Geneva January 23, 2013
The world is undergoing a period of great change. The World War II victors polarized the world between a Marxist-Leninist recipe and a Ricardian liberal recipe. Such dualism is still presented as if there are no other options, a kind of global bipartisanship. Both systems failed. It’s time to look at other schools of economic thought and policy, to set a new course.
The Soviet Union socialist version began to go wrong when Leonid Brezhnev’s government (1968-1982) increased the budget of the military industries at the expense of the rest of the economy and of social welfare. His government also got involved in an Afghan war that could not be won. The adversary was equipped, trained and financed by the United States, which was out of reach, unless incurring in a global atomic war. After Brezhev, came Mihail Gorbachev, a dreamer, to say the least, who gave away his allies without warranties, adopted neo-liberalism and sold Russian state assets at degraded prices to Wall Street’s straw men.
In England and America, politics are ruled by financial interests since the eighteenth century and Central Bank functions have been assumed by consortiums of private banks. In Britain, the Bank of England assumed them since 1844 (Bank Charter Act). In Washington, a group of big private banks became the Federal Reserve and usurped those functions from the Treasury, in 1913. In both countries economic policies are dictated by “Lobbies”; among them excels the arms industry, which guides defence policy toward ever-increasing military spending. Both sectors – finance and weapons – loot resources from the economy to maintain two fantasy worlds: one of fabulous virtual fortunes and one of imaginary threats.
During both post-wars, the presence of Marxism-Leninism as a ruling ideology helped to raise wages and institutionalize social protection of workers, mainly in Europe, where the Soviet Union was close and had powerful communist parties. The potential threat promoted a policy towards a reconciliation of worker’s rights with business interests. The disappearance of the Soviet bloc unleashed greedy hallucinations that led to a socio economic cliff. The tale that total freedom for personal greed leads to collective prosperity proved false.
The real economy eroded and is now on life support, since 2008. It is a schizophrenic case: the people (99%) in the real goods and services economy lives a recession, but the owners of the finance and arms industries receive juicy bonuses and dividends. It happens that public debt was created to give money to the banks (“quantitative easing”) to re-inflate stock markets and the payment was charged to taxpayers. It might have been a new beginning if the practices and policies had changed, but they keep unchanged and lead inexorably to a terminal crisis.
There is not yet public awareness that there is a massive failure of the political and economic system imposed by Wall Street and the City in London, since their victory in 1945. Symptoms of collapse are clear and the gravest one concerns labor, because wages maintain consumption levels. In the U.S., official unemployment is 8%, but their statistics hide much data(1) and unemployment stands around 18%, and growing. In Britain the official figure is 8.4%, but excludes 3 million underemployed, with a few hours a week and 4 million of the so called “precariat”, people in casual self-employment, which rather means self-unemployed(2).
Since 2008, the bank ransom cost more than $19 trillion – more by one third of the US GDP – which was invested in new gambles of the financial sector and not in mobilizing the economy. Households lost $ 1.1 trillion in value, plus billions lost in investments and pension funds. Now, families that were middle class take soup kitchen’s charity. Those innocent pay for the absurd risks incurred by greedy bankers and for the follies of the military-industrial complex.
Socio-economic Ethics
The social responsibility of the economy is an ethical issue that separated Adam Smith and David Ricardo. Smith speaks of “excessive profit” as contrary to the general well being and a parasite; Ricardo sees it as an economic goal and that is also the approach of current neo-liberalism, it is what is now taught in business schools as economics. The anthropologist Gregory Bateson (Mind and Nature) said that “the ethics of optima and the ethics of maxima are totally different ethical systems”. Ethics of optima emphasizes quality and looks for satisfaction. The ethics of maxima are addictive and have only one rule: more is better.
Excesses are always toxic and it is what killed the U.S. economy and the present economic system. “Maximization of a single variable – Bateson tells us – typically ends in pathology.” A healthy economy keeps a balance in the prosperity of the various sectors; where growth is favoured only for a few sectors, there is a parasitic situation. Such is the case of the financial sector and the arms industry, which on one side request socioeconomic austerity to keep the value of debt while on the other side engage in wasteful and totally unnecessary wars.
As it agonizes, the system dismantles the European welfare state. The bankers need more money for their gambles, so they impose their own people in government; jobs are eliminated, employment becomes precarious, public services are privatized. As Boaventura de Sousa says, in History of Austerity: “The goal is to return to class politics pure and hard, that is, to the nineteenth century,” to Ricardian liberalism, to the England described by Charles Dickens.
There are other doctrines
During the Nineteenth century, economics was conceived as a science whose primary goal was not the earnings of workers but those of the capital invested… and even then, only that of the few. But there were also those who had the worker’s interest at heart; their thoughts were applied later, although timidly, in Western Europe before the Soviet Union collapse. Most of them are now ignored and their works are hard to find in university libraries. Their goal was national prosperity, rather than individual or corporate gain; an objectionable criteria for companies that fund academic activity and whose economic vision focuses on quarterly earnings.
The first of them was from Geneva, Jean Charles de Sismondi, who published “New Principles of Political Economy” in 1818. He minted there the term proletariat – which later Marx used – to designate those whose role was to guarantee labour with their offspring. He criticized Ricardo and noted that profits at the expense of wages is foolish, because good salaries are necessary to maintain market consumption; he was also the first to demand government intervention to protect workers from capitalist abuse and also the first to talk about class struggle(3).
Sismondi predicted the crisis afflicting the United States and other countries today, due to complicit governments. He said that overproduction leads to imperialism and to squeezing consumers through debt on future wages. Now it is called “supply side economics” and should be called Debt Economy. Sismondi denounced overproduction also because it distances the utility value of products from their exchange value, promoting unnecessary consumption on credit and debt bondage. It has happened in England and the United States since the Nineteenth century. Then it was credit at the employer’s store, now it is credit cards. This distinctive feature is described in “The Iron Heel” (1906), by Jack London.
Since then, the tendency to excesses of capitalism and the role of government to correct them have inspired other proposals. They can be classified in two basic theses.
One group is constituted by Karl Marx and his followers, who believe capitalism to be irredeemable and immersed in a fatal dialectic process that leads to its own violent destruction, until its replacement by a society without private property.
I think that Marx and his followers are utopian when they base their violent thesis in proletarian solidarity. Solidarity is rather precarious among people struggling to survive and even more so when they are denied the security of having their own home. Class solidarity exists, but between the very rich. Nonetheless, Marxism is valid as a method of socioeconomic study and has basic inputs for a proposal to replace pure Ricardism or Neo-Liberalism.
The other group thinks that capitalism can be managed with control policies to the benefit of society. Besides Sismondi, we can include Friedrich List, Werner Sombart, Max Weber, Vilfredo Pareto, John Maynard Keynes and in a reverse way, Deng Xiaoping in China.
We believe this second group is more realistic and consistent with what is now a postulate of political science, as mentioned by Sismondi, Iturbide, Sarmiento and others: In State matters, jumps are ephemeral; progress is made by evolution, as in nature, and institutions that last evolve according to the circumstances, the culture and the ideas of their citizens.
The influence of the authors in this group is important: List promoted the industrialization of Germany, Keynes developed the economic importance of wages, Max Weber, Vilfredo Pareto are still orienting social economics. Sombart coined the term “capitalism” (Marx does not use it) and the concept of creative destruction, later used by Joseph Schumpeter. Sombart’s main work(4) is not available in English because Princeton University has an exclusive right and has not translated it.
There are other important authors that we could study: Vasili Leontief, Nicolai Kondratieff, Joseph Schumpeter, Jon Elster, John Roemer and Carlota Perez, a Venezuelan whose book “Technological Revolutions and Financial Capital”(5) covers 250 years of history and points out that changes and technical revolutions have a remarkable regularity and force the redesign of social and political institutions. We are experiencing one of those moments.
Geneva, 01/23/2013
- Umberto Mazzei has a PhD in political science from the University of Florence. He has taught international economics at universities in Colombia, Venezuela and Guatemala. He is Director of the Institute of International Economic Relations in Geneva.
www.ventanaglobal.info
(1) Individuals collecting unemployment insurance are officially unemployed, but when after a few months support stops they drop out of unemployed statistics even though they are still out of work. There are also millions of Americans who are underemployed, with only a few hours per week, but are included among the employed.
(2) The Guardian, John Philipott: We need employment statistics that confront political spin. 16 January 2013.
(3) Nouveaux principes d’économie politique (1818).
(4) Der Moderne Kapitalismus, 1902; last version in 1937.
(5) Carlota Perez and Chris Freeman, “Technological Revolutions and Financial Capital: the Dynamics of Bubbles and Golden Ages”. Edward Elvin Publishing Limited, Glensanda House, Cheltenham, UK. 2002.
WTO: Elections at Olympus
WTO: Elections at Olympus
By Umberto Mazzei
Geneva, 10/23/2012
The post of Director General of the WTO is open to succession and this time it is Latin America and the Caribbean’s turn. According to the regulations, the process for appointing DG’s begins nine months before the expiration of the incumbent’s mandate, in this case, M. Pascal Lamy. The election process starts December the 1st., 2012, and the new Director General shall take office on September the 1st., 2013.
The formal predecessors to M. Lamy have been four, but actually the most influential person in leading the GATT into the WTO was the Swiss Arthur Dunkel, whose team drafted the famous Dunkel text, which is the template for the WTO. The text raised many hopes among those who did not read it with malice and imagined that equity in trade could be the work of those who had created the opposite.
The first formal Director General, was Peter Sutherland (1993 – 1995), an Irish lawyer and banker, who was the last director of the GATT and DG for several months at the WTO. He was succeeded by Renato Ruggiero (1995 – 1999), an Italian financial bureaucrat, who came from being director at FIAT and at the Kissinger Cabinet. All Europeans.
In 1998, the principle of regional alternation in office practiced at the UN, was applied. It was decided to start with Asia. Then there was a conflict among developed and developing countries over who should be in charge. The developed countries candidate was Mike Moore, a prestigious New Zealand Labour politician and expert on trade issues, the candidate of the latter was the Thai Supachai Panitchpakdi, economist and politician with long experience as a banker. In the end they agreed to share the period. Against expectations, Moore (1999 – 2002) led WTO with friendly criteria on development concerns; Supachai (2002 – 2005), instead, put his banker’s vision before development, which we assume was merit enough to entrust him with UNCTAD.
The Director General of the WTO for the period 2005 – 2009 should have been from Africa or the Latin American and the Caribbean Group (GRULAC). There were four candidates: for Latin America, the Brazilian Luis Felipe Seixas Correia and Uruguayan Carlos Perez del Castillo; for Africa, Mauricius’s Jayakrishna Cuttareey. In a manner inconsistent with regional alternation, Pascal Lamy, a former European Trade Commissioner, was nominated.
Latin America was divided using the well known trick of launching in advance a weak candidate to divide the constituency before there was a natural candidate. So in place of Mr. Seixas, M. Lamy was elected and became the third European at the helm of the WTO … and also the fourth, because he was re-elected in 2009. It is not that M. Lamy was re-elected because of merits or with a standing ovation, but on the contrary, negotiations had become so entangled and so discredited, that no one wanted to clean up the mess.
The DG Election
Countries have from December the 1st. to December the 31st. to nominate candidates. Certainly not the best time to negotiate and contact people, but Lamy’s WTO seems to find suitable to decide matters in December. So far, Reuter, a news agency where M. Lamy is at the board of directors, has mentioned possible candidates, but to discredit them. Brazilian Ambassador Roberto Acevedo could have more rank if he had been a Minister, like M. Lamy; South African Minister Rob Davis would be too extreme … and probably will run for Director General at UNCTAD.
Always with Reuters, in a dispatch from Tokyo (10/13/2012), M. Lamy makes a headline by telling us that “geography should not matter to select the head of the WTO.” It happens that geographic alternation is a big obstacle to repeat, once again, for M. Lamy and his Deputy Directors: Chilean Alejandro Jara, for Latin America, the Rwandan Valentine Rugwabiza Sendanyoye for Africa, Indian Harsha Vardhana Singh, for Asia; Rufus H. Yerxa, for the U.S. All that geography accompanied M. Lamy at the WTO since 2005 …et allors?
According to M. Lamy the only thing that should count, is talent. “The election should not be a diplomatic game, but a headhunting game” he said. If talent is the measure, it would be an even more serious obstacle for another re-election, because during the eight years that we had M. Lamy and his deputies, all remained stagnant, but for the size of WTO’s building. The big news now is changing trade rules to reflect “value chain”, which is the production focus of transnational corporations. Indeed, it is good time to bring new heads and would be even better if it respects the balance on regional distribution of appointments. There is talent everywhere, what is lacking is good political orientation.
So far, there are two formal candidates: the Ghanaian Minister Alan Kyeremate and New Zealand’s Minister Tim Grosser. In terms of regional distribution both would be misplaced. Mr. Kveremate, because Africa already has an African representative – South Africa – who would probably chair the UNCTAD. Mr. Grosser – an amusing rocker and biker – because New Zealand has had more than its fair share of positions at WTO; not only had a DG, but has chaired the Committee on Agriculture for 9 consecutive years, since 2003, with ambassadors succeeding each other like in a hereditary fief.
Candidates from Latin America and the Caribbean – the region that should appoint the next Director General- are yet to be launched. It is rumored that Costa Rica’s Anabel Gonzalez will run, perhaps to divide Latin American countries, because her extreme commitment to the value chains focus, to the free trade agreements agenda and to the inclusion of the same in the multilateral level, which are unacceptable to Mercosur and ALBA. It is logical to assume that candidates from the political “establishment”, who signed FTAs with the United States or Europe, do not inspire confidence to chair WTO. They surrendered on all the issues that at WTO find solid opposition from developing countries or are still disputed.
If Mercosur, Caricom or ALBA, have a candidate, it’s time to take the initiative and negotiate it. The recurrence of the sorry spectacle of 2005 should be prevented; then, an early and sterile bid divided GRULAC support and the best and rightful candidate lost.
The relevance of appointment distribution
In all international organizations an equitable distribution of responsibility positions is very important for good performance. At the WTO such a criteria is of the utmost importance, because they lead an organization where something as concrete as the future of the global real economy is being negotiated. However, the present distribution of positions is concentrated in favor of developed countries.
WTO has 157 members (08/2012), of which only 21% are developed countries. However, all DG have come from developed members, with the brief 3 year exception of Supachai, who is Thai, but a banker. The total number of appointments at the WTO is distributed among regional groups according to Figure 1.
The total of appointment distribution shows a hint of equity between developed and developing countries, with a disadvantage for Africa.
But we must take into account that a division between developed and developing countries grouped by geographical area is not net. Transnational corporations do not only speak through developed countries, they have also other voices. They speak from those developing countries which are controlled by elites who take orders from abroad or who are associated with international corporations in their own countries.
The distribution of appointments that lead work on main operating organs at the WTO already contain inequities, even according to the simple categories of developed and developing countries. We will calculate from low to high acuity.
GRULAC has more visibility in the Trade Negotiations Committee and its subsidiary groups, places where there is much talk. There, developed countries have 33% and among developing countries, GRULAC has 34%, Asia has 26% and Africa 7%.
At the Main Organs (16 organs, including the General Council) we find that 39% is in the hands of officials of developed countries; for developing countries the share is 22% for Asia, 20% for the GRULAC and 19% for Africa.
The distribution becomes more unfair as we enter more specific interests. In the area of Trade on Goods and its subsidiary groups, developed countries have 45% of appointments. The remains are shared as follows: 20% for Asia, 19% for GRULAC and 16% for Africa.
The area of Services is an extreme case. There, developed countries have 52% of the appointments, while developing countries get the rest: 27% to Asia, 17% to GRULAC and 4% to Africa. Services are the activities that include the financial area.
Conclusion
M. Lamy wrote something about that ugly word “governance” on global scale, but what he describes there and those value chains that he now hoists are not new ideas. Both are the old story about global governance over resources in favor of a few, only on a bigger scale and for a band of privileged bankers.
With so much clever people around in the world, such a story can not and shall not continue.