Full refund within 30 days if you're not completely satisfied.
INTERNATIONAL REPOSITIONING:A 5-PAGE FOCUS ON THE EMERGING WORLD ORDER
THE WORLD TURNED UPSIDE DOWN
HERBERT PLOBERGER – ‘Destruction brings luck’ (1925)
Thinking the unthinkable
BY SERGE HALIMI
So, everything was possible after all. Governments could take radical action in the financial sector. The constraints of the European stability pact could be forgotten. Central banks could kowtow to governments and stimulate the economy. Tax havens could be blacklisted. Everything was possible because the banks had to be rescued. For 30 years, any suggestion that the liberal order might be amended to improve the living conditions of ordinary people, for example, met with the same stock responses: the Berlin wall has gone, didn’t you notice?; that’s all ancient history; globalisation is the order of the day now; the coffers are empty; the markets won’t stand it. And for 30 years, “reform” went ahead – in reverse. This was the conservative revolution, handing over increasingly substantial and lucrative swathes of national assets to the money men, privatising public services and transforming them into cash machines to “create added value” for shareholders. This was liberalisation, with cuts in wages and social security, forcing tens of millions of people to borrow in order to maintain their purchasing power, and “invest” with brokers and insurance agents in order to cover the cost of education, healthcare and pensions. Falling wages and social security cutbacks naturally led to financial excesses. Creating risks encouraged people to take steps to protect themselves. Speculation boomed, fuelled by the ideology of market forces, and housing became a prime target for investment. Attitudes changed, people became more selfish, more calculating, less public-spirited. The 2008 crash is not
just a technical hitch that can be put right by “learning lessons” or “putting a stop to abuses”. The whole system has broken down. The would-be repair men are already at work, hoping to restore it, plaster over the cracks, give it a fresh coat of paint, all ready to commit yet another offence against society. The wiseacres who now pretend to be disgusted with the reckless results of liberalism are the very ones who provided all the incentives – budgetary, regulatory, fiscal and ideological – for the ensuing spending spree. They should feel disqualified, but they know an army of politicians and journalists are eager to do a whitewash job. So we have Gordon Brown, whose first act as Chancellor of the Exchequer was to “liberate” the Bank of England, Joséé Manuel Barroso, president of a European Commission obsessed with “competition”, and Nicolas Sarkozy, who invented the “fiscal shield”, introduced Sunday working and privatised the post office: all, it seems, busy “rebuilding capitalism”. Their effrontery marks a strange hiatus. What has happened to the left? As for the official left, it just wants to turn the page as quickly as possible on a “crisis” for which it is jointly responsible. This is the left that went along with liberalisation, Democratic president Bill Clinton deregulating the financial sector, Franççois Mitterrand ending indexlinked wages, Lionel Jospin and Dominique Strauss-Kahn privatising public services, Gerhard Schrööder axing unemployment benefit.
Continued on page 5
INSIDE THIS ISSUE
India joins the nuclear cartel page 6
Pakistan’s fractious coalition page 7
Brussels:a city divided page 8
Mauritania’s mini Guantanamopage 10 Hubert Véédrine on Fareed Zakaria page 11
Aid or affliction? Do NGOs have the right to intervene? page 12-13 Rapping up:breaking out of the banlieues page 14 Rescuing the world’s rivers page 15 Postcards from the edge:the tourist appeal of Afghanistan page 16
Financial realities after the dollar
Like it or not,the next US president must accept that his great country and its mighty dollar are no longer unchallenged masters of a world economy slowing alarmingly.According to the International Labour Organization (ILO),there will be 20 million more people unemployed worldwide by the end of 2009 than in 2007.A new-look summit of both industrialised and emerging nations,the G20,scheduled for 15 November, is not expected to challenge a market system that has patently failed. Change will be slow because China,America’s main banker,has a vested interest in maintaining the status quo – for the moment at least
BY MARTINE BULARD
The US government decision to bail out the mortgage giants Fannie Mae and Freddie Mac in September came – according to rumour – after a phone call in which the Chinese president, Hu Jintao, threatened President George Bush that if they were not rescued, China would stop buying US Treasury bills. The US government denies the story. The Chinese point to the facts: Fannie and Freddie were saved and the Chinese loans, $595.9bn, were guaranteed. The story is emblematic of the current changes in the geopolitics of capital. Once upon a time the US determined the world’s financial affairs alone, but at the 63rd session of the UN General Assembly, on 24 September, Bush had to endure the reproaches of heads of state. “There was a certain satisfaction among some of the attendees that the Bush administration, which had long lectured other nations about the benefits of unfettered markets, was now rejecting its own medicine by proposing a major bailout of financial firms” (1).
On 27 September, Chinese economists and politicians reminded the World Economic Forum in Tianjin that they had been justified in resisting pressures for the total liberalisation of China’s financial system. Liu Mingkang, chairman of the China banking regulatory commission, said: “When US regulators were reducing the down payment to zero, or they created so-called reverse mortgages, we thought that was ridiculous” (2). In recent years Liu has tried to bring order to this chaotic sector and to ensure that the markets are controlled by the state, rather than by their own invisible hand: “A lot of the time, we learned that what we had learned from our teacher the day before was wrong.” This irony did not escape the bankers present who, in a move without precedent in the financial world, admitted responsibility. Stephen Roach, Morgan Stanley’s Asian head, acknowledged that huge mistakes in monetary policy had been made and accused the US central bank, the Federal Reserve, of forcing the US into an orgy of consumption. Only a few Americans were invited to the orgy. Although 1% of Americans own 20% of national income, a historical record, overall median earnings rose by only 0.1% a year between 2000 and 2007.
For most people the problem was less that consumption rose too high than that wages fell too far, forcing people to borrow for housing, education and healthcare (health insurance premiums have rocketed). Wealthy people and leading companies chose to invest abroad at the expense of domestic industrial development, forcing the US to import more and export less, driving up the deficit.
Capital flows reversed
The US rich got richer by refusing to pay decent wages, driving the poor into the arms of lenders. The developing world paid the ultimate price. Until the mid 1980s, capital flowed from the developed to the developing world; this flow has reversed. Emerging economies made US deficits good by buying Treasury securities, debts issued by the US government and 80-90% taken up abroad. Although Japan is still their major purchaser at $1,197bn (3), China, in second place with $922bn, is now the US’s banker as well as the workshop of the world. Including other major holders of US bonds (Hong Kong, South Korea, Singapore), Asia incorporates more than half of all foreign US public debt. The oil-exporting countries are major suppliers of capital funds (although only half as much as China), along with emerging nations such as Mexico and Brazil. Russia, so disparaged by Bush, is among the top 20 global lenders, thus demonstrating that you can trade insults and do business simultaneously. But he who pays the piper calls the tune, or hopes to. It would be catastrophic for Wall Street if China reduced its financing or stopped buying Treasury securities – not that it is contemplating such a move. “We should join hands,” China’s prime minister Wen Jiabao told Newsweek magazine. “And particularly at such difficult times, China has reached out to the US. And we believe such a helping hand will help stabilise the entire global economy and finance and prevent major chaos from occurring. I believe now that cooperation is everything”. Some commentators have seen this as proof of an ideological alliance between supporters of capitalism. But China is simply trying to defend its interests. As the prime minister continued: “If anything goes wrong in the US financial sector, we would be anxious about the security of Chinese capital” (4). This is true externally, since the crash
Continued on page 4