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From: "A. Gunder Frank" <[EMAIL PROTECTED]>
Tue, 13 Jun 1995 16:00:57 -0400 (EDT)
To: Harriet Friedmann <[EMAIL PROTECTED]>
cc: Martha Gimenez <[EMAIL PROTECTED]>,
Michael Lebowitz <[EMAIL PROTECTED]>
Subject: post to pen-l,psn, etc? Forwarded mail....
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Date: Tue, 13 Jun 1995 09:09:03 -0500 (EST)
From:[EMAIL PROTECTED]
To: Michel Chossudovsky <[EMAIL PROTECTED]>
Subject:
----------------------------Original message----------------------------
KINDLY POST THE FOLLOWING TEXT ON THE INTERNET
FOR IMMEDIATE RELEASE
Ottawa, 13 June 1995
THE FOLLOWING TEXT WILL BE PRESENTED IN THE SESSIONS OF THE
HALIFAX INITIATIVE (CANADIAN MDB CAMPAIGN) HELD IN PARALLEL WITH
THE G7 SUMMIT IN HALIFAX
THE G7 POLICY AGENDA
CREATES GLOBAL POVERTY
by
Michel Chossudovsky
Professor of Economics, University of Ottawa
The first part of this text contains an overview of the global
economic crisis focussing on issues of debt and macro- economic
reform. The second part consists of a critical review and
assessment of the Halifax G7 Summit Communiqu!.
Sessions at the Nova Scotia
Community College, Halifax, Nova Scotia
June 13-15, 1995
THE GLOBALIZATION OF POVERTY
At the dawn of the 21st century, the global economy is at a
dangerous cross-roads. In the developing World, the process of
economic restructuring has led to famine and the brutal
impoverishment of large sectors of the population while
contributing to the "thirdworldisation" of the countries of the
former Eastern block.
Since the early 1980s, the "macro-economic stabilisation" and
"structural adjustment" programmes imposed by the IMF and the
World Bank on developing countries (as a condition for the
renegotiation of their external debt) have led to the
impoverishment of hundreds of millions of people. Contrary to the
spirit of the Bretton Woods agreement which was predicated on
"economic reconstruction" and stability of major exchange rates,
the structural adjustment programme has largely contributed to
destabilising national currencies and ruining the economies of
developing countries.
Global Debt
In the developing World, the burden of the external debt has
reached 1.9 trillion dollars: entire countries have been
destabilised as a consequence of the collapse of national
currencies often resulting in the outbreak of social strife,
ethnic conflicts and civil war...
The restructuring of the World economy under the guidance of the
Washington based international financial institutions
increasingly denies individual developing countries the
possibility of building a national economy: the
internationalisation of macro-economic policy transforms
countries into open economic territories and national economies
into "reserves" of cheap labour and natural resources. The
restructuring of individual national weakens the State, industry
for the internal market is undermined, national enterprises are
pushed into bankruptcy.
Moreover, these reforms --when applied simultaneously in more
than one hundred countries-- are conducive to a "globalization of
poverty", a process which undermines human livelihood and
destroys civil society in the South, the East and the North.
Internal purchasing power has collapsed, famines have erupted,
health clinics and schools have been closed down, hundreds of
millions of children have been denied the right to primary
education. In all major regions of the developing World, the
economic reforms have been conducive to a resurgence of
infectious diseases including tuberculosis, malaria and cholera.
Structural Adjustment in the Developed Countries
Since the early 1990s, the macro-economic reforms adopted in the
OECD countries contain many of the essential ingredients of the
"structural adjustment programme" applied in the Third World and
Eastern Europe. These macro-economic reforms have been conducive
to the accumulation of large public debts.
Since the early 1980s, the private debts of large corporations
and commercial banks have been conveniently erased and
transformed into public debt. This process of "debt conversion"
is a central feature of the crisis: business and bank losses have
systematically been transferred to the State. During the merger
boom of the late 1980s, the burden of corporate losses was
shifted to the State through the acquisition of bankrupt
enterprises. The latter could then be closed down and written off
as tax losses. In turn, the "non-performing loans" of the large
commercial banks were routinely written off and transformed into
pre-tax losses. The "rescue packages" for troubled corporations
and commercial banks are largely based on the same principle of
shifting the burden of corporate debts onto the State Treasury.
In turn, the many State subsidies and corporate "handouts" rather
than stimulating job creation, were routinely used by large
corporations to finance their mergers, introduce labour saving
technology and relocate production to the Third World. Not only
were the costs associated with corporate restructuring borne by
the State, public spending directly contributed to increased
concentration of ownership and a significant contraction of the
industrial workforce. In turn, the string of bankruptcies of
small and medium sized enterprises and lay-off of workers (who
were also tax payers) were conducive to a significant contraction
in State revenues.
In the group of OECD countries, public debts have increased
beyond bounds (currently in excess of 13 trillion dollars).
Ironically, the very process of "reimbursing this global debt"
has been conducive to its enlargement through the systematic
creation of new debts. In the US --which is by far the largest
debtor nation-- the public debt increased fivefold during the
Reagan-Bush era. It is currently of the order of 4.9 trillion
dollars.
A vicious circle had been set in motion. The recipients of
government "hand-outs" had become the State's creditors. The
bonds and treasury bills issued by the Treasury to fund big
business had been acquired by banks and financial institutions,
which were simultaneously the recipients of State subsidies. An
absurd situation: the State was "financing its own indebtedness",
government "hand-outs" were being recycled towards the purchase
of public debt. The government was being squeezed between
business groups lobbying for subsidies on the one hand and its
financial creditors on the other hand. And because a large
portion of the public debt was held by private banking and
financial institutions, the latter were also able to pressure
governments for an increased command over public resources...
The debt crisis had also triggered the development of a highly
regressive tax system, which also contributed to the enlargement
of the public debt. While corporate taxes were curtailed, the new
tax revenues appropriated from the (lower and middle) salaried
population (including the value added taxes) were recycled
towards the servicing of the public debt. While the State was
collecting taxes from its citizens, "a tribute" was being paid by
the State to big business in the form of hand-outs and subsidies.
Capital Flight
In turn, spurted by the new banking technologies, the flight of
corporate profits to offshore banking havens in the Bahamas,
Switzerland, the Channel Islands, Luxembourg, etc., contributed
to further exacerbating the fiscal crisis. The Cayman islands, a
British Crown colony in the Caribbean, for instance, is the fifth
largest banking centre in the World (ie. in terms of the size of
its deposits, most of which are by dummy or anonymous companies).
The enlargement of the budget deficit in the US bears a direct
relationship to massive tax evasion and the flight of unreported
corporate profits. In turn, large amounts of money deposited in
the Cayman Islands and the Bahamas (part of which is controlled
by criminal organisations) are used to fund business investments
in the US.
Under the Political Tutelage of the Creditors
The debts of parastatal enterprises, public utilities, state,
provincial and municipal government's are carefully categorised
and "rated" by financial markets (eg. Moody's and Standard and
Poor ratings). Moreover, ministers of finance are increasingly
expected to report to the large investment houses and commercial
banks. Moody's downgrading of Sweden's sovereign debt rating in
January was instrumental in the decision of the minority Social
Democratic government to curtail core welfare programmes
including child allowances and unemployment insurance benefits.
Similarly, Moody's credit rating of Canada's public debt was a
major factor in the adoption of massive cuts in social programmes
and lay-offs by the Canadian Minister of Finance in February. In
the US, the controversial "balanced budget amendment" (which was
narrowly defeated in the Senate) in March 1995, would have
entrenched the rights of the State's creditors in the US
Constitution...
Crisis of the State
In the West, the democratic system has been steered into a
quandary: those elected to high office increasingly act as
bureaucrats. The State's creditors have become the depositaries
of real political power operating discretely in the background.
In turn, a uniform political ideology has unfolded. A "consensus"
on macro-economic reform extends across the political spectrum.
A new global financial environment has also unfolded: the wave of
corporate mergers of the late 1980s paved the way for the
consolidation of a new generation of financiers clustered around
the merchant banks, the institutional investors, the stock
brokerage firms, the large insurance companies, etc. In this
process, commercial banking functions have coalesced with those
of the investment banks and stock brokers.
While these "money managers" play a powerful role on financial
markets, they are, however, increasingly removed from
entrepreneurial functions in the real economy. Their activities
(which escape State regulation) include speculative transactions
in commodity futures and derivatives and the manipulation of
currency markets. Major financial actors are routinely involved
in "hot money deposits" in "the emerging markets" of Latin
America and Southeast Asia, not to mention money laundering and
the development of (specialised) "private banks" ("which advise
wealthy clients") in the many offshore banking havens. The daily
turnover of foreign exchange transactions is of the order of one
trillion dollars a day of which only 15 percent corresponds to
actual commodity trade and capital flows.
Within this global financial web, money transits at high speed
from one banking haven to the next, in the intangible form of
electronic transfers. "Legal" and "illegal" business activities
have become increasingly intertwined, vast amounts of unreported
private wealth have been accumulated. Favoured by financial
deregulation, the criminal mafias have also expanded their role
in the spheres of international banking.
The Demise of Central Banks
Moreover, the practices of central banks in many OECD countries
have been modified to meet the demands of financial markets.
Central banks have become increasingly "independent" and
"shielded from political influence". What this means in practice
is that the national Treasury is increasingly at the mercy of
private commercial creditors. Under article 104 of the Maastricht
Treaty, for instance, "[c]entral bank credit to the government is
entirely discretionary, the central bank cannot be forced to
provide such credit". These statutes are therefore directly
conducive to the enlargement of the public debt held by private
financial and banking institutions.
In practice, the Central Bank (which is neither accountable to
the government nor to the Legislature), operates as an autonomous
bureaucracy under the trusteeship of private financial and
banking interests. The latter (rather than the government)
dictate the direction of monetary policy. In other words,
monetary policy no longer exists as a means of State
intervention; it largely belongs to the realm of private banking.
In contrast to the marked scarcity of State funds, "the creation
of money" (implying a command over real resources) occurs within
the inner web of the international banking system in accordance
with the sole pursuit of private wealth. In contrast to the
inability of central banks to effectively intervene, powerful
private financial actors not only have the ability of creating
and moving money without impediment, but also of manipulating
interests rates and precipitating the decline of major currencies
as occurred with the spectacular tumble of the pound sterling in
September 1992. What this signifies, in practice, is that central
banks are no longer able to regulate the creation of money in the
broad interests of society (eg. in view of mobilising production
or generating employment). Money creation including the command
over real resources is controlled almost exclusively by private
financiers.
The Instability of Global Financial Markets
Deregulation alongside the development of large public debts have
favoured increasingly unstable pattern on global financial
markets. Since Black Monday, October 19, 1987, considered by
analysts to be very close to a total meltdown of the New York
stock exchange, a highly volatile pattern has unfolded marked by
frequent and increasingly serious convulsions on major bourses,
the ruin of national currencies in Eastern Europe and Latin
America, not to mention the plunge of the new "peripheral
financial markets" (eg. Mexico, Bangkok, Cairo, Bombay)
precipitated by "profit taking" and the sudden retreat of the
large institutional investors...A global financial breakdown can
no longer be ruled out. Moreover, in contrast to the 1920s, major
exchanges around the World are interconnected through instant
computer link-up: instability on Wall Street, "spills over" into
the European and Asian stock markets thereby rapidly permeating
the entire financial system, including foreign exchange and
commodity markets...
ASSESSMENT OF THE HALIFAX SUMMIT COMMUNIQU
---------------------------
Michael A. Lebowitz
Economics Department, Simon Fraser University
Burnaby, B.C., Canada V5A 1S6
Office: (604) 291-4669; Office fax: (604) 291-5944
Home: (604) 255-0382; fax/modem (with notice):(604) 254-3510
Lasqueti: (604) 333-8810
e-mail: [EMAIL PROTECTED]
