My great hope is that in the not too distant future, scholars and pundits will look back at the financial and economic turmoil of 2007 and 2008 as the turning point in which peoples around the world began the slow, arduous, painful, and sometimes bloody process of seizing back control of their own political and economic destinies. Jerome a Paris has given us a most excellent look at what to expect for the coming year, but frankly, I don’t believe his vision is lofty enough.
The credit crises which began in August, are leading to a general financial and then economic collapse that will trump all other issues. The basic underlying problem of the last half century is that the increasingly fanatical ideology of "free markets" has crippled and prevented governments from addressing problems such as peak oil, climate change, and resource depletion. As some heterodox economists have shown, the spread and entrenchment of neo-liberal economics (not to be confused with political liberalism) has actually exacerbated environmental problems. For example, clear cutting of tropical rain forests increased significantly after national economies in South America and Pacific Asia were forced by the International Monetary Fund to submit to strict neo-liberal regimes: these countries desperately needed foreign trade earnings, and selling off rain forest timber was one fast way to do it.
As Ellen Frank noted in June 1999, (just after the IMF had imposed its neo-liberal "remedies" on Thailand and Indonesia in response to the 1997 East Asian financial crises),
As currently constituted, the international financial system is not only unethical but is also dangerous to economic and ecological stability. When speculators attack the currencies of emerging markets, their losses are covered by the foreign exchange reserves of the target governments and by bailout packages arranged by the IMF. The target countries are now obliged to replenish these reserves and to repay these bailout funds by selling what resources and labor they can mobilize. In the past year, East Asian countries have vastly increased exports of pulp, lumber, and other commodities at great cost to the environment and to the people of their countries, while the attack on Latin American currencies has precipitated rapid deforestation and land clearing. As world commodity prices collapse, incomes in emerging markets plummet, and the pressure to accelerate unsustainable production intensifies. The world cannot long endure this state of affairs.
Nationalism has become a dirty word among progressives, but that is going to change as the financial system collapses, Why? What neo-liberal economics essentially did was degrade and limit the sovereignty of the institution of the nation state in the critical spheres of banking, finance, and economics. That's what makes markets "free" -- and the great desideratum of neo-liberal economics, after all, is "free markets". This loss of sovereignty by governments directly translates into a loss of ability to address issues of national importance, including peak oil, environmental degradation, climate change, and resource depletion.
We have reached a point where a decision must be made. Radical free markets have shown little inclination and little ability to address these problems -- in fact radical free financial markets are now in a existential crisis of their own making. So, what instruments do we have at hand to begin to address these problems? Briefly, off the top of my head, we can choose from:
- Local communities and organizations, including local governments. These have neither the financial ability nor the political reach to do much more than address problems at the margins.
- Economic institutions, namely corporations. You are seriously deluded, such as a hard-core believer in neo-liberalism, if you look for major solutions here.
- Multi-national and international organizations, including the United Nations. Much of the useful critical analysis of neo-liberalism has been carried out at this level, but the major problem I see is that there is no direct mechanism of representation linking this level to general populaces. Hence, these institutions are perhaps even easier than national governments for oligarchic and corporatist elements to co-opt and corrupt. And many of the organizations at this level are NOW in fact major problems and obstacles, i.e., the IMF and the World Bank. However, the global economy may now be so integrated that some level of international or at least regional regulation may be required. It should also be noted that a number of regional organizations and alliances have been formed in the past five or so years, largely as "quiet" response by other nations to the insanity, brutality, selfishness, shortsightedness (insert your own adjective) of U.S. policies and practices. Most notable of these is the Shanghai Cooperation Organization. As M. K. Bhadrakumar wrote on Asia Times Online in August:
The SCO summit therefore poses challenges for the US from various angles. The coming together of the CSTO and the SCO is a double setback to US regional policies. Both are entities that are anathema to the United States' geopolitical interests. The US strove to stifle these two organizations in their infancy, but instead now sees them gather new strength.
- National governments. Progressives are going to have to face the fact that the institution of the nation state remains the best yet devised for ascertaining and carrying into effect the popular will of a people. As we have been forced to learn, however, the instruments of government of individual nation states can be, and have been, co-opted and corrupted by oligarchic and corporatist elements. And, let us be clear: neo-liberal economics has been the major enabling ideology for this co-opting and corrupting.
- The internet and the blogs. About all we can do here is formulate, debate, and spread ideas. We can also support candidates we believe will battle the corruption imposed on the institutions of the nation state, such as governments.
As Robert A. Blecker points out in Taming Global Finance: A better architecture for growth and equity, the goal of neo-liberal economics is
to make the world a safer place for international investors. But no amount of transparency and supervision can eliminate the inherent information problems in international capital markets or prevent global financial flows from destabilizing domestic economies. In order to make international capital flows serve the broader public interest in a more stable, equitable, and prosperous global economy, further policy reforms are needed in four interrelated areas:
1. Regulating capital movements. A variety of measures such as capital controls, exchange controls, and transactions taxes (including a "Tobin tax" on foreign exchange transactions) can help to discourage short-term speculative capital flows, restore greater national policy autonomy, and encourage more stable, long-term investment. . . .
2. Reforming international institutions. The international financial system has become integrated to a point where the need for global regulation cannot be avoided. Simply abolishing the IMF and allowing markets to discipline errant countries would be a mistake because it would invite greater instability and harsher adjustments. While in the future it may be desirable to create new global institutions, such as a world central bank or international supervisory agency, most such proposals are politically unrealistic at present-although regional institutions such as an Asian Monetary Fund are more feasible in the short term. Today, the most immediate priority is to fundamentally reorient the governance and policies of the IMF by replacing its top leadership; instituting more democratic control and accountability; broadening its mission to emphasize global prosperity and distributional equity; tailoring its crisis intervention policies to better meet the needs of specific debtor countries; and shifting more of the adjustment burden in crisis situations onto creditors.
3. Managing exchange rates. Neither extreme of perfectly flexible or rigidly fixed exchange rates is generally desirable. The best way to reduce exchange rate volatility is to establish a compromise system of "target zones" among the major currencies (especially the dollar, euro, and yen), with wide enough "crawling bands" around the targets to allow moderate exchange rate fluctuations - and with regular, small adjustments in the targets and bands to keep them credible. . . .
4. Coordinating macroeconomic policy. Supporting the exchange rate targets and promoting more rapid global growth with more balanced trade and full employment will require economic coordination among the G-7 countries. International coordination of monetary policy would permit reductions in interest rates without creating incentives for speculative capital flight. Countries that agree to coordinate their interest rates need to retain other policy levers for domestic adjustment, however, especially by using fiscal policy more flexibly for countercyclical purposes and by using prudential restrictions (e.g., reserve requirements) more actively for monetary control.
The solutions proposed by Blecker and other critics of economic neo-liberalism are couched in semantics that avoid the use of the word "nationalism" (i.e, "restore greater national policy autonomy" or "retain other policy levers"), but in the final analysis they all come down to reducing the autonomy of financial markets by reasserting the sovereignty of the nation state over monetary and financial processes. The sovereign powers of the nation state must be revived to assert and defend the interests of general populations. This is the great divide in economics between conservatives and everyone else; it is why conservatives are doomed always to find a solid, non-wavering base of support in only a minority of any national population. We must return to the original intent of the general welfare clause of the U.S. Constitution, a clause which American conservatives hate, and which they have spared no effort or expense to minimize, obfuscate, deride, and redefine. This is why there is no area for bi-partisan dealing in the United States between Republicans, conservatives, and libertarians on the one hand, and much of the Democratic Party and progressives on the other hand. As Paul Krugan wrote on the last day of 2007:
Democrats and Republicans live in separate moral and intellectual universes. . . . In fact, however, [bipartisan cooperation is] not possible, not given the nature of today’s Republican Party, which has turned men like Mr. McCain and Mr. Romney into hard-line ideologues. On economics, and on much else, there is no common ground between the parties.
Problems such as climate change, peak oil, and resource depletion threaten the very existence of mankind and of civilization. Can we afford to allow neo-liberal economics to continue hampering and crippling the ability of nation states to address those problems? Krugman is correct – there really is no longer any room for compromise.
But the credit crises that neo-liberal economics has created for itself offers us the opportunity to defeat neo-liberal economics and unleash the power of governments -- governments that should, and of right ought to be, controlled by the people and for the people – to address the problems that threaten the people. The opportunity to turn back the chaos and disintegration of neo-liberal economics, and restore intelligence, deliberation, and rationality to economic affairs, and to finally provide a true, fair, and candid weighing of the costs and benefits of our capitalist systems, and to devise and implement policies that calibrate economic rewards and punishments to achieve national objectives, such a finding an alternative to fossil fuels, or mitigating climate change. The opportunity to reject the enabling ideology oligarchs and corporatists use to dominate our economic and political institutions. The opportunity to return to a nationalism in which the voice and will of the people is heard and implemented.
Opportunity has been given us. Let us boldly seize it and ruthlessly wield it, to once again use our government to effect good.