07/27/2011 03:26 pm ET Updated Sep 26, 2011

Dismantling States: Lessons From Greece

Cutting public sector budgets, laying off state workers, emasculating health, education and support for infrastructure has become a global phenomenon. And the results are not pretty.

Greece, for example, has become a victim of these policies. While bailouts will help bridge the current crisis, the conditions of the bailout -- so-called conditionalities -- are the same policies that led it -- and many other nations -- into this crisis.

During the 1980s and '90s, spirals of inflation and speculation led many nations to borrow money. In turn, they were forced by the International Financial Institutions (The World Bank, International Monetary Fund and the World Trade Organization) to slash government employees and programs, and sell off public assets as conditions for more loans -- to pay back previous loans. Such neck wrenching "structural adjustment programs" -- appropriately nicknamed SAPs -- flowed from the "Washington Consensus" of deregulation, privatization and liberalization (of movement of money as well as goods). Economic collapses came in Asia in the late '90s, then globally in 2008.

Another collapse is threatening, driven by debt, deficits and potential defaults.

But more of the same medicine -- lay offs, budget cuts -- is not going to help nations move forward. Many nations are rapidly dismantling governments on local, national and international scales. These policies are pushing Greece, Portugal, Spain, Ireland and Italy deeper into negative growth. The same structural adjustment policies in the U.S. -- on local and national levels -- will also reduce the chances of recovery. Even the U.S. Chamber of Commerce is worried about dwindling support for infrastructure -- ports, railroads, bridges, etc.

We face more failed states.

Deregulation of finance lies at the core of the chaotic state into which we are descending. Deregulation began in the early '70s when President Nixon cast the Bretton Woods rules asunder. And today, finance shows little sign of self-enlightened correction.

There is an alternative to more punishment. It involves resolving the disconnection between finance and production. In addition to restructuring debts, new funds are needed globally to push and pull markets towards a new form of development.

Where can such funds come from, with nations strapped by debts and deficits?

The European Commission president, Jose Manuel Barroso, has called for new global funds drawn from a levy on currency transactions (the so-called Tobin Tax -- after Nobel Prize winning Yale economist (deceased) who proposed it in the early '70s to slow down the spirals of speculation). A Tobin Tax would denationalize the source of funds -- rather than extracting it from financially-strapped nations. European Central Bank president, Jean-Claude Trichet argues that, to be successful, the levy would have to be adopted globally.

The current tally of wagers on relative currency values is $4 trillion a day (up from $16 billion daily in 1971). A few pennies levied on each hundred dollars exchanged would raise several hundred billion dollars annually -- an amount needed consistently over several decades to invest in productive sectors.

Funds are the necessary component toward building a clean economy and a new source of funds would benefit all. Such a transfer from finance into production would constitute a sound investment into our common future.

There is a precedent for such a shift. When high interest rates in the late '80s kept money in banks, lowering rates facilitated a shift of funds into the productive sectors -- benefitting finance and industry.

A small tax on finance would address the runaway train of an unregulated, undisciplined global economy by slowing down the rapid movement of money in and out of nations that can destabilize economies -- trades disconnected from the real economy. Reigning in the unregulated, unraveling of the global casino economy -- and generating funds for clean and healthy development -- is a two-fer with promise.

Greece -- the birthplace of western civilization -- is in a sad state, and is being forced to suffer deeply for all our sins. Structural adjustments to undo public services and infrastructure, is a self-defeating strategy. Greece's fate is a lesson for governments at all levels in developed and developing countries.

We need a large pool of funds to drive the clean energy transformation and healthy development -- and we need to stop dismantling the apparatus that provides the support for a thriving public sector.

Paul R. Epstein is co-author with Dan Ferber, of "Changing Planet, Changing Health," published this spring by the U. of California Press.