imperatives. One result, for example, is that Ziraat Bank has become Turkey's most profitable bank since 2003 and even the 9th most profitable bank in the world in 2010 (of course, within a context of collapsed global banking profits).[5] Ziraat's post-war developmental mission, however, has made its way into the dustbin of Turkey's developmental strategies. The point to be drawn from this brief example is that banks, including state banks, are historical social relations and can be institutionally restructured given political will. Not only does this allow a richer historical account but so too does this conceptualization leave open radical possibilities for alternatives to EFC. Progressive and worker-oriented forms of saving and credit institutions are required for any break in neoliberalism to occur. In Turkey today Vakiflar Bank and Halk Bank remain predominantly state-owned while Ziraat Bank, the largest, remains fully state-owned. Together they constitute about 30 per cent of all banking assets. Here more than perhaps in any other emerging capitalism the banks’ future is yet open to an alternative trajectory should organized labour and political will organize around it.
Premise three: Crises are constitutive of emerging finance capitalism
That moment of crisis matter, in ways not dissimilar to historical institutionalist critical junctures, is a standard Marxian premise. This point need only be made in brief. At issue is the idea that crises are internal to capitalist social relations of production and competition insofar as crises constitute an internal disruption. As such, crises provide an opening for change without determining the nature of such change should it occur. The nature of change, while impacted by economic and social circumstances, is shaped by prevailing political factors, social forces, and class struggles. In Turkey, far from slowing or reversing finance-led neoliberalism, the processes of crisis and recovery has been captured (meaning predominantly shaped) by advocates of market-oriented capitalism since the 1980s. This occurred quite nakedly in 2001 under the technocratic leadership of Kemal Dervis. Discussed below, the state-led rescue was premised upon the bulk of Turkish society socializing the accumulated financial risks gone bad through the state apparatus.
It is important to say that the resolution of financial crises have never been merely technical, politically neutral, or classless. Rather, Turkey's crisis resolution processes have systematically reinforced and strengthened the power and position of financial capital in the Turkish state and society. As suggested at the outset, this has involved restructuring the state and building institutional capacity to manage recurrent financial crisis. This comes at a social cost that is borne disproportionately by the majority of Turkish society that did not cause the crises.
Premise four: Labour is vital to emerging finance capitalism
Like the banks above, integrating labour into an analysis of finance and development in emerging capitalism is something distinct. Yet the question of labour could not be more significant to the rise of neoliberalism and the consolidation of EFC in Turkey. This builds on a basic Marxian premise that labour is vital to the material reproduction of capitalism – and by extension finance capitalism – in Turkey. Labour and workers are, nonetheless, generally ignored in analyses of banking, finance, and development – be it Marxian or otherwise. My particular interpretation draws on Hilferding and, again, works across two interrelated analytical levels, that of society and the banking institutions. In what follows I highlight three ways in which labour and workers are vital to understanding emerging finance capitalism in Turkey.
The first point is foundational. Namely, it is important to point out, as Hilferding does, that labour creates value in production from which financial capital earns interest. Again, this is a well-established Marxian premise rooted in a labour theory of value. The flip side of this interpretation is the somewhat obvious yet significant fact that finance produces nothing but appropriates value from the wealth-creating labouring classes.
The second and more unique point is that labour is directly implicated in financial crisis resolution. This is an area where I have been doing more research of late and where further research is required. The key is that workers’ labour in general provides the base income tax revenue upon which the state apparatus can socialize or draw in financial risks at times of crisis. For example, Turkey's 2001 banking crisis and state-led rescue is understood as an important turning point in Turkey subsequent growth and resilience to the current Great Recession. Yet Turkey's success as a ‘growth market’ depended primarily on state and government elites socializing $47.2-billion or just over 30 per cent of 2002 GDP in financial risks gone bad. That Turkish taxpayers shoulder the costs of financial crisis and resolution is not disputed regardless of one's analytical traditions. Neither is socialization much theorized, subjected to an understanding of power relations, nor used to interpret the current phase of development. The socialized costs are instead taken as an unfortunate if necessary fact.
How Turkish state and government elites transfer the costs of crisis onto Turkish taxpayers reveals the essential role played by labour. The basic mechanism involves creating fictitious capital: that is, ‘promises to pay’ made up of capitalized claims on future state revenue. How is fictitious capital created in practice and on what material basis? The institutional capacity of any state apparatus to reproduce itself and for state authorities to act depends on revenue generation, which authorities can do in three ways. First, creating new state-owned enterprises or increase SOE (State-Owned Enterprise) productivity to produce surpluses can generate revenue. As we know under neoliberalism and particularly under AKP rule SOEs have typically been sold off for one-time revenues with no new SOEs being created. Many SOEs have been ‘commercialized,’ however, with Ziraat Bank restructuring as the prime example of driving up profits by ratcheting down on labour costs to drive up productivity gains. Second, raising or introducing new taxes can also generate revenue. In neoliberal Turkey this has involved introducing and increasing value-added tax (VAT) and personal income tax receipts while reducing corporate taxes and practically eliminating import and export taxes to favour domestic and foreign corporate interests. Third, issuing official debt by borrowing against future tax revenues also generates present revenue of sorts. Austerity has become a key strategy by which authorities can increase the amount of accessible present fictitious capital revenues (debt). Increasing domestic worker productivity is another. Both imply greater creditworthiness to the financial capitalists purchasing the state debt bonds.
There is also a third way in which labour is vital to an understanding of EFC: the intensification of bank workers’ labour. With the rise of neoliberalism and especially following the 2001 crisis state elites and bank management have systematically driven down labour costs in the banks. This has also entailed a very disciplinary element. The 2001 Banking sector Restructuring Program involved laying off 50,000 of 168,000 bank workers in Turkey. About 34,000 of these were state bank workers. Those workers who remained in the state banks were forced to accept new contractual conditions that removed many state worker protections. Despite resurgent bank profitability levels, not until 2010 did staff numbers surpass their 1999 levels. The significance of this is reflected in the falling level of staff costs as percentage of the banks’ balance sheet. In 1993 staff costs equalled 3.36 per cent of the balance sheet and in 1999 2.65 per cent. By 2003 this had fallen to 1.75 per cent and to 1.35 per cent by 2009 (about half their pre-crisis level). How significant are staff costs monetary terms? Extremely. For the Turkish banks listed on the ISE (Istanbul Stock Exchange) in 2010 staff costs (at only about 1.35 per cent) came to over TL10.6 billion. This sum equates to over half of the banks’ total after-tax profits of TL20.5 billion. The collapse in staff costs must be understood in the wider context of the Turkish government's attack on organized labour since the 1980s and with the more recent trend toward outsourcing in the banking sector that was sanctioned by new rules in the 2005 Banking Law and 2006 Regulations. Bank labour, as even the 2003 McKinsey Report Turkey: Making the Productivity and Growth Breakthrough asserts, is a key aspect of bank profitability strategies.
Let me reiterate. First, labour in Turkey is the material basis of socialization of financial risks at the level of society and, second, labour is also vital to bank profitability via the intensification of labour in banks. Given the centrality of labour to the material reproduction of banking and finance in Turkey follows that organized bank labour is a potential source of powerful social mobilization against EFC should they be politically mobilized.
Thinking About Alternatives to EFC
Each Marxian premise for interpreting the current phase of EFC is presented in such a way that it integrates some general structural features of EFC in light of the historical specificity in Turkey such that the possibilities for change remain open to individual and collective agency. That is, I suggest the analytical framework discussed exposes the social relations of power underpinning EFC in Turkey while providing the analytical foundations for understanding alternatives to EFC, particularly in the key sector of banking. This change can be to the benefit of the working majority and poor but this demands collective political mobilization organized and institutionalized in their own behalf. In the concluding chapter of States, Banks and Crisis I build on the above analytical framework to argue that any substantive alternative to EFC cannot simply modify the form of capitalism in Turkey (that is, for example, to simply better regulate the banks and mounting inequality). Rather, the way in which Turkish society reproduces itself and the central role of banks therein must be institutionalized along with radically different and democratized social economic premises that break with the structural inequalities and exploitative practices of EFC. The central point made is that the banking system and financing of development must be subordinated to collective ownership and developmental goals rather than commercialized profit imperatives.
I suggest there are three necessary, but not sufficient, conditions to break with EFC vis-à-vis banking in Turkey. First, any substantive change involves capturing political power and restructuring the state financial apparatus. This entails dismantling the institutional and material foundations of emerging finance capitalism, on the one hand, and constitutionally recognizing collective property and worker-owner rights. This process of democratizing finance implies the politicization of the financial apparatus in ways that would, for example, prevent current practices like the socialization of private financial risks at times of crisis.
Second, breaking with EFC also involves dispossessing financial capital of their institutions, amassed concentrations of property and wealth, and their overwhelming social power in Turkish society. As Hilferding understood a century ago, these actions require society making the political demand to take control of the banks. This is necessary because financial capital has proven itself irresponsible with society's collective resources being incapable of promoting anything like equitable social developmental objectives. We should be clear that this does not just mean the nationalization of private banks or maintaining state ownership of Halk, Vakif, and Ziraat Bank but something different and more fundamentally democratic.
Public policy must aim to subordinate the banks’ operations in Turkey to the demands of a democratized social economy.
This leads to the third condition, namely that public policy must aim to subordinate the banks’ operations in Turkey to the demands of a democratized social economy. National developmental policy needs to facilitate domestic monetary and financial autonomy along collectively determined social priorities. In this framework Turkish society itself collectively assumes responsibility for being democratic, participatory, and protagonist in the allocation of their collective monetary resources. As an integral part of this change the banks themselves will need to be reconfigured as semi-autonomous worker collectives within this collective paradigm. Organized bank labour unions must play a central part in this.
How could Turkey fare on these points? There is substantial capacity, indeed, possibility for change in Turkey but also significant barriers. There exists the material and institutional basis to initiate and begin experimenting with social democratized banking insofar as Turkey has large state-owned banks. These embody real spatial potential insofar as their branches and networks stretch throughout the country serving a unifying force for creating a new space of developmentally oriented and democratically subordinated financing for development. There are also important ideational and cultural factors that lend legitimacy to the project since the state banks have long existed and been discursively framed as integral to Turkish national development for decades. Yet while there is material, institutional, spatial, and discursive potential there presently lacks coordinated political mobilization and will in the leading political parties, all of which remain wedded to a more or less market-oriented strategy of development that involves a greater role for private banks.
Crisis, even the current global crisis, may provide an opening for changes in the political commitments to emerging finance capitalism, particularly the more global instability persists and domestic problems mount. Even the OECD will begin to explore the possible benefits of state-owned banks in an upcoming report on ‘new models of development.’ Yet crisis alone is insufficient to substantively counter the structural power of EFC in Turkey and to push back against what will almost certainly be waves upon waves of permanent working-class austerity measures. Rather, progressive political and social forces need to organize and mobilize around achieving social ownership and democratized control in the arena of banking and finance. •
Thomas Marois, Department of Development Studies, School of Oriental and African Studies, University of London, and author of States, Banks and Crisis: Emerging Finance Capitalism in Mexico and Turkey (2012).
This article was originally published in May 2012 with the Centre for Policy Analysis and Research on Turkey (ResearchTurkey), London: ResearchTurkey (researchturkey.org/wp/wordpress/?p=802).
notes:
1. OECD (2011), Social Justice in the OECD – How Do the Member States Compare? Sustainable Governance Indicators 2011, Paris; OECD (2011), Society at a Glance – OECD Social Indicators, available at www.oecd.org/els/social/indicators/SAG; OECD Stat.
2. Marois, Thomas (2011), “Emerging market bank rescues in an era of finance-led neoliberalism: A comparison of Mexico and Turkey.” Review of International Political Economy, 18 (2). pp. 168-196.
3. The remainder of this article is drawn from my book published in 2012 titled States, Banks and Crisis: Emerging Finance Capitalism in Mexico and Turkey, Cheltenham, Gloucestershire, UK: Edward Elgar Publishing. The book is in the process of being translated and published in Turkish by Notebene Publishing.
4. Hilferding, Rudolf (2006 [1910]), Finance Capital: A Study in the Latest Phase of Capitalist Development, ed. with an introduction by Tom Bottomore, trans. Morris Watnick and Sam Gordon, London: Routledge
5. Alexander, Philip, “EM banks most profitable – but vulnerable on deposit bases” 04 July 2011, The Banker, downloaded 04 July 2011. Of course, this is equally a reflection of massive losses among the global banking giants.
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Greek elections reflect mass opposition to austerity. Prelude to a new round of fierce social conflicts
by Christoph Dreier
Global Research
May 7, 2012
Greek parliamentary elections on Sunday resulted in a stunning collapse in the vote for the two main governing parties, PASOK and New Democracy, which received only 32 percent of the vote between them.
The result is a clear popular repudiation of the policies of austerity, dictated by the EU, international banks and the Greek ruling class. The main beneficiaries of the shift in popular sentiment to the left, however, do not represent a genuine alternative.
The social democratic PASOK party, which has led the government since 2009, saw its vote plummet from 43.9 percent in the last elections to 13.2 percent. The vote for the conservative New Democracy Party, which forged a coalition with PASOK in December last year, fell from 33.5 in 2009 to 18.9 percent. The two-party system that has existed in Greece since the end of military dictatorship has been effectively terminated.
Official projections late Sunday predicted that PASOK and New Democracy would fall one seat short of being able to form a majority in parliament. That they are even close to the required number is only due to an anti-democratic provision that automatically allocates an additional 50 seats to the party winning the highest percentage of the vote—in this case, New Democracy.
In a further indication of public disgust with the political system, the abstention rate was a record-breaking high of nearly 40 percent, according to estimates from the interior ministry. This is much higher than in the three previous elections, where abstention rates ranged from 25 to 30 percent.
In recent years the government has carried out historically unprecedented social cuts that have led to real wage losses of up to two-thirds, youth unemployment of more than 50 percent, and mass poverty and homelessness.
The parties that verbally opposed this policy registered strong electoral gains. The Coalition of the Radical Left (SYRIZA) was able to triple its vote from 4.6 percent to 16.8 percent. It has overtaken PASOK as second largest party in parliament. During its campaign, SYRIZA declared its intention to renegotiate austerity measures. It promised substantial investment in infrastructure, education and other social programs.
The Democratic Left, which split off from SYRIZA in 2010 in order to take a more pro-PASOK orientation, also criticized the austerity measures during its election campaign. In its first ever election it received 5 percent.
Both SYRIZA and the Democratic Left, which speak for better off sections of the middle class, are well practiced in a politics that is aimed at keeping mass discontent shackled to the trade unions and PASOK.
The Communist Party of Greece (KKE) was only able to slightly improve its vote from 7.5 percent to 8.5 percent. The Greek electorate has a long experience of the opportunism of the Stalinist KKE and does not trust the party to in any way challenge the political establishment. The Greek Greens and the Democratic Alliance won just 3 percent of the vote respectively.
The right-wing parties, which have been systematically built up in the media in recent weeks, received a relatively small share of the vote. The LAOS party, which participated for a short time in government, lost votes. The neo-fascist Golden Dawn gained 7 percent and will enter the new parliament.
The right-wing populist party, the Independent Greeks, won 10.6 percent of the vote. The party was founded in February this year by former ND deputies led by Panos Kammenos, after they were expelled from the ND for failing to support the last austerity package. The party made xenophobia its central election issue, combining social demands such as a reversal of the cuts with an extremely nationalist perspective.
These parties were given a massive boost in the election campaign by PASOK and ND. The two governing parties sought to outdo one another with xenophobic and nationalistic demagogy and practice in an attempt to direct popular anger against the cuts into right-wing channels. In doing so they paved the way for the extreme right.
For its part, SYRIZA announced that it is prepared to make a pact with the racist Independent Greeks in the event of an election victory.
The elections will further destabilize the political situation in Greece. PASOK and ND had been able to rule previously with a comfortable parliamentary advantage. Now they will be unable to put together a governing majority. The European press is already debating whether a new government will be stable enough to enforce the planned cuts, or whether there should be new elections.
Any new Greek government intent on continuing the austerity policies of the EU will face massive opposition from the population. In this situation, there is a serious danger that the ruling elite will respond by seeking to integrate the right and extreme right-wing parties in government and thereby establish authoritarian forms of rule in order to brutally suppress all popular resistance.
At the same time there would be nothing progressive in the formation of a coalition government involving nominally left-wing parties. Both SYRIZA and the Democratic Left have repeatedly made clear that they are determined to remain in the EU and would merely seek to re-negotiate the austerity measures. Such a government would follow the example of PASOK and work together with the trade unions and various petty-bourgeois groups to enforce the cuts against the working population.
Such a formation would also receive the backing of the KKE. The KKE will assume the role of stewarding and disciplining protests in order to render them harmless for the new government. It already has a track record in this respect with regard to the outgoing government.
The Greek election result is indicative of a swing to the left by broad sections of the electorate and working masses. At the same time, the pseudo-left organizations that have profited from this swing have made clear that they are intent on maintaining and defending the existing order. The election is the prelude to a new round of fierce social conflicts that can only be resolved by the construction of a new revolutionary socialist leadership in Greece.
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Systemic Jobs Crisis in the US
by Joseph Kishore
Global Research
May 5, 2012
Only 115,000 jobs were added in the US in April, according to Friday’s report from the Bureau of Labor Statistics. This was significantly below expectations, and was the smallest gain in six months. It was well below the revised figure of 154,000 jobs added in March.
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The official unemployment rate, which bears little resemblance to the actual level of joblessness, fell from 8.2 to 8.1 percent. This was due largely to the fact that more people gave up looking for work, and therefore are not counted as unemployed.
The report confirmed a bleak employment situation, with millions of people mired in a permanent state of joblessness. The Obama administration responded by insisting that the report showed an economy continuing to “heal,” making clear that it would take no action to address the crisis.
With Europe returning to recession and the Chinese construction bubble stalling, the US economy is likely headed toward a new downturn. Late last month, the Commerce Department reported the US economy grew by only 2.2 percent in the first quarter, also significantly below estimates.
Much of the gains in employment were in lower-paying sectors, including an increase of 29,000 jobs in retail trade and 20,000 jobs in leisure and hospitality. Professional and business services increased by 62,000, but 21,000 of these were in temporary help services. Manufacturing and health care increased marginally. Transportation employment fell significantly.
Reflecting the continued impact of austerity measures, government payrolls fell by 15,000. This includes a cut of 10,000 local government education jobs and 4,000 federal government jobs.
These figures do not yet reflect the impact of the mass layoff of teachers expected after the end of this school year. About 470,000 local education jobs have been wiped out since April of last year, about 5.5 percent of the total.
Among the more significant details contained in the report was the fall in the “labor force participation rate”—the percentage of Americans 16 years or older who are working or looking for work. This figure fell 0.2 percentage points, to 63.6 percent, the lowest level since 1981. The participation rate for men is 70 percent, its lowest level on records going back to 1948.
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The participation rate is a more accurate measure of the jobs crisis, as it takes into account the millions of people who have given up hope of finding work and are not counted as unemployed.
University of Maryland economist Peter Morici noted in a comment published by UPI that, according to the BLS report, “while the ‘non-institutional population’ grew by almost 210,000, the ‘civilian labor force’ shrank—by 340,000 … In the weakest recovery since the Great Depression more than four-fifths of the reduction in unemployment has been accomplished by a dropping adult labor force participation rate.”
Long-term unemployment remains at near-record levels. Not including those who have left the labor force, there were 5.1 million people who were unemployed for more than 27 weeks, down only slightly from March. This is 41.3 percent of all those who are unemployed, just off the record highs set in the aftermath of the 2008 financial crash.
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Wages were also stagnant, with hourly earnings up only a penny from last month. This is below the inflation rate, continuing a long-term trend of declining real income. These figures actually obscure the extent of pay cuts for working people, as they are averaged in with the increasing incomes of the top one percent.
The Obama administration responded to these figures with the typical display of indifference. Chairman of Obama’s Council of Economic Advisers, Alan Krueger, said the report “provides further evidence that the economy is continuing to heal from the worst economic downturn since the Great Depression.”
Krueger called on Congress to move ahead with the administration’s “jobs” proposals, which in fact consist largely of tax cuts for corporations and the roll-back of corporate regulations.
From the beginning of the crisis, the administration rejected any federal program to put people to work. Both Democrats and Republicans are united on the need to slash government programs, including massive austerity measures to be implemented after the elections. This will further exacerbate the jobs crisis.
This weekend, Obama is officially beginning his reelection campaign with stops in Virginia and Ohio. He will be touting the federal government’s bailout of the auto companies, which were premised on cutting in half the pay for new hires and slashing benefits for all workers and retirees.
While the administration will cite the auto bailout for supposedly saving jobs, mass unemployment is in fact a crucial component of a deliberate strategy to use the economic crisis to enforce a permanent reduction in wages for workers.
At the same time, the decline in the official unemployment rate is being used to throw workers off long-term unemployment in states throughout the country—on the grounds that these benefits are not needed under conditions of “economic recovery.” As part of a deal reached by the Republicans and the Obama administration, and signed by the president in March, extended federal benefits for the unemployed in many states have already been eliminated or will be eliminated this month.
In Florida, for example, 44,000 people will be cut off extended benefits on May 12. In California, 93,000 workers are expected to lose benefits next week.
Joseph Kishore is a frequent contributor to Global Research.
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Institutional Corruption Is Killing the Economy
by Washington's Blog
Global Research
May 4, 2012
People Are Losing Trust In All Institutions
The signs are everywhere: Americans have lost trust in our institutions.
The Chicago Booth/Kellogg School Financial Trust Index published yesterday shows that only 22% of Americans trust the nation’s financial system.
Robert Shiller said Monday:
Our whole economy has been affected by variations in confidence. Central banks are sort of trusted, but the actions they have often affect people’s confidence by appearance rather than substance. We’re not in the most trusting mood now.”
The National Journal noted last week:
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Seven in 10 Americans believe that the country is on the wrong track; eight in 10 are dissatisfied with the way the nation is being governed. Only 23 percent have confidence in banks, and just 19 percent have confidence in big business. Less than half the population expresses “a great deal” of confidence in the public-school system or organized religion. “We have lost our gods,” says Laura Hansen, an assistant professor of sociology at Western New England University in Springfield, Mass. “We lost [faith] in the media: Remember Walter Cronkite? We lost it in our culture: You can’t point to a movie star who might inspire us, because we know too much about them. We lost it in politics, because we know too much about politicians’ lives. We’ve lost it—that basic sense of trust and confidence—in everything.”
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After a 50-year decline, just 14 percent of respondents in a 2011 Gallup Poll said that the federal government could be trusted “a great deal
Gallup reported last month that – for the second year in a row – Americans said that gold is the safest long-term investment. This shows that Americans don’t trust the government. Specifically, as Time Magazine points out:
Traditionally, gold has been a store of value when citizens do not trust their government politically or economically.
Indeed:
· A tiny percent of Americans believe that the U.S. government has the consent of the governed
· A higher percentage of Americans believed in King George of England during the Revolutionary War than believe in congress today
· Many Americans disbelieve the government’s rosy statements about the economy
· An NBC News/Wall Street Journal poll from November found that 76% of Americans believe that the country’s current financial and political structures favor the rich over the rest of the country
· The U.S. financial system is so corrupt and unregulated that many don’t believe the government and businesses’ promises to follow the rule of law … and simply won’t do business here anymore
It’s not just the U.S.
As the Economist reported in January, trust in institutions is plunging worldwide:
The latest annual “trust barometer” published by Edelman, a PR firm, on January 24th [finds that] overall trust has declined in the leaders of the four main categories of organization scrutinized—government, business, non-governmental organizations and the media. Of the 50 or so countries examined, 11, nearly twice as many as last year, are now judged “sceptical”, with less than 50% of those polled saying they trusted these institutions. Trust in Japanese institutions plunged to 34%, from 51% in 2011, not surprising given the handling by leaders of the Tsunami and its aftermath. But the collapse in trust was even more striking in Brazil, the country in which trust was greatest in 2011, at 80%, but now, following a series of corruption scandals, has slipped to 51% (admittedly, still above America and Britain, among others).
This headline slump in trust is due, above all, to the public losing faith in political leaders. In 2011, across all countries, Edelman found that 52% of those polled trusted government; this year, it was only 43%. Government is now trusted less even than the media …. Trust in business fell slightly, from 56% to 53%, as did trust in NGOs, which still remain the most trusted type of institution, at 58%, down from 61% in 2011. As in previous years, the barometer is based on a poll of what Edelman calls “informed people”, which typically means professional and well-educated, though this year for the first time the views of the informed were benchmarked against a poll of the public as a whole. For each institution, the broader public was even less trusting than the informed, with government trusted by 38%, business 47%, NGOs 50% and the media 46%.
Lack of Trust Is Killing the Economy
Top economists have been saying for well over a decade that trust is necessary for a stable economy, and that prosecuting the criminals is necessary to restore trust. Indeed, as we have repeatedly noted, loss of trust is arguably the main reason we are stuck in an economic crisis … notwithstanding unprecedented action by central banks worldwide.
Economist Daniel Hameresh writes:
A number of economists have shown recently that income levels and real growth depend upon trust—trust greases the wheels of exchange.
In 1998, Paul Zak (Professor of Economics and Department Chair, as well as the founding Director of the Center for Neuroeconomics Studies at Claremont Graduate University, Professor of Neurology at Loma Linda University Medical Center, and a senior researcher at UCLA) and Stephen Knack (a Lead Economist in the World Bank’s Research Department and Public Sector Governance Department) wrote a paper called Trust and Growth, arguing:
Adam Smith … observed notable differences across nations in the ‘probity’ and ‘punctuality’ of their populations. For example, the Dutch ‘are the most faithful to their word.’ John Stuart Mill wrote: ‘There are countries in Europe . . . where the most serious impediment to conducting business concerns on a large scale, is the rarity of persons who are supposed fit to be trusted with the receipt and expenditure of large sums of money’ (Mill, 1848, p. 132).
Enormous differences across countries in the propensity to trust others survive today.
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Trust is higher in ‘fair’ societies.
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High trust societies produce more output than low trust societies. A fortiori, a sufficient amount of trust may be crucial to successful development. Douglass North (1990, p. 54) writes,
The inability of societies to develop effective, lowcost enforcement of contracts is the most important source of both historical stagnation and contemporary underdevelopment in the Third World.
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If trust is too low in a society, savings will be insufficient to sustain positive output growth. Such a poverty trap is more likely when institutions - both formal and informal – which punish cheaters are weak.
Heap, Tan and Zizzo and others have come to similar conclusions.
In 2001, Zak and Knack showed that “strengthening the rule of law, reducing inequality, and by facilitating interpersonal understanding” all increase trust. They conclude:
Our analysis shows that trust can be raised directly by increasing communication and education, and indirectly by strengthening formal institutions that enforce contracts and by reducing income inequality. Among the policies that impact these factors, only education, … and freedom satisfy the efficiency criterion which compares the cost of policies with the benefits citizens receive in terms of higher living standards. Further, our analysis suggests that good policy initiates a virtuous circle: policies that raise trust efficiently, improve living standards, raise civil liberties, enhance institutions, and reduce corruption, further raising trust. Trust, democracy, and the rule of law are thus the foundation of abiding prosperity.
A 2005 letter in premier scientific journal Nature reviewed the research on trust and economics:
Trust … plays a key role in economic exchange and politics. In the absence of trust among trading partners, market transactions break down. In the absence of trust in a country’s institutions and leaders, political legitimacy breaks down. Much recent evidence indicates that trust contributes to economic, political and social success.
Forbes wrote an article in 2006 entitled “The Economics of Trust”. The article summarizes the importance of trust in creating a healthy economy:
Imagine going to the corner store to buy a carton of milk, only to find that the refrigerator is locked. When you’ve persuaded the shopkeeper to retrieve the milk, you then end up arguing over whether you’re going to hand the money over first, or whether he is going to hand over the milk. Finally you manage to arrange an elaborate simultaneous exchange. A little taste of life in a world without trust–now imagine trying to arrange a mortgage.
Being able to trust people might seem like a pleasant luxury, but economists are starting to believe that it’s rather more important than that. Trust is about more than whether you can leave your house unlocked; it is responsible for the difference between the richest countries and the poorest.
“If you take a broad enough definition of trust, then it would explain basically all the difference between the per capita income of the United States and Somalia,” ventures Steve Knack, a senior economist at the World Bank who has been studying the economics of trust for over a decade. That suggests that trust is worth $12.4 trillion dollars a year to the U.S., which, in case you are wondering, is 99.5% of this country’s income.
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Above all, trust enables people to do business with each other. Doing business is what creates wealth.
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Economists distinguish between the personal, informal trust that comes from being friendly with your neighbors and the impersonal, institutionalized trust that lets you give your credit card number out over the Internet.
In 2007, Yann Algan (Professor of Economics at Paris School of Economics and University Paris East) and Pierre Cahuc (Professor of Economics at the Ecole Polytechnique (Paris)) reported:
We find a significant impact of trust on income per capita for 30 countries over the period 1949-2003.
Similarly, market psychologists Richard L. Peterson M.D. and Frank Murtha, PhD noted in 2008
Trust is the oil in the engine of capitalism, without it, the engine seizes up. Confidence is like the gasoline, without it the machine won’t move.
Trust is gone: there is no longer trust between counterparties in the financial system. Furthermore, confidence is at a low. Investors have lost their confidence in the ability of shares to provide decent returns (since they haven’t).
In 2009, Paola Sapienza (associate professor of finance and the Zell Center Faculty Fellow at Northwestern University) and Luigi Zingales (Robert C. McCormack Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business) pointed out:
The drop in trust, we believe, is a major factor behind the deteriorating economic conditions.
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As trust declines, so does Americans’ willingness to invest their money in the financial system. Our data show that trust in the stock market affects people’s intention to buy stocks, even after accounting for expectations of future stock-market performance. Similarly, a person’s trust in banks predicts the likelihood that he will make a run on his bank in a moment of crisis: 25 percent of those who don’t trust banks withdrew their deposits and stored them as cash last fall, compared with only 3 percent of those who said they still trusted the banks. Thus, trust in financial institutions is a key factor for the smooth functioning of capital markets and, by extension, the economy. Changes in trust matter.
They quote a Nobel laureate economist on the subject:
“Virtually every commercial transaction has within itself an element of trust,” writes economist Kenneth Arrow, a Nobel laureate. When we deposit money in a bank, we trust that it’s safe. When a company orders goods, it trusts its counterpart to deliver them in good faith. Trust facilitates transactions because it saves the costs of monitoring and screening; it is an essential lubricant that greases the wheels of the economic system.
In 2010, a distinguished international group of economists (Giancarlo Corsetti, Michael P. Devereux, Luigi Guiso, John Hassler, Gilles Saint-Paul, Hans-Werner Sinn, Jan-Egbert Sturm and Xavier Vives) wrote:
Public distrust of bankers and financial markets has risen dramatically with the financial crisis. This column argues that this loss of trust in the financial system played a critical role in the collapse of economic activity that followed. To undo the damage, financial regulation needs to focus on restoring that trust.
They noted:
Trust is crucial in many transactions and certainly in those involving financial exchanges. The massive drop in trust associated with this crisis will therefore have important implications for the future of financial markets. Data show that in the late 1970s, the percentage of people who reported having full trust in banks, brokers, mutual funds or the stock market was around 40%; it had sunk to around 30% just before the crisis hit, and collapsed to barely 5% afterwards. It is now even lower than the trust people have in other people (randomly selected of course).
In his influential 1993 book Making Democracy Work, Robert Putnam showed how civic attitudes and trust could account for differences in the economic and government performance between northern and southern Italy.
Political economist Francis Fukiyama wrote a book called Trust in 1995, arguing that the most pervasive cultural characteristic influencing a nation’s prosperity and ability to compete is the level of trust or cooperative behavior based upon shared norms. He stated that the United States, like Japan and Germany, has been a high-trust society historically but that this status has eroded in recent years.
Chris Farrell notes:
Trust matters. It’s kind of like a recipe or a software protocol that allows for economic exchange and all kinds of innovation.
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There’s compelling evidence that both higher levels of trust in institutions and a belief in the general trustworthiness of individuals in society carry large economic benefits. Sociologists, political scientists and economists have all showed in an impressive body of research that higher levels of trust increase trade and even foster economic growth,.
Dallas Fed president Richard Fisher said last year that a growing distrust of the nation’s political institutions is keeping businesses on the sidelines.
Forbes notes in March that a lack of trust was one of the main factors hurting the Greek economy:
There are a number of issues that have contributed and exacerbated the levels of distrust. For instance, Greece, with the help of Goldman Sachs, concealed the state of their finances for over a decade until they ran into this major debt crisis. Because they failed to disclose the extent of their financial problems, the EU and other players in the global credit market are extremely reluctant to cooperate or put faith in the representations made by the Greek leadership.
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If the leadership in Athens cannot reestablish trust with the citizenry and develop open and honest communication amongst themselves, their constituents, and the individual leaders of the financial institutions involved, the agreements they make will not even be worth the paper they are written on.
Ken Eisold – an internationally respected authority on the psychodynamics of organizations – writes:
Most of us view trust as valuable and desirable, something that improves the quality of our personal lives. We seldom take the next step and view it as indispensable, a vital ingredient in society – and in the economy. But all credit is based on trust, and the fundamental problem in a credit crisis is not just the lack of “liquidity” but also the absence of trust, the trust that is essential to all financial transactions.”
But the problem is not that people should be more blindly and naively trusting. The problem – as Eisold points out – is that the institutions have to act in a more trustworthy manner:
The essential point is not that people need to be encouraged to trust. Most of us want to trust and have the basic capacity to trust. We need institutions that are trustworthy.
No Economy-Revving Optimism Without Trust
Economist Robert Higgs – who has studied the effect of World War II on the economy in great detail – argues that it was optimism, rather than stimulus spending, which got us out of the depression:
The performance of the war economy … broke the back of the pessimistic expectations almost everybody had come to hold during the seemingly endless Depression. In the long decade of the 1930s, especially its latter half, many people had come to believe that the economic machine was irreparably broken. The frenetic activity of war production—never mind that it was just a lot of guns and ammunition—dispelled the hopelessness. People began to think: if we can produce all these planes, ships, and bombs, we can also turn out prodigious quantities of cars and refrigerators.
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The transformation of expectations—justify an interpretation that views the war as an event that recreated the possibility of genuine economic recovery. As the war ended, real prosperity returned.
Unlike after WWII, Americans now are pessimistic (even though we’ve been various wars against third-rate countries far longer than we were in WWII) and our expectations are stuck in the gutter.
Why?
Perhaps because we don’t trust our government, our big corporations or our other institutions to do anything very helpful for the country. Indeed, we don’t trust our government, big corporations and other institutions to even allow a fair playing field where we have a chance of competing fairly to get ahead on our own initiative.
Why should we work harder, invest more or spend more when we don’t trust that we might have a bright future?
Prosecuting the Criminals Is Necessary to Restore Trust
Nobel prize winning economist Joseph Stiglitz says that we have to prosecute fraud or else the economy won’t recover:
The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that’s really the problem that’s going on.
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I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That’s the point. There were victims all over the world.
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Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.
Robert Shiller said recently that failing to address the legal issues will cause Americans to lose faith in business and the government:
Shiller said the danger of foreclosuregate — the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of foreclosures and related sales in doubt — is a replay of the 1930s, when Americans lost faith that institutions such as business and government were dealing fairly.
Economists such as William Black and James Galbraith agree. Galbraith says:
There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that’s a process which needs to get underway.
Galbraith also says that economists should move into the background, and “criminologists to the forefront”.
Government regulators know this – or at least pay lip service to it – as well. For example, as the Director of the Securities and Exchange Commission’s enforcement division told Congress:
Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public’s fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.
Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals – and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future. Indeed, William Black notes that we’ve known of this dynamic for “hundreds of years”. And see this, this, this and this.
And when Zak and Knack – quoted above – discuss “enforcing contracts”, “raising civil liberties”, and “reducing corruption”, they are talking about enforcing the rule of law, which means prosecuting violations of the law. Likewise, when they refer to “enhancing institutions”, they mean regulatory and justice systems which enforce contracts and prosecute cheaters.
And when Zak and Knack promote reduction of inequality, that means prosecuting fraud as well. Specifically, as I recently pointed out, prosecuting fraud is the best way to reduce inequality:
Robert Shiller [one of the top housing economists in the United States] said in 2009:
And it’s not like we want to level income. I’m not saying spread the wealth around, which got Obama in trouble. But I think, I would hope that this would be a time for a national consideration about policies that would focus on restraining any possible further increases in inequality.
***
If we stop bailing out the fraudsters and financial gamblers, the big banks would focus more on traditional lending and less on speculative plays which only make the rich richer and the poor poorer, and which guarantee future economic crises (which hurt the poor more than the rich).
***
Moreover, both conservatives and liberals agree that we need to prosecute financial fraud. As I’ve previously noted, fraud disproportionally benefits the big players, makes boom-bust cycles more severe, and otherwise harms the economy – all of which increase inequality and warp the market.
Of course, it’s not just economists saying this.
One of the leading business schools in America – the Wharton School of Business – published an essay by a psychologist on the causes and solutions to the economic crisis. Wharton points out that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable:
According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. “Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG.” The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. “Normal expectations of what is safe and dependable were abruptly shattered,” Sachs noted. “As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred.”
People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.
He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. “She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty. Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals.
“By no means a sophisticated economist, she knew … that some people had become fantastically wealthy by misusing other people’s money — hers included,” Sachs said. “In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished.”
Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. The public will need to “hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again.” In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again, he argued.
Note that Sachs urges “hold[ing] the perpetrators of the economic disaster responsible.” In other words, just “looking forward” and promising to do things differently isn’t enough.
As Wall Street insider and New York Times columnist Andrew Ross Sorkin writes:
“They will pick on minor misdemeanors by individual market participants,” said David Einhorn, the hedge fund manager who was among the Cassandras before the financial crisis. To Mr. Einhorn, the government is “not willing to take on significant misbehavior by sizable” firms. “But since there have been almost no big prosecutions, there’s very little evidence that it has stopped bad actors from behaving badly.”***
Fraud at big corporations surely dwarfs by orders of magnitude the shareholders’ losses of $8 billion that Mr. Holder highlighted. If the government spent half the time trying to ferret out fraud at major companies that it does tracking pump-and-dump schemes, we might have been able to stop the financial crisis, or at least we’d have a fighting chance at stopping the next one.
Of course, the Europeans have been trying to avoid fraud prosecutions as well.
On the other hand, Iceland has prosecuted the fraudster bank heads (and here and here) and their former prime minister, and their economy is recovering nicely … because trust is being restored in the financial system.
Indeed, even evangelical leader Pat Robertson agrees:
Pat Robertson discussed the banking crisis and glowingly spoke about how Iceland jailed many of the bankers who devastated their nation’s economy by taking out fraudulent loans. Robertson hailed the Nordic nation for its actions and said that Americans should deal with the financial crisis in the same way.
***
“They are putting people in jail. Prime ministers are being indicted. They are going after banks. The people said the banks are ripping us off. We don’t like what they did, and they brought our country to ruin. Suddenly, Iceland is turning around and they look like a big success story!”
***
“We could start putting all of those bankers in jail. There was not one banker prosecuted and so many people were lying, and so-called “no-doc loans” and liars’ loans, and none of them have been held accountable.
***
Iceland is leading the way and their GDP is growing, and all of a sudden, they were in a terrible mess, terrible mess, and look what is happening!”
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A World of "Thieving Financiers": Vendor Arithmetic, Underhanded Capitalism
by Prof. John Kozy
Global Research
May 3, 2012
The world belongs to humanity, not this leader, that leader, kings or religious leaders. . . . Each country belongs essentially to their own people." Dalai Lama
At times, something seemingly insignificant, when thought about deeply, reveals truths that the establishment seeks to keep hidden, the most important of which is the real purpose of a nation's existence. Most Americans, for instance, believe that America exists for their benefit and they expect the nation's institutions to serve their needs. But astute observers know that history proves otherwise even though the Constitution clearly states what the nation was established to do.
"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."
Notice that the phrases, "promote business" and "protect property" do not appear in this paragraph, but "promote the general Welfare" does.
In fact the Constitution to this day contains nothing about Capitalism or any other economic ideology. The document is completely neutral as Justice Holmes, dissenting in Lochner v New York writes:
"[A] Constitution is not intended to embody a particular economic theory, whether of paternalism and the organic relation of the citizen to the state or of laissez faire. It is made for people of fundamentally differing views, and the accident of our finding certain opinions natural and familiar, or novel, and even shocking, ought not to conclude our judgment upon the question whether statutes embodying them conflict with the Constitution of the United States."
Nevertheless, the Supreme Court has enshrined laissez-faire Capitalism in constitutional law for much of its history, and Justice Powell made it quite clear in his writing that he considered that to be the Court's primary function.
The disingenuousness of the practice has made obvious injustice legal and the American people into mere means to serve the system's nefarious goals. Whenever and wherever necessary, the people must suffer to preserve the system. The practice violates the Constitution on two accounts: it establishes injustice rather than justice and hinders rather than promotes the general welfare.
To see how this works, consider this simple business claim that most readers will have heard or read numerous times in various forms: An executive of a local electricity provider went on television recently complaining about people stealing electricity by tampering with meters. He said the theft costs honest customers thousands of dollars in higher electricity costs and should be stopped. The same claim is made by merchants about shoplifting and automobile insurance companies about insurance fraud. The claim is accepted silently; I have never heard of anyone questioning it. So let's look at it carefully to see what can be learned from it.
The electric company sells electricity at a published rate of usage. If honest customers are being charged for the losses the company experiences because of thieves, the company isn't losing any money. Why are they complaining? What's happening is that the company is charging honest people for the actions of the dishonest. That's neat for the company but it's hardly just. If a person's home is burglarized, the person can't get back the loss from those honest people who had nothing to do with the burglary. What companies are allow to do is steal back what they have lost from honest people. If that were made into a general legal principle, it would read something like, you may steal from the innocent what others have stolen from you. Of course, the judicial system contains no such principle, but it acts as if it does when a business is involved.
To protect ourselves from theft, ordinary people must buy theft insurance. Why aren't companies required to buy it or else tolerate the losses? Is it because the system exists to protect the property of businesses but not the property of ordinary people? How many people seeking office who flat out told their constituents that do you believe would be elected?
But it's even worse. Remember, the electric company has built the expected losses into its current rate. What do you believe happens when the expected losses fail to materialize? Does the electric company rebate its customers the losses they have been charged for that didn't happen? Sure it does!
So this seemingly innocent story that everyone accepts silently hides two common vendor forms of theft that are protected by the legal system whose justices have enshrined an economic bias into law because they have subverted the Constitution from the goals the founding fathers wrote into it to the almost exclusive promotion of laissez-faire Capitalism. There are countless other similar unjust business practices that are similarly protected by the system.
Capitalist countries everywhere are similarly unjust and exploitive. The nations that make up the European Union are now twisting themselves into contortions so that creditors can be protected by inflicting actual physical and economic pain on their citizens. But when people must not only suffer but be sacrificed to preserve the system, the only moral conclusion is that the system does not deserve to be preserved.
Until the system is discarded, the Dalai Lama's claims are false. The world does not belong to humanity. It belongs to thieving Capitalists who are protected by biased legal systems. And because the legal systems embody thousands of these little seemingly obvious injustices, changing it is virtually impossible. Underhanded Capitalism picks the pockets of common people during every economic transaction. People, you cannot win! Desiderius Erasmus Roterodamus, the sixteenth century Dutch humanist, called lawyers jackals. Today these wolves are allowed to delineate right from wrong. Try calling that progress!
John Kozy is a retired professor of philosophy and logic who writes on social, political, and economic issues. After serving in the U.S. Army during the Korean War, he spent 20 years as a university professor and another 20 years working as a writer. He has published a textbook in formal logic commercially, in academic journals and a small number of commercial magazines, and has written a number of guest editorials for newspapers. His on-line pieces can be found on http://www.jkozy.com/ and he can be emailed from that site's homepage.
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The Crisis of Student Debt in America
by Devon DB
Global Research
May 3, 2012
It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair; we had everything before us, we had nothing before us; we were all going directly to Heaven, we were all going the other way. ~ Charles Dickens
We are in a time of crisis, a time of austerity, a time the where poor are getting poorer and the rich are getting richer at a faster pace than at any other time in recent US history. We have gone from having a well-functioning economy to a real unemployment rate of 14.5% [1]. During all of this, the situation has greatly affected college students, who are taking on massive debt just to further their education. With student debt at over $1 trillion, an examination is underway of how we have gotten into this scenario and how we can get our way out of it.
The situation began in 1964 when Lyndon B. Johnson established a task force to examine the role of federal government in student aid, headed by John W. Gardener. The taskforce firmly believed that cost shouldn’t be a barrier in attaining a college education and to this end they concerned themselves with how lack of funds contributed to students being unable to attend college.
Gardener focused on a study which revealed that one out of six students who took the National Merit Scholarship test in high school did not attend college. Of the students who did not attend college and who had families who could contribute only $300 or less to their education, about 75 percent of the men and 55 percent of the women indicated that they would have attended college if they had had more money available. [2] (emphasis added)
Upon seeing this information, Johnson was shocked as he viewed the situation as a loss in human capital. This drove him to sign the the Higher Education Opportunity Act of 1965 into law. The bill included the recommendations put forth by the Gardener taskforce that the federal government should aid student in their journey to attain a higher education by providing loans, remedial classes, and grants to college-aspiring students as well as special programs and projects for low-income students who have an interest in attending college. This allowed for low-income and middle-class students who have an opportunity to go to college. There was an uphill battle, though, as the American Bank Association was against the loan guarantee provision. The ABA was mainly concerned about possible government encroachment in their business, arguing that “the federal government could not replicate the working relationships that locally-owned financial institutions had with state and private non-profit guarantee programs” and “the federal government would end up taking over the industry because there would be little incentive for the state and private non-profit agencies to establish their own programs.” [3] To solve this problem, the Johnson administration met with the ABA and worked to “[assure] the bankers the loans would pay them back handsomely over time because they were investing in young people who would become their best customers in the future,” [4] as well as telling the banks that the government would be the ultimate loan guarantor if there was no one else available. Thus, with the banks placated, the bill could be passed.
There were several reauthorizations of the Higher Education Opportunity Act, but one of the most important reauthorizations was in 1972. In the 1972 bill, there were several new programs created, yet one of the most important ones was the Basic Educational Opportunity Grant which sends “a payment directly from the federal government to undergraduate students based on their financial need,” yet this act also “tied institutional aid to the number of students receiving federal student aid at the given institution.” [5] Tying institutional aid in this manner only served to increase costs. According to the Bennett hypothesis, first proposed in the 1980s by Secretary of Education William J. Bennett, colleges absorb federal student aid by increasing tuition costs. (This was proven in a paper done by two economics professors at the University of Oregon. [6]) While these increases in tuition were not seen in the 1970s, they began to be felt substantially during the 1980s, thus causing students to increase their debt levels. However there was another factor involved that led to student debt increase: President Ronald Reagan.
During the presidency of Ronald Reagan, he launched a massive attack on federal student aid. Reagan’s budget included a proposal that would
cut deeply into the two major student assistance programs, the Pell grants and the Guaranteed Student Loans, to reduce sharply or eliminate a series of categorical programs in higher education, and to eliminate a group of social or economic programs which either directly or indirectly affect higher education. With rare exception, every college campus would be affected by the proposed cuts beginning in academic year 1981-82. [7] (emphasis added)
In cutting these student assistance programs, Reagan went against the spirit of the 1965 Higher Educational Opportunity Act, in which the main goal was to ensure that a college education was both accessible and affordable. In addition to this, he was effectively targeting low-income and middle class people who needed that assistance in order to afford a college education. Congress attempted to enact amendments to the Higher Education bill that would allow for both programs to continue until 1985 and expanded programs such as Guaranteed Student Loans to middle-class families.
Yet, there were complaints from the Reagan administration, specifically Secretary of Education Terrence Bell, that the expanding such programs “had the potential for eroding the traditional roles of the student and the family in the financing of educational costs” [8] and that the Guaranteed Student Loans program was actually an entitlement program as its costs couldn’t be constricted without Congressional approval. Rather than actually allow students greater access to education, the Reagan administration was able to pass a plan that would gut federal student aid assistance by cutting the amount of aid per Pell Grant from $1,900 to $1,750, limiting Guaranteed Student Loans to remaining need, and eliminating the in-school interest subsidy and the subsidy to lenders on Parent Loans.
This decrease in federal aid only served to disenfranchise millions of potential college students from attaining an education. Student debt also increased. A survey done by the College Scholarship Service and National Association of Student Financial Aid Administrators showed that “those students at public institutions who borrow will graduate with an average debt of $6,685, while their counterparts at private colleges and universities will assume $8,950 in debt on average.”
This decrease in aid hit minority students quite hard as in 1987 there was a seven percent decline in college enrollment for Native Americans and eleven percent for blacks. Many minority groups depended on grants and scholarships to go to college, but now their only option was to borrow money or just not go at all. This would have a major ripple effect as “Many studies have shown that one of the most important factors influencing the decision to go to college is parental educational level” and that “If today’s minority high school graduates choose not to participate in further education, out of concern for loan burdens or for other reasons, their children may not be as likely to go to college as the next generation of white and Asian students.” [9] This would only serve to further increase educational- and with it economic- disparities between races.
The situation did not get any better in the next decade as the median student loan debt more than doubled in a 10 year period, increasing from $4,000 in 1990 to about $11,000 in 1999. [10] It was to become even worse with the passing of the Higher Education Amendments of 1998, which stated that student loans could no longer be forgiven under bankruptcy. Thus, if one found themselves in bankruptcy, but had student loans, they would be in debt bondage until the loans were paid. In such a situation, the only possible out is to default on one’s student loans, however, that would not only worsen your credit but your entire financial life can potentially be destroyed as if you default·
- Your entire loan balance will be due in full, immediately.
- Collection fees can be added to your outstanding balance.
- Up to 15% of your paychecks can be taken.
- Your Social Security, disability income, and state and federal tax refunds can be seized.
- You will lose eligibility for federal aid, including Pell grants.
- You will lose deferment or forbearance options.
- Outstanding fees and unpaid interest can be capitalized (added) onto your principal balance. [11]
Thus, by the very circumstances, a situation of ‘damned if you do, damned if you don’t’ is created and students are put into de facto debt slavery.
This brings us to our current situation where student debt nationwide is over $1 trillion. Student debt can potentially turn into a major problem by threatening economic growth due to the fact that people are defaulting on their student loans as they cannot find jobs. A recent article came out from the Associated Press which stated that 53% of college graduates are either unemployed or underemployed and that when “underemployment [is taken] into consideration, the job prospects for bachelor's degree holders fell last year to the lowest level in more than a decade.” [12] This is an even further economic threat when one realizes that the current level of student is unsustainable and that there will be major ripple effects on the economy when this house of cards comes crashing down.
In order to deal with the situation, there are some in Washington who favor rewriting bankruptcy laws as to allow for a return for student debt to be cleared in bankruptcy, however, this would only apply to private student loans, thus the student would still be on the hook for any federal loans owed. Yet, allowing federal loans to be absolved in bankruptcy is quite a thorny issue as taxpayers would have to pick up the tab. Once again, just as in 1965, the American Bankers Association is against such a proposal “saying it would tempt students to rack up big debt that they won't repay [and that] ‘The bankruptcy system would be opened to abuse.’” [13] It will be interesting to see whether or not the government can once again placate the banks.
The only way to get out of this mess is forgiving loans. There is already some support in Congress as bill H.R. 4170 also known as The Student Loan Forgiveness Act is currently being proposed. The bill would fully forgive the loans of those who have been making payment for the past decade or will be able to do so in the coming years. It also “caps interest rates on federal student loans at 3.4 percent and enables existing borrowers to break free from crushing fees by converting many private loans into federal loans.” Such a bill would free students from debt slavery and “would give Americans greater purchasing power, helping to jumpstart our economy and create jobs.” [14]
This is what needs to be done in order to aid getting our economy back on track. If the government can spend over $1 trillion on wars and billions to bailout corrupt banks, hopefully they can spare a couple billion to bailout America’s college graduates.
The alternative is to have the student debt bubble explode in our faces and the economy slump into even more dire straits and banks tighten up the flow of credit.
America now has a choice before it concerning its young people: they can either set them free, aiding in economic regrowth or risk shattering the economic recovery and mantain their children in the shackles of debt slavery.
Notes
1: Portal Seven, Unemployment Rate U-6, http://portalseven.com/employment/unemployment_rate_u6.jsp
2 TG Research and Analytical Services, Higher Education Opportunity Act, http://www.tgslc.org/pdf/hea_history.pdf (November 2005)
3: Ibid
4: Ibid
5: Thomas R. Wolanin, “Federal Policy Making in Higher Education,” American Association of University Professors 61:4 (1975), 309
6: Larry D. Singell, Jr., Joe A. Stone, “For Whom the Pell Tolls: The Response of University Tuition to Federal Grants-in-Aid,” University of Oregon, September 2005 (http://web.archive.org/web/20081011160038/http://darkwing.uoregon.edu/~lsingell/Pell_Bennett.pdf)
7: Alfred D. Sumberg, “The Reagan Budget: Attacks on Student Assistance,” American Association of University Professors 67:2 (1981), 102
8: Sumberg, 103
9: Kathryn Mohrman, “Unintended Consequences of Federal Aid Student Policies,” The Brookings Review 5:4 (1987) 24, 26
10: Department of Education, Student Loans Overview: Fiscal Year 2012 Budget Request. http://www2.ed.gov/about/overview/budget/budget12/justifications/s-loansoverview.pdf, pg 19
11: American Student Assistance, Default Consequences, http://www.asa.org/in-default/consequences/default.aspx
12: Hope Yen, “Half of recent college grads underemployed or jobless, analysis says,” Associated Press, April 23, 2012 (http://www.cleveland.com/business/index.ssf/2012/04/half_of_recent_college_grads_u.html)
13: Josh Mitchell, “Trying to Shed Student Debt,” Wall Street Journal, April 27, 2012 (http://online.wsj.com/article/SB10001424052702303978104577364120264435092.html?mod=WSJ_WSJ_US_News_5)
14: Hansen Clarke, “Trillion Dollar Crisis: The Case for Student Loan Forgiveness,” Huffington Post, April, 25, 2012 (http://www.huffingtonpost.com/rep-hansen-clarke/student-loan-forgiveness_b_1454241.html)
Devon DB is a frequent contributor to Global Research.
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Extractive Capitalism and the Divisions in the Latin American Progressive Camp
by Prof. James Petras
Global Research
May 3, 2012
Introduction
The leading agro-mineral exporting countries, including those engaged with the world’s leading mining and energy multi-national corporations(MNC) are also those characterized as having the most independent and progressive foreign policies. Apparently the primacy of “extractive capitalism” and commodity-export based economies are no longer correlated with ‘neo-colonial’ regimes.
It can be argued that the concessions to the extractive MNC and local ‘leading’ classes assures stability, steady revenues and finances the incremental social expenditures which permit the re-election of the center-left regimes. In other words a de facto alliance between the “top” and “bottom” of the class structure is the unstated bases for center-left electoral successes despite the growing political divergence between the regimes and sections of the social movements.
The Progressive Camp
There is a general consensus that regimes in seven countries in Latin America form what can be called the “progressive camp”: Bolivia , Ecuador , Argentina , Brazil , Uruguay , Peru and Venezuela .
The identifying features usually attributable to regimes in these countries include
(1) their past political trajectory: most are led by former leaders and activists from social movements, trade unions or guerrilla formations
(2) their relatively independent foreign policy pronouncements especially regarding US intervention and sanctions policies
(3) their ideology rhetoric rejecting US led regional bodies and favoring Latin American centered organizations
(4) their populist electoral campaign programs regarding social equity, environmentalism and human rights
(5) their vehement rejection of ‘neo-liberalism’ and traditional neo-liberal personalities, parties and privatizations
(6) their strategic perspective that envisions a prolonged process of social transformation that emphasizes an agenda featuring modernization, developementalist priorities and high levels of investment oriented toward global markets
(7) their prolonged political incumbency based on constitutional reforms permitting re-election justified by the need for completing the transformative vision.
The progressive camp has a self-image, projected inward to its electorate as representing a rupture or ‘historical’ break with the past, first with regard to the traditional neo-liberal oligarchy and secondly with the ‘statist’ left. In the case of Bolivia , Ecuador and Venezuela they frequently resort to rhetoric evoking “21st century socialism”. The potency of the appeal to radical novelty has a limited time span dependent on the degree to which the regimes pursue policies in variance with the preceding neo-liberal regime.
The’Left-Right Division’ as Represented by the Progressive Camp (PC)
The perceptions of the objective and subjective divergence between the progressive camp and the right vary according to whether they emanate from official sources or from a critical empirical investigation.
According to the ideologues of the “Progressive Camp” (PC) there are at least five major policy areas which reflect the radical rupture with the traditional neo-liberal right.
(1) Nationalism:
(a) the PC through renegotiations of contracts with extractive MNC secures a higher rate of taxation, increasing revenues for the national treasury;
(b) via increased state investment it converts wholly owned private firms into public-private joint ventures;
(c) through increases in royalty payments it lessens ‘foreign exploitation’; (d) through the greater presence of ‘local technocrats’ it increases national oversight of strategic economic decisions.
(2) Foreign Policy:
The progressive camp has pursued an independent, if not explicitly anti-imperialist foreign policy. The progressive camp has established several Latin American and Caribbean regional organizations which deliberately exclude the presence of North American and European imperial countries such as ALBA (Bolivarian Alliance of the Americas ) and UNASUR (Union of South American Nations). The PC has rejected sanctions against Cuba , Iran , Syria and Gaza and opposed the US backed NATO war against Libya . They criticized the US position at the Summit of the America ’s meeting in april 2012 on at least three major issues – inclusion of Cuba , opposition to British colonial control of the Malvinas and the de-penalization of drugs. The PC has expressed its opposition to US hegemony, to IMF “structural reforms” and Euro-US control over international lending institutions. With the exception of Venezuela , the PC has diversified its export markets. For example Brazil exports to the US only 12.5% of its goods and services; Argentina 6.9% and Bolivia 8.2%.
(3) Social Policy:
The PC has increased social expenditures, especially toward reducing rural poverty; increased the minimum wage; approved salary and wage increases. In a few countries they provide easy credit and financing to small and medium businesses, have given legal title to land squatters and distributed plots of uncultivated public lands as a kind of ‘agrarian reform’.
(4) Regulation:
The PC has, with varying degree of consistency, imposed controls over the financial sector, regulating the flow of speculative capital and the volatility of financial markets. With regard to the extractive sector regulations have been relaxed to permit the large scale inflow of capital and the pervasive use of toxic chemicals and genetically modified seeds by agro-business. They have permitted the expansion of mining, agriculture and the timber industry into Indian and natural reservations. They have financed large scale infrastructure projects linking extractive enterprises to export outlets trespassing onto previously regulated, protected natural habitats. Regulatory norms have been harnessed to facilitate ‘productive’ extractive developmentalism and to limit the financialization of the economy.
(5) Labor Policy:
has been based on a ‘corporatist model’ of business-state-trade union (tri partite) negotiations and conciliation to limit lockouts and strikes and maintain growth, exports and revenue flows. Labor policy has been conditioned by the policy of limiting budget deficits, fixing wage increases, to the rate of inflation. In line with orthodox fiscal policies, pensions for public sector workers have been frozen or reduced especially among the middle and high end functionaries. Traditional job security guarantees have been maintained not augmented and severance pay has not been raised. Strikes by public sector workers, especially among teachers, medical staff and social service workers have been frequent and have led to government mediation and marginal gains. Government policy has been oriented toward protecting managerial prerogatives, while respecting and upholding the legal status, collective bargaining rights of trade unions.
Within nationalized firms, state-appointed directors rule; there is no move toward worker self-management or ‘co-management’-except in limited cases in Venezuela . The structure of labor relations follows the private corporate hierarchical model Labor has, at best, an advisory role regarding health and safety but no determining influences or investment within this corporate framework. Pressure via strikes and protest by trade unions have been necessary, frequently in alliance with community groups, to rectify the most egregious corporate violations of health and safety rules. While the progressive regimes publically eschew neo-liberal “labor flexibility” policies they have done little to expand and deepen labor prerogatives over the labor and productive process.
The principle difference in labor policy between the progressive regimes and the traditional right is the ‘open door’ to labor leaders, their willingness to mediate and grant incremental wage increases, especially of the minimum wage and generally, the reduction of harsh, violent repression.
Continuities and Similarities between Past Neoliberal and Contemporary Progressive Regimes
Writers, academics and journalists on the Right and Center-left emphasize the difference between the progressive and the past neo-liberal regimes, overlooking the large scale socio-economic and political structural continuities. A more nuanced, balanced and objective analysis requires that these continuities be taken into account because they play a major role in discussing the limitations and emerging conflicts and crises facing the progressive regimes. Moreover, these limitations, based on the continuities, highlight the importance of alternative development models proposed by popular social movements.
The agro-mineral export model has demonstrated profound strategic deficiencies in its very structure and performance. The promotion of agro-mineral exports has been accompanied by the large-scale, long-term entrance of foreign capital which in turn determines the rates of investment, the sources for inputs of machinery, technology and ‘know-how’, as well as control over the marketing and processing of raw materials. The MNC “partners” of the progressive regimes have conditioned their involvement on the bases of (a) the de-regulation of environmental controls; (b) the termination of price controls and the introduction of “international prices” for sales to the domestic market; (c) freedom to control foreign exchange earnings and to remit profits overseas.
They also control decisions regarding the exploitation of mineral reserves. Expansion of production is dependent on their own global criteria rather on the needs of the ‘host’ country. As a result, despite the “re-negotiated” contracts, which the progressive regimes hail as a “giant advance” toward “nationalization”, the cumulative losses in revenues and in rebalancing the economy are substantial. If one looks beyond the agro-mineral enclave the negative impact to further development are substantial. The very limited impact that the agro-mineral model has on the economy as whole has led to occasional conflicts between the MNC and the progressive host governments.
A case in point is the conflict between the nominally Spanish oil company Repsol and the Argentine government of Cristina Fernandez in April 2012. Repsol’s behavior illustrates all the pitfalls of collaboration with foreign overseas extractive corporations. Repsol refused to increase investments, claiming that local regulated prices reduced profit margins.
As a result Argentina ’s energy bill rose three-fold between 2010 and 2011 from $3 billion to $9 billion. Furthermore, Repsol repatriated its profits, paid high dividends to overseas stockholders and thus had little impact in creating domestic industries producing inputs or refineries to process petroleum. The attempt by the deceased President Kirchner to increase ‘national ownership’ by bringing in a local private capitalist, (the Peterson Group) had no positive impact, merely entrenching Repsol’s control. When Fernandez took majority shares in order establish public control and increase local production, the entire Eurozone leadership led by the Spanish government and the Western financial press launched a virulent campaign, threatened litigation and predicted economic disaster. The problem of ‘inviting’ foreign MNCs to invest is that it is hard to disinvite them. Once they enter a country no matter how unfavorable their performance, it is difficult to rectify or undo the damage and move onto a new public centered model of development.
All the progressive regimes with the possible exception of Venezuela have signed long-term large-scale contracts with major foreign extractive multi-nationals. Apart from the increase in royalties these agreements do not differ greatly from contracts signed by preceding right-wing neo-liberal regimes.
Evo Morales signed a large scale exploitation contract with Jindal, and Indian multi-national to exploit the iron-mine Mutun with virtually all inputs - machinery, transport, etc. – imported and with very limited ‘industrializing’ of the raw iron ore – mostly simple iron ‘nuggets’. The bulk of Bolivia’s gas and oil is exploited by foreign MNC-public ‘joint ventures’ and is shipped abroad, leaving most of the 60% rural households without piped gas,and resulting in Bolivia’s importing most of its diesel.
Ecuador under President Correa, another leading progressive president, signed two big contracts with foreign oil groups in February 2012, despite the opposition of the majority of Indian organizations including CONAI. In Ecuador , as in Bolivia , big oil and gas companies, while raising objections to the re-negotiations of contracts leading to an increase in royalty payments and an increased presence of public officials, retain a privileged position in crucial decisions regarding management, marketing, technology and investment. Despite claims to the contrary, the leaders of the progressive regimes sign off on these strategic agreements without consulting the communities affected. Decisions are based exclusively on executive privilege. The style and substance of the distribution of the powers and privileges in the oil and gas agreements between the progressive governments and the multi-nationals are no different than what transpired under previous ‘neo-liberal’ regimes. Moreover, in both Ecuador and Bolivia many of the “technocrats” and administrators who worked under the previous neoliberal regimes play a prominent role in running the joint venture.
While progressive regimes have pursued anti-poverty programs and have registered some successes in reducing poverty levels, they do so as a result of the growth of the economy not via the redistribution of wealth. In fact the progressive regimes have not pursued redistributive polices: income and land concentrations, including high levels of inequality remain intact. In fact the hierarchy of the class structure has not been altered and in most cases has been reinforced by the inclusion of new entrants into the upper and middle class. These include many former leaders and activists from the lower middle and working class who have entered the government as well as ‘new capitalists’ benefiting from state contract agreements with the progressive regime.
The financial system has remained intact and prospered under the progressive regimes, especially because of the regimes tight fiscal policies, build-up foreign reserves, control over government spending and low rates of inflation. Financial sector profits are especially high in Brazil , Uruguay , Peru , Bolivia and Ecuador . Brazil in particular has attracted large inflows of speculative capital from Wall Streets and the City of London because of its high interest rates relative to the rates in North America and Europe .
Alongside the concentration of ownership in the extractive and financial sector, the progressive regimes have not introduced progressive taxes to reduce the disparities of wealth. The income of the agro-business elites in Bolivia , Argentina , Uruguay , Brazil and Ecuador are several hundred times that of the bulk of subsistence farmers, peasants and rural laborers. Many of latter remain subject to brutal working and living conditions. In many cases the progressive regimes have done little to enforce the labor and health codes in the giant agro-business plantations while workers are subject to unregulated toxic chemical sprays.
If the configuration of ownership and wealth remains relatively unchanged from the neo-liberal past, the progressive governments have accentuated the tendencies toward export specialization. Under the progressive governments the economies have become less diversified and more dependent on agro-mineral and energy exports, and more dependent on large scale long term foreign investments for growth. State revenue and growth are more dependent on primary product exports.
The free market policies of the progressive agro-mineral export regimes have stimulated the growth of large scale commercial activity. The commercial sector is increasingly influenced by the large scale entrance of foreign owned multi-nationals, like Wal-Mart, who source their products overseas, undermining local small scale producers and retailers.
The appreciation of the currency has adversely affected traditional manufacturers and the transport industry causing significant job losses especially in textiles, footwear and automobiles in Brazil , Bolivia , Peru and Ecuador . Moreover, favorable polices promoting large scale agro-mineral exporters has been accompanied by a credit squeeze on local small business people, especially, producers for local markets who have been bit hard by the import of cheap consumer goods (from Asia). Farmers producing food for local markets have been downgraded in the drive to expand cultivation of export crops like soya.
In summary, the progressive regimes have pursued a multi-faceted double discourse: an anti-imperialist, nationalist and populist rhetoric for domestic consumption while putting into practice a policy of fomenting and expanding the role of foreign extractive capital in joint ventures with the state and a rising new national bourgeoisie. The progressive regimes articulate a narrative of socialism and participatory democracy but in practice pursue policies linking development with the concentration and centralization of capital and executive power.
The progressive regimes preach a doctrine of social justice and equity and a practice of co-optation of social leaders and clientalism via poverty programs for the poorest sectors of society.
The progressive regimes have combined incremented income policies with large scale structural changes, benefiting the extractive-primary sector. Stability of the PC is utterly dependent on the increasing demand for raw materials, high commodity prices and open markets. The progressive regimes have successfully linked trade union and sectors of the peasant movement to the state and have undermined or weakened independent class organizations and replaced them with corporate tri-partite structures.
The progressives have successfully ‘reformed’ or replaced the chaotic, de-regulated, conflictual, racialist policies of their predecessors and institutionalized “normal capitalism”. They have introduced rules and procedures favorable to institutional stability, fiscal discipline and incremental but unequal gains. In other words the “parameters of neo-liberalism” are now effectively administered and legitimated by faux nationalism based on greater political autonomy and market diversification. Centralized executive decision making based on agreements which require extractive MNC to invest and develop the forces of production is legitimated by an electoral framework and a multi-class political coalition.
The domestic and foreign policies of the progressive extractive regimes reflect two contradictory experiences: their radical origins in the lead-up to taking power and their subsequent adoption of an agro-mineral developementalist export strategy, favored by neo-liberal technocrats. The “synthesis” of these two apparently “contradictory” experiences finds expression in the adoption of an independent, critical political position toward imperialist militarism and interventionism and economic collaboration with the agencies of economic imperialism, namely the signing of long-term and large scale contracts with US-EU-Canadian agro-mining and energy multi-nationals. In other words the progressive extractive regimes have ‘redefined’ or reduced imperialism to mean its state structures and policies rather than its economic components (MNC) which are engaged in the extraction of raw materials and exploitation of labor. In the same fashion, they redefine ‘anti-imperialism’ to mean opposition to political-military interventions and a ‘fair distribution’ of profits between the regime and its MNC “partner”. This redefinition allows the progressive regimes to claim popular legitimacy on the bases of periodical criticisms of the policies and practices of the imperial state while collaboration and agreements with the MNC allow the progressive regimes to retain support from domestic and overseas business interests.
When a progressive regime, as is the case of Argentina ruled by Cristina Fernandez, decides to “nationalize” or more correctly secure the majority shares in Repsol, the nominally Spanish oil multi-national, the entire financial press, the European Union and Washington denounce the move and threaten reprisals. In other words the unstated pact between the progressive camp and the imperial regimes is that political differences are tolerable but nationalist economic measures are not acceptable. Renegotiations of contracts to increase state revenues may cause a temporary suspension of new investments but not a political confrontation. However, the public takeover of a foreign extractive firm evokes predictable hostility and retaliation from the imperial states. The Argentine progressive regime’s embrace of a policy of economic nationalism was, however, enterprise and sector specific.
The Fernandez regime did not, and has no future plans, to expropriate other extractive firms, nor was the measure part of a general nationalist strategy to shift toward greater public ownership. Rather Repsol’s refusal to increase investments and production was increasing Argentina ’s dependence on imported oil, which was deteriorating its balance of payments and foreign currency reserves.
Repsol’s refusal to comply with Argentina ’s developementalist agenda was based on the Fernandez policy of maintaining the retail price of oil for the domestic market below the international price. Repsol’s decline in production was a way of leveraging the regime to lift price controls. However, a higher petrol price would have a negative impact on industrial and private consumers, raising costs and reducing the competitiveness of the Argentine exporters and domestic producers. In effect Repsol’s intransigence threatened to undermine the social and political balance of forces between labor and capital and between extractive exporters and popular consumers, which sustained the regimes majoritarian coalition. In brief the measure was nationalist in form but capitalist developementalist in content.
Even so the measure polarized the global economy between the imperial west and the Latin American left, with the usual imperial satraps in Latin America ( Mexico ’s Calderon and Colombia ’s Santos ) backing Repsol.
Divisions between the Progressive Regimes and the Social Movements
Prior to coming to power via electoral processes, the progressive leaders maintained close ties and actively supported and participated in the ‘street action’ and mass struggle of the social movements. They embraced the banners of economic nationalism, ecological conservation and respect for the natural reserves of the Indian communities, social equality and reconsideration of the foreign debt including the repudiation of ‘illegal debts’.
The social movements played a major role in politicizing and mobilizing the working and peasant classes to elect the progressive Presidents. This convergence was short-lived. Once in power the progressive regime appointed orthodox economic ministers to run the economy.They adopted the extractive strategy, shifted from a nationalist public sector economy , designed to diversify the economy, to a ‘mixed economy’ based on joint ventures with overseas extractive capital. First the Indian communities of Peru , Ecuador and some sectors in Bolivia went into opposition, on the bases that their interests were neglected and they were not consulted. Secondly sectors of the working class and public employees struck demanding higher salaries, an increase in public spending .Small farmers and manufacturers demanded economic stimulus for family farms and local industry rather than subsidies for agro-mineral MNC, fiscal orthodoxy and export strategies based on lower labor costs and neglect of the domestic market.
Radical trade union peasant and Indian leaders of the social movements called into question the entire agro-mineral extractive strategy, the distribution and administration of state revenues and expenditures. They reasserted their support for a social program embracing agrarian reform, including the expropriation of large plantations and the redistribution of land to landless peasants. Workers’ leaders called for an industrial policy to process ‘raw materials’ in order to create manufacturing jobs. Some trade unionists called for the nationalization of strategic industries and banks. However, despite some major protests, the bulk of the followers of the social movements and the majority of their leaders soon shifted from radical rejection of the extractive model to demands for a bigger share of the revenues. The progressive regimes attracted the bulk of the social leaders to tri-partite councils of conciliation to negotiate and secure incremental changes. The progressive regimes highlighted their opposition to “neo-liberalism”. They redefined it as unregulated capitalism based on low royalties and underfunding of social programs. The progressive regimes successfully divided the social movements between “utopian” radical opponents and progressive reformists. In time of social strife the progressive regimes evoked a “left-right alliance”, charging their social critics of acting on behalf of imperialism, impervious to their own collaboration with imperial based multi-nationals. Presidential appeals, a nationalist populist discourse and increased revenues which funded increased social expenditures weakened the left opposition. Moderate but sustained increases in anti-poverty programs and minimum wages neutralized the appeal of the radical leaders in the social movements. Despite the progressive regime’s break with its ‘radical egalitarian roots’ it was more than able to secure large scale mass electoral support, based on the overall dynamic growth of the economy and steady growth of income. Both were underpinned by long-term high commodity prices.
Popular extractivist presidents repeatedly won elections by substantial majorities and were able to mobilize sectors of the moderate social movements to counter anti-extractivist social movements. The high prices of commodities and multiple opportunities for exploitation of resources attracted foreign investors despite higher royalty payments. Foreign investors were attracted by the social stability ensured by the progressive regimes in contrast to the instability of the previous neo-liberal regimes. The progressive regimes thrived on economic ties with the MNC and an electoral alliance with the lower classes.
Case Studies of Extractive Capitalism and the Progressive Camp
While the seven regimes which form the ‘progressive camp’ share a common development strategy based on the export of primary commodities there are significant differences in the levels of diversity of their economies, the nature and character of the commodities which they export, the degrees of social polarization and social cohesion and the size and scope of the opposition. In line with these differences there are also substantial differences in the degree to which the “progressive and extractive model” is sustainable or subject to upheaval or reversal.
The progressive camp can be divided in many ways: between those regimes based on charismatic leaders and extreme dependence on primary exports ( Bolivia , Peru , Ecuador and Venezuela ) and those with developed industrial sectors and ‘institutionalized political leadership ( Brazil , Argentina , Uruguay ). There are also significant differences in the degree of class and ethnic conflict: Peru , Bolivia and Ecuador are experiencing significant mass resistance from substantial Indian communities, while in Brazil , Argentina and Uruguay , where the Indian population is sparse there is only isolated opposition. In terms of class struggles, Bolivia , has experienced wide spread protests by health, education, mining and factory workers. Venezuela has faced lockouts and boycotts organized by the economic elite (“class struggle from above”). Ecuador faced widespread protests from the police. Most of the rest of the countries ( Brazil , Argentina and Uruguay ) faced limited strikes largely on wage issues. With the exception of Bolivia , the major trade union confederations work closely and collaborate with the progressive regimes; in contrast the peasant and rural workers movements in Brazil , Ecuador and Peru have retained a greater degree of independence and militancy largely because they have been the most prejudiced by the agro-mineral export strategies. In Venezuela and Brazil landlord’s private armies have played a major role in combatting land reform beneficiaries with relative impunity.
The most pervasive and environmental degradation has occurred in Brazil , where millions of acres of rainforest have been “cleared” during the decade of Workers Party rule. Chemical exploitation of agriculture is strong in most countries especially in Brazil , Argentina and Uruguay where soya production has become a dominant crop. All the major agro-industrial exporters ( Brazil , Argentina and Uruguay ) rely on toxic chemicals and GM seeds with numerous cases of toxic consequences for indigenous residents and their natural habitat. The issue of toxicity and environmental degradation resulting from the giant mining and timber companies has been well documented in Peru , Ecuador and Uruguay . Overall, the greater the urban population and the more dispersed the rural communities adversely, affected, the smaller the environmental protest and the likelihood that NGO ecologists play a leading role in protest.
Since the extractive industries are outside of the major urban centers; since most of the major trade union confederations collaborate with the progressive regimes and secure incremental wage increases and since the overall economy has been growing and unemployment has declined, macro-economic imbalances, commodity dependency and related structural vulnerabilities have not resulted in major confrontations between labor and capital. The most contentious conflicts which have occurred have been between the orthodox neoliberal elites backed by US and European powers and the progressive regimes. Several cases come to mind.
On April 12, 2002 and in December – February 2003 the Venezuelan capitalist class backed by the US and Spain organized an abortive coup which was reversed and a petrol industry lockout that was defeated. An uprising in 2011 led by the police in Ecuador and an abortive coup in Bolivia were put down successfully, before they gained traction. A large scale agro business protest in Argentina in 2008 which paralyzed the agro-export sector against an export tax ended with regime concessions.
In large part, these “class struggles from above” worked in favor of the progressive regimes because it allowed them to pose the issue as one between a popular democratic regime and a retrograde authoritarian oligarchy. As a result the progressive regimes were able to neutralize, at least temporarily, internal critics from the left. The defeat of “the Right” burnished the credentials of the progressive camp and raised their popularity.
While popular support was important in sustaining the progressive regimes against US and EU backed rightest destabilization campaigns, of equal or greater importance was the backing of the military, sectors of the business elite and extractive capitalists. The progressives by adopting “moderate policies” – including business subsidies and generous pay hikes to the military – were able to divide the elite, retain support of the military and isolate the rightwing opposition. The rightwing has remained electorally marginal and provide very limited leverage for US-EU interference and influence over the progressive agenda.
The degree of “progressiveness” within the progressive extractive capitalist camp varies substantially.
The Chavez government has advanced an anti-imperialist and socialist agenda involving the rejection of US coups, wars and blockade of independent states:it has supported the re-renationalization of oil, aluminum and other raw material, mining and energy sources.Its extensive agrarian reform benefiting 300,000 families is aimed at food self-sufficiency. Universal free public health and higher education and subsidized basic food prices via publicly owned supermarkets; and large scale low cost public housing for the poor along with literacy campaigns and the formation of thousands of neighborhood councils to adjudicate and resolve local issues have deepened and extended the socialization process
On a far lesser scale, Bolivia , Ecuador and Argentina have pursued independent foreign policies. Their partial and selective nationalizations are designed to increase revenues rather than as part of a long term, large scale strategy of transformation. They have not followed Chavez’s lead on agrarian reform and on greater enhancement of social spending on health, housing and higher education. They offer remote, public lands of dubious quality as “land reform”. They have been advocates of incremental changes involving wage and social benefits commensurate with the rise in revenues from commodity exports and in line with the rate of inflation, Bolivia and Ecuador have dislodged land squatters and defended the major agro-business land holdings.
The least ‘reformist’ regimes with the most dubious ‘progressive’ credentials are Brazil, Uruguay and Peru (under Humala) which have adopted a free market agenda; they actively promote large inflows of unregulated foreign investments, degrade millions of acres of the rain forests (Brazil especially) , promote agro-business and oppose agrarian reform in all of its forms, relying on the dispersion of peasants and landless to the cities, towns where they serve as a labor reserve for capital or join the low paying informal sector. These “moderate” progressive regimes have signed military accords with the US , and adopt a low profile in opposition to US imperial policies in the Middle East .
Their “progressiveness” is found in their support of regional integration, their opposition to US hemispheric hegemonism (opposing the US coup in Honduras , blockade of Cuba and interference in Venezuela ) and the diversification of overseas markets. Brazil leads the way in catering to Wall Street speculators and in government anti-poverty spending on minimum food baskets. Poverty reduction is matched by the spectacular growth of millionaires linked to the finance and agro-mineral export sector. The “moderate” progressives have the most egregious (and well documented) record of ongoing environmental degradation. In Peru , Humala has given the green light to mining exploitation threatening the livelihood of thousands of peasants and local business in Cajamarca; Presidents Lula da Silva and Dilma Rouseff, of the Workers Party, promoted the destruction of millions of acres of the Amazon rain forest and displacement of scores of Indian communities in a decade. In Uruguay the Broad Front Presidents Tabaré Vasquez and Mujica promoted the highly polluting Botina cellulose factory contaminating the Parana River despite mass protests.
In summary it is difficult to generalize about the performance of the progressive camp given the divergences in social and economic policies. But a “report card” of sorts can be drawn up.
All regimes have lowered poverty levels and increased dependence on agro-mineral exports and investments. All have signed and/or renegotiated contracts with extractive MNC’ few have diversified their economies. Those with a substantial industrial base ( Argentina , Brazil , Peru ) have suffered a severe decline in the manufacturing sector because of appreciating currencies and loss of competitiveness resulting from high prices for commodity exports. Incremental wage agreements have led to low level social conflicts in the cities (except in Bolivia ) but displacement of peasants and degradation have intensified conflicts in the interior between rural communities and the MNC leading to state repression ( Peru ).
The social impact of the progressive regimes has the widest variation, with Venezuela registering the most far-reaching structural changes and the rest lacking any vision or project for redistributing wealth, income or land. Their common support for regional integration is matched by important divergences in accommodation to US military policy. Venezuela , Ecuador and Bolivia , the members of ALBA, reject military treaties, while Brazil , Uruguay and Peru have signed military agreements with the Pentagon.
The overall economic performance is mixed. Brazil’s economy, especially its manufacturing sector, is stagnating with zero or negative growth in 2011-2012, Venezuela is recovering, but with over a 20% rate of inflation ,while the rest of the PC is experiencing steady growth, but increasing dependence on commodity exports to the Asian (China) market.
Alternatives to the status quo extractive economies vary enormously. In Venezuela the regime has made diversification a high priority; the Brazilian and Argentine regimes are taking protectionist measures to promote industry with limited success especially as their policies are countermanded by the real expansion of acreage for soya production and exports. Uruguay , Peru , Ecuador and Bolivia talk of diversification but have avoided taking measures to shift to food production and family farming and have yet to take concrete measures to stimulate local industry via a publicly funded industrialization policy.
James Petras is a frequent contributor to Global Research.
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