Full refund within 30 days if you're not completely satisfied.
NAFTA: HOW FOSTORIA, OHIO, LOST OUT AS JOBS WENT SOUTH TO MEXICO – Pages 12-13
AUGUST 2011 No 1108
JERRY WALDEN – ‘Reconstructing Deconstructing Jerry #74 (Oh?)’ (2010) RHV
Blackmail in Washington by SERGE HALIMI
The squabbles between President Obama and the Republican majority in Congress over US debt obscure the main point: under covert pressure from his opponents, Obama has agreed without further ado that $3,000bn, more than three-quarters of the budget reduction he wants for the next ten years, will be covered by cuts in social services. Not content with this victory, the US right wants more – even if its unrelenting demands are likely to be unpopular with voters.
Bowing to the Republicans in Congress, Obama first agreed in December 2010 to extend for a further two years the hugely inequitable tax cuts introduced by his predecessor, George W Bush. Four months later, taking his cue this time from Ronald Reagan, Obama cheerfully announced “the largest annual spending cut in our history”. He then embarked on a series of negotiations with Republican members of the House, adding: “I am prepared to take on significant heat from my party to get something done.” The result: further concessions from the White House.
The US right is dead set against raising taxes to reduce the debt. This may seem odd in a country where, as a result of the tax concessions showered on the super-rich, overall tax rates are the lowest in 50 years. But, quite apart from their manic attack on public spending, the
Republicans’ real aim is to “starve the beast” – that is, to quote a Republican strategist, to “cut government down to the size where we can drown it in the bathtub”.
What are the real reasons for the recent increase in the US public debt? First, the economic crisis resulting from financial deregulation in recent decades; then the regular extension of the tax reductions voted in 2001 (revenue loss: $2,000bn); and last the post-9/11 wars in Afghanistan and Iraq (cost: $1,300bn). Yet the party of Reagan and Bush aims to solve the problem by protecting the super-rich as “job creators”, and the Pentagon budget, which has increased by 67% (in real terms) over the past ten years.
Paul Ryan, chairman of the House of Representatives Budget Committee, explained the Republican plans for coming decades in detail on 5 April. Public expenditure, currently 24% of gross domestic product, would amount to only 14.75% of GDP in 2050, and the maximum tax rate would be reduced from 35% to 25% (the lowest rate since 1931). All the special tax concessions would be maintained, while reimbursement of health charges paid by the old and the poor would be frozen at their current level, despite escalating costs. If Obama continues to back down, US public services will soon look like that drowned body in the bathtub.
Translated by Barbara Wilson inside this issue In Hama, and across Syria, citizens are standing up for change Page 2 This land is their land: Bugandans want their share of Uganda’s wealth Page 3 Good morning, Vietnam! The US comes in peace to Indochina Page 6 The future for nuclear isn’t quite so glowing post-Fukushima Page 8
Putting the nuclear genie back in the bottle will take France decades Page 10 Forever America: Henry’s Ford’s forgotten jungle city on the Amazon Page 11 Masters and servants: luxury hotels redraft the social contract Page 14 ‘They will be buried by laughter’: Toni Negri’s revolutionary heart Page 16
CAN’T PAY BACK, WON’T PAY BACK
Iceland’s loud No
The people of Iceland have now twice voted not to repay international debts incurred by banks, and bankers, for which the whole island is being held responsible. With the present turmoil in European capitals, could this be the way forward for other economies? BY ROBERT H WADE AND SILA SIGURGEIRSDOTTIR
The small island of Iceland has lessons for the world. It held a referendum in April to decide, more or less, whether ordinary people should pay for the folly of the bankers (and by extension, could governments control the corporate sector if they depended on it for finance). Sixty per cent of the population rejected an agreement negotiated between Iceland, the Netherlands and the UK to pay back the British and Dutch governments for the money they spent to recompense savers with the failed bank Icesave. That was less resistance than the first referendum last spring, when 93% voted no.
The referendum was significant since European governments, pressured by speculators, the IMF and the European Commission, are imposing austerity policies on which their citizens have not voted. Even devotees of deregulation are worried by the degree of the western world’s servitude to unconstrained financial institutions. After the Icelandic referendum, even the liberal Financial Times noted with approval on 13 April that it had been possible to “put citizens before banks”, an idea which does not resonate among European political leaders.
Iceland is an unusually pure example of the dynamics that blocked regulation and caused financial fragility across the developed world for 20 years. In 2007, just before the financial crisis, Iceland’s average income was the fifth highest in the world, 60% above US levels; Reykjavik’s shops were stuffed with luxury goods, its restaurants made London seem cheap, and SUVs choked the narrow streets. Icelanders were the happiest people in the world according to an international study in 2006 (1). Much of this rested on the superfast growth of three Icelandic banks that rose from small utility institutions in 1998 to being among world’s top 300 banks eight years later, increasing their assets from 100% of GDP in 2000 to almost 800% by 2007, a ratio second only to Switzerland.
The crisis came in September 2008 when money markets seized up after the Lehman meltdown. Within a week, Iceland’s three big banks collapsed and were taken into public ownership. Moody now listed them among the 11 biggest financial collapses in history.
After more than 600 years of foreign rule, Iceland’s social structure was the most feudal of all Nordic countries at the beginning of the 20th century. Fishing dominated the economy, generating most of the foreign-currency earnings and allowing the development of an import-based commercial sector. This created urban economic activities: construction, services, light industry. After the second world war the economy grew strongly, because of Marshall Plan aid (there was a large US-Nato military base); an abundant export commodity, cold-water fish, unusually blessed with high income elasticity of demand; and a small, literate population with a strong sense of national identity.
As Iceland became more prosperous it established a welfare state, in line with the tax-financed Scandinavian model, and by the 1980s had attained a level and a distribution of disposable income equal to the Nordic average. Yet it remained both more regulated and more patron-client-dominated than its European neighbours; a local oligopoly restricted the political and economic landscape.
There is a direct line of descent from the quasi-feudal power structures of the 19th century to the modernised Icelandic capitalism of the later 20th century, when a bloc of 14 families, popularly known as The Octopus, were the economic and political ruling elite. The Octopus controlled imports, transport, banking, insurance, fishing and supplies to the Nato base and provided most top politicians. The families lived like chieftains.
The Octopus controlled the rightwing Independence Party (IP) which dominated the media and decided on senior appointments in the civil service, police and judiciary. The local, state-owned banks were effectively run by the dominant parties, the IP and the Centre Party or CP (2). Ordinary people had to go through party functionaries to get loans to buy a car, or for foreign exchange for travel abroad. Power networks operated as webs of bullying, sycophancy and distrust, permeated with a macho culture, something like the former Soviet Union.
This traditional order was challenged from within by a neoliberal faction, the Locomotive group, which had coalesced in the early 1970s after law and business administration
Continued on page 4
obert Wade is professor of political economy at the London School of Economics; Silla Sigurgeirsdottir is lecturer in public policy at the University of Iceland. This is an updated version of “Lessons from Iceland”, first published in the New Left Review, London, September-October 2010