Michel Chossudovsky's article (Financial Warfare to Lead to Demise of
Central Banking?), posted by Caspar Davis a few days ago, presents a vision
of the dark hounds of international capital snuffling about the developing
world, prepared to attack any domestic initiatives they might find in order
to shackle them to international ownership and control. While this vision,
worthy of "Lord of the Rings", makes for distressing reading, I wonder how
accurate it is. It raises at least two questions: One concerns the actual
size and strength of international capital; the other its true intentions.
Numbers I have for 1995 indicate that net investment inflow to developing
countries, as a group, was very small in comparison with GDP, not small
enough to be inconsequential, but certainly not large enough to be construed
as a massive takeover plot. Thus, for the very poorest countries, those
with per capita incomes of less that $1,000, net investment inflows amounted
to only 2% compared with GDP, and exceeded domestic savings by only 5%. For
the next poorest countries, those with per capita incomes of $1,000 to
$5,000, net investment inflows amounted to about 1% compared with GDP.
However, these countries were rather heavy net borrowers, and investment
exceeded domestic savings by approximately 7%. For the next group,
countries with per capita income ranging between $5,000 and $10,000, net
investment inflows were again about 1% compared with GDP, and investment
exceeded savings by nearly 5%. Only in the richest countries did domestic
savings exceed domestic investment. However, this was only by some 3%, not
a very large amount, and certainly not an amount that would suggest that the
world is awash with international capital. As for the actual dollar size,
it would seem that the total private flows to developing countries had grown
to $244 billion by 1996. This works out to less than 1% when compared with
global GDP. ("Money Hungry" By Urban C. Lehner, Copyright © 1997 Dow Jones &
Company, Inc.)
A fact which is not often recognized is that the developing world is able to
provide much of its own capital. On average, the poorest countries, as
referred to above, collectively saved 31% of their GDP. Though it is
difficult to know precisely what such numbers mean, China was able to save
over 40% of its GDP in 1995, and Indonesia nearly 40%.
Prof. Chossudovsky provides us with a scenario in which the IMF is used as
something of a battering ram, breaking down the castle gates and making
developing countries in trouble agree to rules which enable rich world
investors to wade in, rape, pillage and pick up bargains. It is the IMF and
international capital which is the problem, not economic miscalculations and
stagnations in the host countries. One set of rules which the IMF appears
to insist on is a tightening of credit. Undoubtedly, this has the effect of
constricting the ability of business to function — to meet operating costs
and payrolls. It may cause all kinds of problems, as it has in South Korea.
However, in the case of countries where an enormous volume of the
outstanding credit is in default or near default, what else might a banker
be expected to do? The IMF has had to try to bail out countries in which
banks could no longer function because borrowers could not repay enormous
volumes of loans. It has not yet been asked to bail out Japan, but if it
were, should it not insist that credit be tightened in a country whose banks
are said to have at least $600 billion dollars of problem loans on their
books? (Jathon Sapsford, Wall Street Journal (Globe and Mail reprint),
November 14, 1998)
I would suggest that it is not, primarily, international capital that drags
countries down. Mainly, they drag themselves down. About a month ago, I
posted some comments on Paul Krugman's observations on the Asian crisis -
observations made before the crisis became apparent. Krugman argued that
the miraculously high growth rates shown by Asian economies in the 1980s and
1990s could not be sustained because they were not accompanied by any
significant increases in productivity. Essentially, high growth was achieved
by adding continuous units of similar inputs to production. Each unit was
capable of producing about as much as the last one, little more or little
less. Consequently, Krugman argued, two things had to happen: inputs would
eventually run out, and successive inputs would encounter diminishing
returns. The system simply had to grind to a halt. Costs rose and profits
collapsed. Currency crises arose as both domestic and foreign capital fled
to safer harbours. The mess continues.
Or, take Russia, where the IMF has already battered at the door more than
once. For a time, foreign capital moved in. However, once it saw how
hopeless the Russian economy was, and how inept the government was in
dealing with it, capital began to move out. Could it be blamed?
Perhaps there is a partial truth in what Prof. Chossudovsky is saying.
Perhaps there is something amounting to collusion between the capitalists
and the IMF, and it is possible that there are attempts abroad to
deliberately subvert the Bretton-Woods institutions. However, I would
suggest that other forces were far more important in having created the mess
we are in. I would especially point to those age old components of the
market system — greed and fear. If capital sees an opportunity for profit
in a setting that it considers reasonably safe and stable, it will move in.
If it begins to fear that the opportunity is coming undone, it will move
out. While it may not be as simple as that, I see little reason for
complicating it into a major international conspiracy.
Ed Weick
