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 last 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 Obama administration, like the Clinton administration before it, discovered the immense power of the bond market. The IMF 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. 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 U.S. 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 (i.e.: 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-percent 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 (FPIF) contributor Jeanne Kay in The End of Austerity in Europe, “but he diverges from 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 GDP 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 $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 percent – 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 percent in 2010. Social programs reduced the percentage of the population living beneath the poverty line from 51 to 13 percent (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 percent 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-percent 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 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’s 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.
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Peter Worthington: What do the Elections in Greece and France Have in Common?
Somehow I doubt that "best", though America is definitely leading with incarceration rate, defense spending, energy consumption (not taking into account those oil states building skating rings), health care cost per capita even if not covering the whole population, number of fire arms per capita and probably murder rate when comparing to other developed nations, near total lack of consumer protection, the list goes on and on. You sure have a lot to be proud of.
Well done!
They called it, "countries."
"Countries" were not simply brick walls built around pieces of land. They were identities, and they were frameworks of autonomous governments which worked first-and-foremost for the people within those brick walls. The "countries" interacted with one another, but they always did it according to their own laws ... and according to treaties which they from time to time accepted but always once again on their own terms.
What we have right now is: "no-nationalism."
Nobody plays by any nation's rules; they only play one nation against the other. Who can we steal from next, and the laws of your nation do not apply. The entire situation has devolved into lawlessness and every nation simultaneously is being played for the sucker.
The "bankers" profess to have "all the money in the Universe." The USA calls itself tens of Trillions of dollars "in debt" and doesn't seem to care, while other nations are "in debt" and are told that they cannot function.
This is financial fraud of the highest order. It's being perpetrated by a few men and women who call themselves powerful, and by the government operatives who fawn at their feet for a piece of the action.
Is that going to go on forever? Unopposed? No.
Would engaging in fair trade, AND NOT PROFITEERING ON FOOD and oil, stop desperate immigrants from their flight to safety? Yessiree. You can guarantee ANYTHING and everything THAT forces tax burden on citizens WORKS PERFECTLY FOR UNTAXED, NON-CITIZEN INTEREST TO CREATE DEBT. DEFUNDING, disarming and disabling protections to their pirating is essential for their treasonous existence.
Proof that they work OUR economy, is that there are no protections against the bankers(&their Chinese interests) buying away regulation and tax/tariffs to protect our incomes and buying power.
With REAL regulation the left would never ever have to rise to take control of businesses/commodities that exploit to damaging extent.
YES! Soybeans, our valuable wood/tree resources, oil, and POISON FREE product should carry huge fees upon export to China. Why would OUR government expose OUR economy to such toxic, labor intensive, buying power destroying products? Dangerous agency of outside interests KNOWN AS TREASON is getting thrown off worldwide.
ps, The recent annoucement of agreement with China, to protect internet security is a fraud. China makes most of our tech, and had access to Stratfor info, before any hacker exposed the PATHETIC, fraudulent facade of security integrity. Chinese interest in the US is creating allegiance IS BECAUSE BOTH ARE MORTIFIED OF FREEDOM FIGHTERS, that unite citizens. Anonymous had hacked and lifted restrictions from some Chinese sites, which alarmed the treasons HERE offering our property up to sweatshop/toxic site/ communist corp.-state owned interests. ELIMINATING our voice, and pirating our property drives citizens to revolt.
GO Argentina! Quadruple the soybean price for intl bankers and China! Sell directly to consumer's markets at fair prices
Are the investors who currently see no hope of recovering the money they've previously loaned to the profligate governments, going to be willing to loan them MORE money? Perhaps they're that foolish, but I doubt it.
- is this not simply an overly-gentle econom-ish way of saying that Argentina stole $100 billion from investors/people who were good enough to advance them credit? what am i missing here? when did blatant thievery become a good thing? getting back 35 cents on the dollar doesn't resolve this...
"Foreign investors, particularly from Brazil, continued to supply capital."
- again, what am i missing here? why would anyone lend Argentina money after it had just defaulted on $100 billion? what are/were these investors thinking? even if they received some sort of guarantees, why would they trust them?
The book is by Naomi Klein and its called the shock doctrine. The rise of disaster capitalism.
at first, UK, germany, US, IMF went down on them like blood thirsty hounds. when they stood their ground, the dogs shriveled and ran away.
BUT "iceland suddenly disappeared from the map" hahaha, of course i mean the map of CNN, FOX, etc... newspapers and all, both leftist and rightist. if any journalist of them spineless had any backbone, he/she would write/speak about it daily until washington's ears burst. or if fired, leave with a loud bang.
investors are NOT ONLY foreign, they are the bankers, those who issue money as debt and foreigners (ex US: the investors were mostly the bankers). BUT while at the same time you are cutting spending, you still pay "investors", whether foreign or domestic. you do not impose taxes and extra regulations on them, lest u b labeled a commie or a socialist ooohhhh, ostracized, banished from the land of the "international community"....etc.
ok, don't the investors have any duty towards the community like the ordinary people/middle class? only middle class should sacrifice their social protections, mind you protection NOT excesses, but investors who have milked the cow 1billion percent and avoided taxes both at home and abroad should not sacrifice part of their excesses? should they continue in their super duper spending extravaganza THAT FAR SURPASSES FEUDAL MONARCHIES which we consider barbaric now?
Brazil are more humane capitalist/ not brute ones. they do not have to milk the cow until it drops dead. they accept sustainable growth and return. thus they can engage Argentineans in fair business, share profit, and all is happy.
but we're constantly brainwashed by mainstream media. We kind of live in the matrix (the reality created for us) LOL, unaware of the endless other possibilities/reality, until we start critical thinking.
"French and Greek voters rejected austerity in the elections this weekend not because, as the U.S. media coverage implies, they are unruly children who refuse to swallow their medicine."
While it may be true that those governments have passed legislation that would allow for austerity measures, they have renigged on the implimintation. They've only half-a$$ed the cure because YES, the people do not want to give back anything. The same applies here...the "free" stuff people have they do not want to give up...bad thing about entitlements.
That type of thinking is the problem
Want to read what happened in Argentina? Read Naomi Kleins The shock doctrine.
Her arguments are shaky at best
book is an argry polemic, nothing more
it's just the start for a big change in France :-))