---------- Forwarded message ---------- Date: Tue, 2 Jun 1998 10:04:43 -0500 From: "Doug H." <[EMAIL PROTECTED]> To: [EMAIL PROTECTED] Subject: Why Wall Street Condones Social Inequalities > How Wall Street's Moral Hubris Condones > Social Inequality > By DAVID FRIEDMAN > > U.S. hubris is reaching unprecedented > heights as Asia's currency meltdown > triggers ethnic riots, and desperate nations like > Brazil hike interest rates to 40% to appease > skittish investors. Not content with declaring > Wall Street's boom the harbinger of the next > American imperium, U.S. financial elites, > pointing to political changes in Indonesia and > South Korea, portray the power of > twentysomething New York analysts to shift > around $2.5 trillion a day as a supranational > force of justice, rewarding good and punishing > evil throughout the world. > Nothing exposes this conceit more than Wall > Street's abrupt withdrawal of $105 billion from > South Korea, Indonesia, Thailand and Malaysia > last year--an incredible 11% of those countries' > combined gross national product--while > romancing South America, where $50 billion is > slated for investment despite continuing > "emerging market" jitters. Even if the reasons > that financiers themselves give for fleeing > Asia--inflated currencies, current-account > deficits, and corruption, for example--are true, > it's hard to see why South America could be > more appealing. Most South American > countries, just like the Asians, inflate their > currencies for the sake of stable exchange > rates. Argentines proudly trade local money > even-up for dollars in stores and ATMs. > Fixed convertibility, however, makes imports > cheaper and exports more expensive. South > America's current-account deficit is projected to > reach $71 billion in 1998, precisely the trend > Wall Street claims made Asia so risky. > Then there's the corruption factor. While > some on Wall Street boast that they brought > down an oppressive Indonesian regime and > elected a former dissident in South Korea, they > seem untroubled by the cronyism and graft in > much of South America. Support for the sort of > accountable, open, democratic governments > supposedly lacking in Asia is, in fact, razor-thin > in South America. A U.N. poll last year revealed > that more than 60% of the region's electorate is > "dissatisfied with democracy." Another 30% > openly advocate or don't care if they live under > dictatorial rule. Former military strongmen > dominate elections in Venezuela, Bolivia, > Colombia and Uruguay. > If the technical rationales offered for the > Asian panic are unconvincing, Wall Street's > moral pretense in light of the social > fundamentals its investments ignored is > inexcusable. Whatever their mistakes--and > Asian leaders put their nations at risk by > combining credit expansion, short-term debt > and fixed exchange rates--the societies they > built achieved what a British relief organization, > Oxfam, recently hailed as "the fastest reduction > in poverty for the greatest number of people in > history." > According to the World Bank, poverty fell by > 27% in Southeast Asia during 1975-85, and by > another 35% in 1985-1995. Over the same > period, Asia lifted 220 million people above the > poverty line, the only place in the world where > the ranks of the impoverished actually declined. > Universal education, high-tech industrialization > and social reforms reduced poverty by 82% in > Indonesia, 90% in Thailand and 95% in > Malaysia. Incomes of the poorest 20% of > households in Indonesia and South Korea > approached roughly 8% of national income, > comparable to preunification Germany and > Sweden, and nearly twice as high as in the > United States. > The contrast with South America is stark. > While poverty rates fell during the turbulent, > reform-minded 1970s, they skyrocketed in the > following decade when the continent suffered > an authoritarian backlash. Social investments > shrank and dissent was forcibly squelched. > Wholesale privatizations, often orchestrated by > U.S.-trained economists, were eagerly gobbled > up by what one Chilean official calls the > "piranhas"--wealthy elites who made a killing on > former state assets. > Unlike in Asia, the new regimes had no > appetite for broad-based education and health > initiatives. Today, nearly 30% of all South > American primary-school students repeat entire > grades. Most receive one-third fewer hours of > instruction than students in comparable > nations. They consistently rank at the bottom of > global academic achievement while Asians > score near the top. > The world's worst inequality grew even more > extreme. According to an Inter-America > Development Bank study, South American > poverty rates shot up by 33% during > 1980-1995. The number of destitute > poor--those living on no more than $1 a > day--rose to nearly 20% of the population. > Per-capita income for the richest fifth of the > population rose by 10%, while incomes of the > poorest households dramatically fell. In > countries like Brazil, 20% of the population now > controls over 60% of the wealth, while the > bottom 20% has just 2% of national income. > Even South America's more robust growth in > the 1990s hasn't helped. Widespread inequality > means that poorer groups benefit far less from > development than the rich. Average Indonesian > incomes, for instance, are half those in Peru, > but 50% of Peru is impoverished compared > with about 15% of Indonesia. Sharply divided > societies like those in South America must > grow several times faster than Asian nations to > achieve comparable poverty declines. > Wall Street's moral pretensions wilt before > such realities. Its willingness to exploit technical > imbalances in Asia imperils one of the social > miracles of our time. Its constant threat of > capital withdrawal forces ever greater > concessions from countries like Brazil, where > 40% of the population is destitute. Walled > estates owned by wealthy Americans, some of > whom reportedly led the speculative attack on > Asia, spring up in dollarized Argentina while > unemployment hovers at a continent-high 17%. > > Why should we care about Wall Street's > conceit? > One reason is that while media-savvy > financiers pat themselves on the back for their > contributions to world peace, they are fostering > an unprecedented anti-American backlash. > There can be little doubt that America's Eastern > establishment was only too happy to deflate > what it saw as increasingly insufferable Asian > "tigers" and reassert its traditional dominance. > But the vigor with which it claims moral victory, > not simply an opportunistic economic triumph, > is building resentment that will adversely affect > U.S. interests for years to come. > Another reason is that the same social > myopia evident in Wall Street's international > strategies is infecting U.S. domestic thinking. > The celebration of New York's "comeback," fed > by the dazzling stock-market performance, all > too closely resonates with the moral > deficiencies global investment patterns exhibit. > Despite an improving economy, the city's > poverty rate rose by 25% in 1989-1996 and > now tops 16% of all households, far higher than > the national norm. Over the past 20 years, > incomes of the poorest 20% of New Yorkers fell > by 36%, while those of the richest fifth rose by > 46%, producing what is now the greatest > income gap in the country. An army of more > than 30,000 police patrols New York just as the > military guards the privileged in Santiago or > Buenos Aires. Unemployment is nearly twice > the national rate. > Confusing Wall Street's ambitions with the > national, let alone worldwide, good blinds > Americans to the reality that they, too, are > vulnerable to capital's caprice. While even > ardent free-traders now call for some > moderation of "hot" (short-term) capital volatility, > Wall Street apologists counter that fund > managers inherently act in the U.S. interest. In > a society where politics and public institutions > seem ineffective, at best, this claim has > surprising appeal. Yet, the only Asian countries > that escaped last year's cataclysmic deflation > were those with enough foreign reserves to > scare off Wall Street speculators--Japan and > Taiwan--or that closely regulate currency flows, > such as China. The one South American nation > that reduced poverty and unemployment during > the 1990s, Chile, taxes foreign capital that is > shifted into and out of the country too quickly. > Americans inclined to believe Wall Street's > moral hype would do well to ponder such facts. > We live today in a world where U.S. > investments are valued more than most > anything else. Wall Street thus seems on "our" > side. But just as Asia painfully learned, and > South America may experience yet again, on > the flimsiest pretext, unconstrained by ethical > considerations, it will abandon the unwary in a > heartbeat. > - - - > > David Friedman, a Contributing Editor to > Opinion, Is an International Consultant and > Fellow in the Mit Japan Program > > Search the archives of the Los Angeles Times for similar > stories. You will not be charged to look for stories, only to > retrieve one. > > Copyright Los Angeles Times >
