It's happening in Buenos Aires. It's
happening in Paris and in Athens. It's even
happening at the World Bank headquarters.
The global economy is finally shifting
away from the model that prevailed for the past
three decades. Europeans are rejecting austerity.
Latin Americans are nationalizing enterprises. The
next head of the World Bank has actually done
effective development work.
Maybe that
long-heralded "end of the Washington consensus" is
finally upon us.
After the near-collapse
of the global financial system four years ago,
obituary writers rushed to proclaim the death of
the prevailing economic philosophy known as
neo-liberalism. "Wall Street's financial meltdown
marks the end of an era," wrote Michael
Hudson and Jeffrey
Sommers in Counterpunch at the end of 2008. "What
has ended is the credibility of the Washington
Consensus - open markets to foreign investors and
tight money austerity programs (high interest
rates and credit cutbacks) to 'cure'
balance-of-payments deficits, domestic budget
deficits and price inflation.
It was a
tempting conclusion. Putting Wall Street and
financial speculators at the center of the
universe had generated an economic supernova, and
everyone seemed to get the message. Everyone
except Big Money, which never received the
obituary notice. After some minor tweaking of Wall
Street practices, some bailouts of enterprises
deemed too big to fail, and the injection of some
stimulus spending to arrest the free fall,
Washington continued with business as usual.
The Barack Obama administration, like the
Bill Clinton administration before it, discovered
the immense power of the bond market. The
Inernational Monetary Fund and the World Bank,
meanwhile, didn't fundamentally change their
policies. And the European Union, led by
tight-fisted Germany, continued to back austerity.
All the major economic actors held to the old
orthodoxy even though it flew in the face of
common sense and common decency (though not in the
face of the bottom line).
Wall Street's
continued irrational exuberance, its lavishing of
bonuses on its elite, and its pushback against
even the most modest of regulations all suggest
that the old Ptolemaic system - with Wall Street
and the Washington Consensus still at the center
of the universe - had not yet given way to a
Copernican revolution that displaces these
powerful institutions from their privileged
position. Such revolutions, of course, are not
made in a day.
Remember: Ptolemy's system,
with the earth at the center of all things,
reigned for 1,300 years even as it grew
inordinately complex to explain new astronomical
observations. A century after the publication of
the great Pole's theory of heliocentrism, Galileo
still ran afoul of church authorities for his
Copernican leanings. Orthodoxy dies hard.
As a first sally against the prevailing
orthodoxy of neo-liberalism, today's economic
Copernicans have taken aim at austerity. It's a
fat target: belt-tightening, after all, is not
only unpopular but unsound. Economist Paul Krugman
marshals the economic evidence in the latest New
York Review of Books, concluding that the "chances
of a real turn in policy, away from the austerity
mania of the last few years and toward a renewed
focus on job creation, are much better than
conventional wisdom would have you believe."
Nowhere is that clearer than in Europe.
There, the case for austerity, explains Washington
Post columnist Harold Meyerson, "was that once
governments began slashing their spending and
deficits, markets would reward them by investing
in their presumably more productive economies. But
the reverse has happened. As Greece, Ireland,
Portugal and Spain have cut their budgets,
investors have grown less willing to buy their
bonds. By plunging themselves deeper into
recession, these nations have convinced investors
not that they're fiscally virtuous but that they
won't become economically viable for many more
years."
French and Greek voters rejected
austerity in the elections this weekend not
because, as the US media coverage implies, they
are unruly children who refuse to swallow their
medicine. Rather, they realize that austerity
economics at this delicate moment could very well
precipitate a double-dip recession (that is, a lot
more pain). Moreover, they want the pain - and
everyone knows that there will be pain - to be
fairly shouldered. Francois Hollande, the new
Socialist president in France, has called for a
75% tax rate on all earnings over $1.3 million.
Now that's a Buffet tax!
Don't expect
Hollande to appoint Occupy protestors to his
cabinet. He "may not have a radical economic
program sufficient to the task of reforming the
French and European financial systems," writes
Foreign Policy In Focus contributor Jeanne Kay in
"The End of Austerity in Europe", "but he diverges
from outgoing President Nicolas Sarkozy in one key
aspect: government spending. Against Sarkozy's
line of austerity, Hollande proposes a more
Keynesian plan of job creation in the public
sector, indexing the minimum wage to gross
domestic product growth rather than just
inflation, and public investment."
The
left has woken from its collective stupor just in
time, for Europe at the moment is very much up for
grabs. The far right has also rejected austerity,
and it has a much simpler platform: blame the
immigrants. The National Front in France has
injected its xenophobic virus into the very heart
of France's center-right Union for a Popular
Movement; the street thugs of Golden Dawn in
Greece will enter parliament for the first time;
Geert Wilders and his anti-Islamic chest-thumpers
brought down the government in the Netherlands
last month. Where the left has failed to provide a
convincing alternative to austerity, the right has
prospered.
Much rests on the shoulders of
Hollande and the French Socialists. To them falls
the responsibility of rebuilding a European left
that returns the EU to its roots - a socialist
market economy that grows together and preserves
unity in diversity. To pull France out of its own
doldrums, Hollande can't think small. He must go
big and, through persuasion and arm-twisting,
rewrite the rules of European economic revival.
Rejecting austerity is only a first step.
The Europeans could learn something here
from Latin America, particularly Argentina. In the
late 1990s, having racked up a huge debt,
Argentina faced the typical recommendations from
the international financial institutions: cut the
budget, privatize government firms, remove
barriers to outside investment. But Buenos Aires
said no. It defaulted on US$100 billion-plus in
loans. According to the rules of the game,
Argentina should have been thrown out on its ear
and forever banned from playing in the global
casino. But that didn't happen. Most creditors -
93% - eventually accepted the 35 cents on the
dollar haircut that the government offered.
Foreign investors, particularly from Brazil,
continued to supply capital. Bargain-hungry
tourists flocked to the country. Workers banded
together to take over enterprises that owners had
given up on (such as the Bauen Hotel in downtown
Buenos Aires). With a bit of luck -
particularly the rise in price of soybeans, a key
Argentine export - the country clawed its way back
to economic health. Unemployment dropped from 25
percent in 2001 to below 8% in 2010. Social
programs reduced the percentage of the population
living beneath the poverty line from 51% to 13%
(though it went up again in 2010). The recovery,
like all recoveries, is tenuous, for it depends a
good deal on the price of the commodities
Argentina exports.
Which is why Argentina
is going one step further to exert some control
over the process. The government of Cristina
Kirchner has nationalized Argentina Airlines as
well as pension funds, and it has also instituted
measures to slow capital flight from the country.
Most recently, it nationalized a key oil company,
YPL, taking back control of the firm from a
Spanish company that had a majority stake.
"A poll conducted by Poliarguia
Consultores published in the Argentine newspaper
La Nacion," writes FPIF contributor Melissa
Moskowitz in "Annotate This: EU Response to
Argentina's Nationalization", "indicated that 62%
of Argentines support President Cristina
Kirchner's plans to nationalize YPF. President
Kirchner's decision to promote and defend
nationalization reflects growing opinion that the
company has 'not invested enough' in Argentina 'to
cope with growing international demand.'"
Argentina is by no means the only country
in the region to roll back the privatization
mania. The Brazilian government increased its
control over the oil company Petrobras a couple
years ago. In Bolivia, the government of Evo
Morales recently renationalized the electricity
grid, which had also been in Spanish hands. This
move comes after the nationalization of
hydroelectric facilities and telecommunications.
Venezuela, under Hugo Chavez, has made
enlarging the state sector a populist rallying
cry. And Ecuador has followed suit with laws to
allow the government to seize oil and gas
companies that don't comply with national
regulations.
Despite this new trend in
Latin America, foreign investors have been
flocking to the region. In 2011, the region saw a
31% increase in foreign capital. But here's the
underlying reason for the nationalizations.
According to a recent UN report, "FDI revenue
transferred back to the countries of origin has
increased from US$20 billion per year between 1998
and 2003 to US$84 billion between 2008 and 2010
per year."
Sound familiar? Back in 1973,
Uruguayan writer Eduardo Galeano wrote, "Latin
America is the region of open veins. Everything,
from the discovery until our times, has always
been transmuted into European - or later United
States - capital, and as such has accumulated in
distant centers of power." Latin American leaders
are, with these nationalizations, attempting to
stem the blood loss.
Perhaps they will get
some help from an unusual quarter - the World
Bank. The bank's new head, Jim Yong Kim, is a
health professional, not a free-trader like Robert
Zoellick or a neocon like Paul Wolfowitz. One
person can't change an institution. But there are
plenty of people at the World Bank who are waiting
for this new kind of leadership.
The
2000/2001 World Development Report, prepared by a
team led by Ravi Kanbur and Nora Lustig, was an
extraordinary effort based on interviews with more
than 60,000 poor people in 60 countries. Alas, the
bank subsequently returned to its more traditional
top-down approach. But Jim Kim is much more
grassroots-oriented. Perhaps the World Bank under
his leadership can help shift the locus of
attention from facilitating financial speculation
to empowering the poor.
A backlash against
austerity in Europe, a move toward greater state
control in Latin America, a change in leadership
at the World Bank: this might seem slender
evidence for a Copernican revolution in economics.
The evidence for overturning orthodoxy might even
have seemed stronger in 1999, when the Asian
financial crisis prompted New Perspectives
Quarterly to ask economists Laura Tyson, Jeffrey
Sachs, and others whether the Washington consensus
was truly at an end (they saw greater "market
pluralism" emerging).
Moreover, a number
of leaders like Barack Obama are styling
themselves as Tyco Brahe, the Danish astronomer
who attempted to combine both Ptolemy and
Copernicus into an untenable geo-heliocentric
system. These modern-day Brahes want to preserve
the Washington consensus with only a few
modifications.
As the world lurches from
one economic crisis to another, and with the even
larger crisis of global warming looming above it
all, one thing is certain: there is no longer any
consensus in Washington over what to do.
Neo-liberalism survives, but more out of inertia
than conviction. Meanwhile, out there in the
world, the economic Copernicans are busy
reconstructing the order of things.
John Feffer is the co-director
of Foreign Policy in Focus at the Institute for
Policy Studies and writes its regular World Beat
column. His past essays, including those for
TomDispatch.com, can be read at his website.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
