---------- Forwarded message ---------- Date: Mon, 31 Aug 1998 12:32:04 -0400 (EDT) From: Robert Weissman <[EMAIL PROTECTED]> To: Multiple recipients of list STOP-IMF <[EMAIL PROTECTED]> Subject: Guardian: A Crisis of Liberalism (fwd) >From Barry Coates of the World Development Movement in the UK: To add to the interesting coverage that you have been circulating from the US, the following article appeared in today's Guardian newspaper (one of the UK's most respected dailies). It was titled "A Crisis of Liberalism" in later editions. Regards to all, Barry Coates, World Development Movement <[EMAIL PROTECTED]>. 28 Aug 98 Rescuing Russia: The danger is of driving the country into the arms of a quick-fix strong man The Guardian 1st Edition UNFETTERED capitalism has done what Stalin could never do: it has brought the West to the brink of economic turmoil. Belatedly, it is now recognised that the financial and political crisis that is engulfing Russia is not just a problem for Boris Yeltsin but a threat to the stability of the entire global economy. In truth, this is a disaster that has been waiting to happen. It is perhaps not the time for those who have been warning of the dangers of uncontrolled capital and unbridled laissez-faire policies to say 'we told you so', but it is worth saying anyway. We told you so. Those responsible for managing the world economy are as culpable as the French military strategists who believed that the Maginot Line was the answer to German aggrandisement and the British blimps who left Singapore at the mercy of the Japanese in 1942 by pointing all the big guns out to sea. However, the real issue at this juncture is not to apportion blame for the current predicament, because we know who's to blame. The real issue is to find ways of ameliorating the impact of the collapse and to learn the lessons of the past year. Let's start with some basics. The prevailing philosophy of the past quarter-century has been that there is no such thing as too much liberalisation. Trade barriers, exchange controls, capital controls all had to be dismantled as quickly as possible. The state had to be diminished in size and downgraded in importance. Interventionism in any guise was frowned upon. At first only rightwing politicians believed in the new dogma, but eventually politicians of the left - chastened by electoral defeat - started to recite the globalisation mantra as well. According to the new orthodoxy, there was nothing that could be done to hold back the new global forces, even if parties of the left wanted to do so. Which, sad to say, not many of them did by the mid-1990s. >From the standpoint of the new policy elite, there is really nothing to worry about. Indeed, the IMF's answer to the crisis in south-east Asia was to call for even more capital liberalisation and impose economic policies of such draconian austerity that around 100 million people will be below the poverty line by the end of this year. Now it is Russia's turn for the same medicine. Theo Waigel, Germany's finance minister, says it is up to Russia to sort out its own problems; the IMF's approach is that bailing out Moscow is simply throwing good money after bad. Mr Waigel needs to think again. Quite obviously, there are no easy solutions to the Russian problem, but the very least the West should do is put together a multi-billion dollar rescue package to underpin the rouble. This is what the United States did for Mexico after the peso crisis in 1995, and Germany should organise the same sort of whip round for Russia. OVER the medium term, the West needs to consider a Marshall Plan for Russia, something that should have been put in place at the very start of the 1990s in order to smooth the transition from a command economy. The aid to Russia has been too little, too late: back in the late 1940s the Marshall Plan was worth 2 per cent of American GDP per year for four years; a staggeringly generous gift to western Europe that will probably never be repeated. Interestingly, it is now being tacitly recognised that some of the policy prescriptions foisted upon the Russians were perhaps not that wise. The Financial Times yesterday suggested that the only alternative to the hyperinflation generated by a plunging rouble was to 'slam on exchange controls'. George Soros, the speculator who has lost Dollars 2 billion in Russia, has called for a currency board, under which the rouble would be pegged to another currency - almost certainly the dollar - and then be obliged to keep it steady by importing America's monetary policy. More pain for the long-suffering Russian public seems almost inevitable, but the danger is of driving the country into the arms of a strong man offering quick-fix solutions. Russia is, after all, still a nuclear power of considerable importance. Over the longer term, it would be of immeasurable help if Brussels set a timetable for Russia's entry into the European Union. The obsession with the single currency has meant that European policy-makers have not moved quickly enough to expand the EU to the East. Russia is, however, only a symptom of a deeper malaise. It is now 54 years since the Bretton Woods conference laid the foundations for the post-war international system, putting in place a system of fixed exchange rates and creating the IMF, the World Bank and the General Agreement on Tariffs and Trade. What is called for now is a new Bretton Woods to rethink from first principles the way in which the global economy is managed. Over the past few years, there have been conferences to deal with the global environment, campaigns to tackle developing country debt, meetings of the Group of Seven nations to consider the proper response to financial crises in Latin America and Asia. But never has there been any attempt to consider all these problems as part of a global whole, as part of one big problem. The new Bretton Woods would not consider protecting the global ecosphere as a diversion from the real business at hand; nor would it downplay the vital need to help the poorest nations to free themselves from their crippling debts. Instead, these problems would be central to restoring sanity to a system that increasingly appears to be spiralling out of control. In practical terms, this would mean the global elite swallowing large dollops of humble pie. They would have to admit that the now reviled Keynesian system of global management swept away in the 1970s had some strengths, and that making life easier for speculators has not necessarily been advantageous for growth, jobs and equity. The crisis in Russia is the logical conclusion to the misguided policies of the past 20 years. To that extent, it is a crisis of liberalism. But it is also a crisis for progressivism. Parties of the centre-left are now in power across much of the West, but they have bought heavily into the new orthodoxy. They need to understand that the imperative now is for policies that prevent deflation, that tax foreign exchange speculation and that force banks to choose between being retail institutions and investment institutions. They need to understand that the only real defence against the perils of globalisation is the power of the state. And they need to understand it now, before it is too late. THE GUARDIAN Copyright (C) Guardian Newspapers Ltd, 1984-1997
