Julio Huato wrote:
I don't understand. Is Robert Samuelson in the short list for
treasury secretary?
I was referring to Paul Volcker.
Counterpunch, November 12, 2008
Obama's Economic Advisors
Against Volcker
By PATRICK BOND
One of Barack Obama's leading advisors has done more damage to Africa,
its economies and its people than anyone I can think of in world
history, including even Cecil John Rhodes. That charge may surprise
readers, but hear me out.
His name is Paul Volcker, and although he is relatively unknown around
the world, the 82 year old banker was recommended as 'a legend!' to
Obama by Austan Goolsbee, the president-elect's chief economic advisor
(and a professor at the University of Chicago). Volcker was recently
profiled by the Wall Street Journal: "The cigar-chomping central banker
from 1979 to 1987, he received blame for driving up interest rates and
tipping the US into the deepest recession since the Great Depression."
We'll consider the impact of Volcker's rule on Africa in a moment. But
why dredge up crimes nearly thirty years old?
This kind of reckoning is important, as three current examples suggest:
* Reparations lawsuits are now being heard in New York by victims
of apartheid who are collectively requesting $400 billion in damages
from three dozen US corporations who profited from South African
operations during the same period. Supreme Court justices had so many
investments in these companies that in May they had to bounce the case
back to a lower New York court to decide, effectively throwing out an
earlier judgment against the plaintiffs: the Jubilee anti-debt movement,
the Khulumani Support Group for apartheid victicms, and 17 000 other
black South Africans.
* Last month a San Francisco court began considering a similar
reparations lawsuit - under the Alien Tort Claims Act - filed by Larry
Bowoto and the Ilaje people of the Niger Delta against Chevron for 1998
murders similar to those that took the life of Ken Saro-Wiwa on November
10, 1995.
* In Boston last month, Harvard University's Pride Chigwedere
released a study into preventable deaths - at least 330 000 - caused by
Thabo Mbeki's AIDS policies during the early 2000s. The ex-president has
'blood on his hands,' according to Zackie Achmat of the Treatment Action
Campaign, requesting a judicial inquiry.
The same critical treatment is appropriate for Volcker, because of the
awesome financial destruction he imposed, within most Africans' living
memory. His policies stunted the continent's growth when it most needed
internal economic coherence.
Even the International Monetary Fund's official history cannot avoid
using the famous phrase most associated with the Fed chair's name: "The
origins of the debt crisis of the 1980s may be traced back to and
through the lurching efforts of the world's governments to cope with the
economic instabilities of the 1970s... [including the] monetary
contraction in the United States (the 'Volcker Shock') that brought a
sharp rise in world interest rates and a sustained appreciation of the
dollar."
Volcker's decision to raise rates so high to rid the US economy of
inflation and strengthen the fast-falling dollar had special
significance in Africa, write British academics Sarah Bracking and
Graham Harrison: "1979 marked a radical change in global economic
policy, inaugurated with the 'Volcker Shock' (so called after Paul
Volcker, then chairman of the Board of Governors of the Federal Reserve)
when the United States suddenly and dramatically raised interest rates,
[which] increased the cost of African debt precipitously, since a
majority of debt stock was held in dollars. The majority of the newly
independent states had been effectively delivered into at least twenty
years of indentured labor. From that point on access to finance became a
key policing mechanism directed at African populations."
Adds journalist Naomi Klein in her book The Shock Doctrine, "In
developing countries carrying heavy debt loads, the Volcker Shock was
like a giant Taser gun fired from Washington, sending the developing
world into convulsions. Soaring interest rates meant higher interest
payments on foreign debts, and often the higher payments could only be
met by taking on more loans... It was after the Volcker Shock that
Brazil's debt exploded, doubling from $50 billion to $100 billion in six
years. Many African countries, having borrowed heavily in the seventies,
found themselves in similar straits: Nigeria's debt in the same short
time period went from $9 billion to $29 billion."
The numbers involved were daunting for low-income countries. According
to University of California economic geographer Gillian Hart, "Medium
and long-term public debt shot up from $75.1 billion in 1970 to $634.4
billion in 1983. It was the so-called Volcker Shock... that ushered in
the debt crisis, the neoliberal counterrevolution, and vastly changed
roles of the World Bank and IMF in Latin America, Africa, and parts of
Asia."
Elmar Altvater of Berlin's Free University recalls how the world "slid
into the debt crisis of the 1980s after the US Federal Reserve tripled
interest rates (the so called 'Volcker Shock'), leading to what later
has been described as the 'lost decade' for the developing world."
How 'lost'? The British Medical Journal complained in 1999 of orthodox
World Bank structural adjustment policies that immediately followed:
"According to Unicef, a drop of 10-25% in average incomes in the
1980s-the decade noted for structural adjustment lending-in Africa and
Latin America, and a 25% reduction in spending per capita on health and
a 50% reduction per capita on education in the poorest countries of the
world, are mostly attributable to structural adjustment policies. Unicef
has estimated that such adverse effects on progress in developing
countries resulted in the deaths of half a million young children-and in
just a 12 month period."
A few honest mainstream economists also explain Africa's economic crisis
in these terms. "The external shock that might have precipitated the
developing country slowdown is the increase in real interest rates after
the Volcker Shock in 1979", wrote World Bank senior researcher William
Easterly in 2001. "The interest on external debt as a ratio to GDP has a
statistically significant and negative effect on growth."
A few blocks away from the Federal Reserve, one of Volcker's closest
allies was World Bank president Tom Clausen, formerly Bank of America
chief executive officer. As the Volcker Shock wore on, in 1983, Clausen
offered his Board of Directors this frank confession: "We must ask
ourselves: How much pressure can these nations be expected to bear? How
far can the poorest peoples be pushed into further reducing their meagre
standards of living? How resilient are the political systems and
institutions in these countries in the face of steadily worsening
conditions? I don't have the answers to these important questions. But
if these countries are pushed too far, and too much is demanded of them
without the provision of substantial assistance in their adjustment
efforts, we must face the consequences. And those will surely exact a
cost in terms of human suffering and political instability."
At that point, "Africa was not even on my radar screen", Volcker told
interviewers Leo Panitch and Sam Gindin.
Meanwhile, the Bank's sister institution, the International Monetary
Fund, was described by Tanzanian president Julius Nyerere as "a
neo-colonial institution which exploits the poor to make them poorer and
serves the rich to become richer." Volcker had, ironically, played a
central role in the destruction of the Bretton Woods system's
dollar-gold convertibility arrangement, effectively a US$80 billion
default on holders of dollars abroad, when in 1971 he served Richard
Nixon as under-secretary of the Treasury.
Eight years later, he was chosen to chair the Federal Reserve, which
sets US (and by extension world) interest rates. As Jimmy Carter's
domestic policy advisor Stuart Eizenstat explained, "Volcker was
selected because he was the candidate of Wall Street. This was their
price, in effect."
In 1985, Ronald Reagan offered Clausen's job to Volcker, but he decided
to stay on at the Fed until 1987, when he went back to a high-paid Wall
Street job.
Now he is back, and according to a recent profile by the Wall Street
Journal, "Obama is increasingly relying on Mr. Volcker. His staff now
routinely reviews policy proposals and speeches with Mr. Volcker.
Conference calls and face-to-face meetings of the Obama economic team
are often reorganized to accommodate his schedule. When the team
discusses the financial crisis, 'The most important question to Obama:
What does Paul Volcker think?' says Jason Furman, the campaign's
economic-policy director... When Sen. Obama raised the prospect of a
package of spending and tax measures to 'stimulate' the economy, Mr.
Volcker disapproved. 'Americans are spending beyond their means,' he
told the group. A stimulus package would delay the belt-tightening and
savings needed, he added, proposing instead better regulation and
assistance to banks."
By November 8, the odds of Volcker being appointed Treasury Secretary
were 10%, according to the Journal's betting pool. The race was between
New York Federal Reserve Bank president Tim Geithner and former Clinton
Treasury Secretary Lawrence Summers, at 40% odds each. Geithner served
under Summers and Robert Rubin in Bill Clinton's Treasury Department
during the 1990s.
Summers is best known for the sexism controversy which cost him the
presidency of Harvard in 2006. But fifteen years earlier he gained
infamy as an advocate of African genocide and environmental racism,
thanks to a confidential World Bank memo he signed when he was the
institution's senior vice president and chief economist: "I think the
economic logic behind dumping a load of toxic waste in the lowest-wage
country is impeccable and we should face up to that... I've always
thought that underpopulated countries in Africa are vastly
underpolluted, their air quality is vastly inefficiently low..."
After all, Summers continued, inhabitants of low-income countries
typically die before the age at which they would begin suffering
prostate cancer associated with toxic dumping. And in any event, using
marginal productivity of labour as a measure, low-income Africans are
not worth very much anyhow. Nor are African's aesthetic concerns with
air pollution likely to be as substantive as they are for wealthy
northerners.
Such arguments were said by Summers to be made in an 'ironic' way (and
in his defense, he may have simply plagiarized the memo from a
colleague, Lant Pritchett). Yet their internal logic was pursued with a
vengeance by the World Bank and IMF long after Summers moved over to the
Clinton Treasury Department, where in 1999 he insisted that Joseph
Stiglitz be fired by Bank president James Wolfensohn, for speaking out
against the impeccable economic logic of the Washington Consensus.
Volcker, Summers and a whole crew of similar capitalist economists are
whispering in Obama's ear for a resurgent US based on brutal national
self-interest. They need Obama to relegitimate shock-doctrinaire
neoliberalism - and in turn, they need Obama's Africa advisors (like
Witney Schneidman) to promote military imperialism in the form of the
Africa Command.
Can Obama instead hear supporters like Bill Fletcher, Imani Countess and
Danny Glover, who made TransAfrica (as one example) a visionary economic
justice organization, by fighting the policies of Volcker and Summers?
Can AfricaAction, the Institute for Policy Studies, the American Friends
Service Committee, Jubilee USA, ActionAid and other genuine advocates
for the continent get a word in edgewise, between fits of cackling from
the corporate liberals who think they own Obama? Will the
president-elect ever get advice from economists James K. Galbraith of
the University of Texas or Center for Economic and Policy Research
codirectors Dean Baker and Mark Weisbrot, who correctly read the various
financial crises way ahead of time, and whose records promoting social
justice would serve Africa far better?
Probably not. So it is vital for Africans to wake up to the danger that
the likes of Volcker and Summers represent. Anyone paying attention to
the continent's economic decline since 1980 knows the damage they did,
but Obama apparently needs to hear more of their sins against his
father's people before he chooses his Treasury Secretary next week. And
while he's at it, how about a revision of Obama's utterly neoliberal
'fundamental objective' for the continent, which is "to accelerate
Africa's integration into the global economy"?
Patrick Bond is the director of the UKZN Centre for Civil Society:
http://www.ukzn.ac.za/ccs. He can be reached at [EMAIL PROTECTED]
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