Global Financial Crisis: We Know Who the Culprits are, But are We Prepared to Address the Cause?

By Fazila Farouk · 13 Mar 2009

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Picture credit: Elyce Feliz
Picture credit: Elyce Feliz

The global financial crisis has exploded onto the scene, bringing with it job losses, home losses and family murder-suicides. This crisis may be financial, but its costs are human.

The culprit, ‘capitalism’ has been named and shamed and the casino they call Wall Street, exposed. Under the disapproving gaze of the world’s ordinary people, elites appear confounded.

How did they get it so wrong? Why didn’t they see the writing on the wall? What were the predictions of the financial media while the storm was brewing?

And what of the way forward? 

These questions are on many minds, but answers vague. 

The tycoons or business leaders as they are more commonly referred to these days were dreadfully mealy-mouthed in late January this year at the World Economic Forum (WEF), neither coming out with clear values for a new global economy, nor charting a fresh pathway out of the current crisis.

Of course none of the regulars at the WEF would be prepared to admit that capitalism thrives on pathological concentrations of power. Finding a new way forward would require addressing precisely this problem. This, they would not be willing to face.

The contempt of the capitalist class and their political allies can be discerned in this response from U.S. Secretary of State, Hilary Clinton. 

While delivering her first major foreign policy speech to America’s Asia Society on the eve of her visit to Asia last month, she was asked how she thought the “American Dream” could be upgraded to that of a global vision that is sustainable for every human on earth, where America would not only be recognised as a leader, but a true partner in global development. 

Clinton responded, “That’s a great question. It’s a question that maybe five years ago would have been thought of to be kind of touchy feely to be honest about it and would not have been entertained seriously in a lot of the boardrooms and decision-makers’ meetings and halls of legislatures.”

For Clinton to downgrade the idea of equitable and sustainable global development to the level of “touch feely” is quite frankly insulting to the people of this planet and lacking in any spirit of humanity. However, sensing that she couldn’t disappoint her audience by not answering the question, she rambled on about the various crises facing the planet, from climate change to the financial crisis, saying that these presented real opportunities for problem-solving from America’s private sector and government, but only to the extent that potential solutions would not affect the material standard of the American way of life.

Clinton’s remarks, particularly as Secretary of State, should be setting off alarm bells for the rest of us living in the knowledge that the world does not now, nor ever will have the resources to sustain everybody in the image of the “American Dream”. Attempting to reach this level of global parity for us all would lead to the complete destruction of our planet.

If compromise on the “American Dream” is not on the negotiating table, what then are the implications of her remarks for reducing global inequality? Will she be waltzing around the world waving her diplomatic wand, delivering her Commander in Chief’s message of ‘hope’ and ‘change’, while scheming about protecting the empire at the back of her mind?

Cambridge development economist Ha-Joon Chang is not popular amongst Western leaders. But when politicians like Clinton make self-centred remarks, his views are vindicated. Chang is author of the books ‘Kicking Away the Ladder: Development Strategy in Historical Perspective,’ and ‘Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism’.

His books are experiencing a revival of interest with the onset of the financial crisis and the search for a new way out of the current catastrophe. They reveal the nefarious nature of the double standards practised by rich nations. Now that the rich nations have reached the top, they are kicking away the ladder.

Chang focuses on “free trade”, a fundamental tenet of neoliberal economics and argues that rich countries have used global institutions to wrest disproportionate control over the markets of the developing world in their attempts to maintain global wealth and dominance.

Rich countries have used what he refers to as the “unholy trinity” of the World Bank, the International Monetary Fund (IMF) and the World Trade Organisation (WTO), as instruments to prise open developing country markets by promoting neoliberal policies such as the promotion of unregulated economies, the privatisation of state owned enterprises and free trade, with dire consequences for the developing world.

The duplicity of rich nations is evident in the way that they protect their own economies. According to Chang, “Practically all of today’s developed countries, including Britain and the US, the supposed homes of the free market and free trade, have become rich on the basis of policy recipes that go against neoliberal economics.”

Chalmers Johnson, professor emeritus at the University of California reviewed Chang’s book ‘Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism’. In his review, he explains how Chang’s country of birth, South Korea went from being one of the poorest countries in the world to becoming a manufacturing powerhouse in Asia by rejecting the advice of the World Bank.

In 1961, at US$82, South Korea’s per capita income was less than half of Ghana’s, which at the time stood at US$179. By the year 2004, the per capita income of South Korea had jumped to US$13,980. South Korea achieved this by instituting trade restrictions and refusing to privatise state enterprises in post-war Korea -- as a consequence of which it also lost the financial support of the World Bank.

Regardless of being shunned by the bank, South Korea stuck to its guns. Included in Johnson’s review of Chang’s book is an enchanting anecdote from the author about his days as a student: “We learned that it was our patriotic duty to report anyone seen smoking foreign cigarettes. The country needed to use every bit of foreign exchange earned from its exports to import machines and other inputs to develop better industries.” 

Ghana of course, along with the rest of Africa is falling of the world map thanks to embracing the neoliberal policies imposed by the World Bank and IMF, which Johnson argues had the run of Africa in the last quarter century and have run it into the ground. 

“The disaster has been so complete that it has helped expose the hidden governance structures that allow the IMF and the World Bank to foist Bad Samaritan policies on helpless nations,” says Johnson. He continues; “The US has a de facto veto in both organisations, where rich countries control 60% of the voting shares. The WTO has a democratic structure (it had to accept one in order to enact its founding treaty) but is actually run by an oligarchy. Votes are never taken.”

What is of concern today is that the World Bank and IMF have walked onto centre stage in the global financial crisis. Their appalling records in Africa and Latin America appear not to affect their credibility amongst elites around the world. One would have hoped to see their influence curbed, but they are still strutting around administering the same old neoliberal medicine to the ailing global economy.

At the same time, there is widespread acknowledgement that the unencumbered neoliberal vision of the American economy, fed by the greed of Wall Street has led to the global financial crisis.

To save them from bankruptcy, some of America’s banks have received financial bailouts from their government, but they have shunned advice and/or any state control over how they spend this money, which has resulted in some bankers using the bailout money to pay themselves handsome bonuses.

Ordinary Americans, the taxpayers who foot the bailout bill are seething, but the Obama administration, which like its predecessors, prays at the altar of privatisation, has rejected, outright, suggestions that the banks be nationalised. 

Sadly, the story of the neoliberal drivers that thrust the American economy into freefall is not even being considered as a cautionary note by mainstream South African commentators. 

Ha-Joon Chang doesn’t feature anywhere on the horizon. Instead, we are served Dambisa Moyo, author of the book ‘Dead Aid: Why Aid is Not Working and How There is Another Way for Africa’. The Business Day’s Weekender ran a big feature some weeks back.

Of Zambian origin, Moyo has a doctorate from Oxford, worked a stint at the World Bank (bad Samaritan) and even spent some time polishing her trade at Goldman Sachs (bailout recipient). She argues that financial aid flows to Africa must be halted in the next five years because the continent’s biggest stumbling block is corrupt leaders.

Chang would have her for breakfast. "Most of today’s rich country’s successfully industrialised despite the fact that their own public life was spectacularly corrupt," he argues.

Its not that corruption doesn’t exist, its just that its not the most critical problem in Africa. Chang cites corruption as an excuse used to deflect attention away from the failure of neoliberal policies. 

African countries have faltered because their corrupt leaders adopted neoliberal policies, while their elites whisked their money away to foreign bank accounts. In contrast, Asian economies succeeded despite corrupt leaders like Suharto in Indonesia, because their states intervened in their economies, while their elites (including in Indonesia) invested domestically.

There are lessons for South Africa in these stories of economic success and failure. But the best that our establishment mouth organs can do is sow confusion about some impending commie threat, because our unions are talking about nationalising a few companies.

At the same time, the demonization of political leaders that have roundly rejected neoliberalism, like Venezuela’s Chavez is widespread in our business press. He is not the bad guy he is made out to be. Hollywood filmmaker, Oliver Stone is about to make a documentary about him. I gather that it's one that will show the Latin leader favourably.

The current global financial crisis has brought us to a significant epoch in the world’s history. For South Africa, too, it symbolises a new beginning and presents us with the opportunity to review the state of the world and our role in it.

We have nothing to fear and everything to gain from examining alternatives.

Farouk is founder and executive director of The South African Civil Society Information Service.

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