Small hopes for a shift leftwards in economy

9 July 2009 by Patrick Bond


A COUPLE of Nobel prize-winning economists are giving major talks in
Joburg this week. Many in civil society hope the visits by two of global
capitalism’s best-known critics can pull local economic policy debates
further leftwards: towards meeting social needs, not market dogmas and
corporate profitability.

Without wanting to prejudge, I just don’t think such expectations will
be fulfilled. The ideas for which Muhammad Yunus and Joseph Stiglitz won
the Nobel Peace Prize in 2006 and Economics Prize in 2001, respectively,
are simply not sufficient for these tumultuous times.

The Nelson Mandela Foundation is honouring Grameen Bank founder and
microcredit guru Yunus on Saturday with the annual Mandela Lecture,
while Columbia University professor Stiglitz gives two speeches at Wits
University, tonight and on Friday.

The way both have addressed the global economic meltdown leaves a great
deal to be desired. Yunus is most complicated, because his micro-finance
strategy dovetails with the most rabid model of neo-liberal capitalism.

As Yunus put it: "I believe that ’government’, as we know it today,
should pull out of most things except for law enforcement and justice,
national defence and foreign policy, and let the private sector, a
’Grameenised private sector’, a social-consciousness-driven private
sector, take over their other functions."

Over the past three decades, across the world, many governments pulled
back from regulating financial markets, especially in the US under the
Reagan, Bush 1, Clinton, and Bush 2 administrations.

One might expect that the resulting financial crisis would change
Yunus’s tune. After all, the catalysing event a couple of years ago was
the rising default rate on a rash of “subprime mortgage Mortgage A loan made against property collateral. There are two sorts of mortgages:
1) the most common form where the property that the loan is used to purchase is used as the collateral;
2) a broader use of property to guarantee any loan: it is sufficient that the borrower possesses and engages the property as collateral.
” loans given to
low-income US borrowers.

Privilege

Earlier, the Yunus philosophy was that "credit is a fundamental human
right", not just a privilege for those with access to bank savings
accounts and formal employment that permits stop-order repayments.

Reflect on this, and you quickly realise how ridiculous, inappropriate
and dangerous it is to compare bank credit with crucial political and
civil liberties, health care, water, nutrition, education, environment,
housing, and the other rights guaranteed in South Africa’s constitution.

Yet the biography of Yunus supplied by his local speaking agent (www.
speakersinc.co.za) still makes reference to "credit as a fundamental
human right" in its opening sentence.

Apparently backing away from this posture four months ago, Yunus told
India’s MicroFinance Focus magazine the opposite: "If somebody wants to
do microcredit - fine. I wouldn’t say this is something everybody should
have."

Indeed, the predatory way that credit was introduced to vulnerable US
communities in recent years means Yunus now must distinguish his Grameen
Bank strategy of “real” microcredit from microcredit "which has a
different motivation“.”Whenever something gets popular,“he told the Indian magazine,”there
are people who take advantage of that and misuse it."

To be sure, Yunus also unveiled a more radical edge in his interview,
interpreting the crisis in the following terms: "The root causes are the
wrong structure, the capitalism structure we have. We have to redesign
the structure we are operating in."

Fair enough. But in the next breath Yunus is back in the neo-liberal
box, arguing that state microfinance "regulation should be promotional,
a cheerleader".

For a man whose strategy of lending to women in group borrowing schemes
garnered such praise, but who, when times were tough, allowed interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set.
rates to soar and his loan collectors to rip the tin roofs off the
women’s houses as a means of taking collateral Collateral Transferable assets or a guarantee serving as security against the repayment of a loan, should the borrower default. when they defaulted, a
robust consumer watchdog is needed, definitely not a cheerleader.

Similar contradictions characterise Stiglitz’s views. His first Wits
lecture promises to address "the role that orthodox economists played in
the creation of the crisis and the implications for the teaching of the
discipline of economics in universities".

This sounds very welcome. Stiglitz won the Nobel prize for his new
“information-theoretic economics”, especially the critique of the flawed
market assumption of perfect information by buyers and sellers.

He coined the phrase “Post-Washington Consensus” in 1998, to suggest the
need to drop the International Monetary Fund IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
and World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

orthodoxy of
the day, and in 2002 he even called for the IMF to be shut down.

Yet Stiglitz’s own ideology is based upon fixing capitalist markets, not
transcending them. As he explained six months ago: "No one can be sure
what will work. But long-standing economic principles can help guide us.
Incentives matter."

The same reversion to orthodoxy was witnessed in his leadership of the
UN Commission of Experts on Reforms of the International Monetary and
Financial System, which met last week in New York.

Reforms

Ultimately, Stiglitz’s work disappointed those with more ambitious
reforms in mind. There were no mentions of capital/exchange controls to
allow countries insulation from disastrous global financial flows.

There were no suggestions for converting bank nationalisation from
“lemon socialism” into a genuine public utility. The Jubilee movement’s
projects of debt cancellation, Odious Debt and reparations were not
mentioned.

There were no detailed strategies to address ecological debt and the
financing implications of climate crisis. There was no attempt at
commodity price regulation, in spite of disastrous swinging.

Instead, Stiglitz’s commission endorsed the tired, dubious Doha Agenda
of the World Trade Organisation WTO
World Trade Organisation
The WTO, founded on 1st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

, as well as a greater role for the
much-aligned IMF.

The commission proposed a UN Global Economic Council with two dozen
members with similar status to the UN Security Council, which might
potentially lock in the power of the Group of 20 elites (including South
Africa) rather than democratise the world economy.

On the other hand, the commission also proposed a new currency and
reserve system that would suffer relatively less veto power from the
wealthy countries, plus a 1 percent of gross domestic product GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
levy to
redistribute from North to South.

But overall, Stiglitz failed to grasp the opportunity of delegitimising
the world elites who are desperately trying to return to business as
usual. A much greater challenge to prevailing international economic
relations will be needed to recover from the depression.

During a week the G8 G8 Group composed of the most powerful countries of the planet: Canada, France, Germany, Italy, Japan, the UK and the USA, with Russia a full member since June 2002. Their heads of state meet annually, usually in June or July. leadership is meeting in Italy with the intent of
sabotaging prospects for a workable climate change treaty in Copenhagen,
the world needs genuine voices of clarity on behalf of social and
environmental justice.

Maybe Yunus and Stiglitz can rise to the occasion. My guess, though, is
that they remain trapped inside the box of their training as damn
economists.

Patrick Bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. is the director of the Centre for Civil Society at UKZN.




Patrick Bond

is professor at the University of the Western Cape School of Government in Cape Town, and co-editor of BRICS and Resistance in Africa (published by Zed Books, 2019).

Other articles in English by Patrick Bond (79)

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