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TechnoratiGlobal Priorities: Feeding Markets, Starving the Hungry
The one trillion dollar bailout package that President Bush is promising could have wiped out the last traces of poverty, hunger, malnutrition and squalor from the face of the Earth - if only our global leadership prioritised the poor with the same level of urgency as the financial crisis, writes Devinder Sharma.
The world's private-sector giants have stepped on a financial minefield. In the past six months, three of America's top five investment banks have disappeared. The remaining two - Morgan Stanley and Goldman Sachs - are gasping for breath. While Morgan Stanley is considering merger options, the stocks of Goldman have slumped.
Strong tremors were felt all over the world.
In what appears to be a classic example of ‘public-private' partnership, the US government stepped in to bail out AIG by agreeing to lend US $85 billion in emergency funds in return for a 79.9 percent stake, which means effectively taking control of the world's largest insurance company. In the week following the mayhem in Wall Street, central banks in Britain, the European Union, Japan, Switzerland, Canada, Russia and India have pumped in US $600 billion in multiple rescue acts.
Ironical isn't it? The private-sector giants are ultimately rescued by the government's treasury.
In the past year, the US treasury has already spent US $900 billion in bailouts. With the IMF chief Dominique Strauss-Kahn warning that the worst is yet to come, taxpayers all over the world will eventually have to shell out more to cover up the huge losses being incurred by the private giants. It reminds me of the old saying: heads you win, tails I lose.
Sure, the markets won. The US President George Bush could not remain a silent spectator. "Government intervention is not only warranted, but essential," he said urgently before offering the mother of all bailouts - a US $1 trillion package. Sure, within hours the world's markets began to smile again.
The political urgency with which the US government (and governments elsewhere) came to the rescue of the financial system also exposed their double standards. The US $600 billion coughed out in just one week could have completely eradicated hunger (the 854 million people estimated by the FAO to go to bed hungry each night) from the face of the planet. The additional US $900 billion that the US has spent in the past one year could have lifted the world's estimated 2 billion poor people from poverty, and that too on a long-term sustainable basis. The one trillion dollar bailout package that George Bush is promising could have wiped out the last traces of poverty, hunger, malnutrition and squalor from the face of the Earth.
Only if global leadership was honest enough could the same amount of urgency be demonstrated in tackling world poverty and hunger. There would have been no need for the United Nations to provide a cover-up for their collective guilt in the form of Millennium Development Goals. Poverty would have been confined to history. Hunger would have already been banished.
Coming back to the collapse, this is in essence the market mantra. When the going is good, the government must step back and allow the bull a mad run. Profit becomes the sole motive, and investors lap it up. We have been repeatedly told that ‘The markets will correct itself'. The investment banks have always reassured governments, regulators and investors that they have the expertise to manage asset risks.
Profits are raked in by capitalist corporate marauders. A few corporate houses make billions, present fake numbers and arguments, and walk away with the cake. Credit ranking industries provide them with the highest honours. And when the collapse comes, the losses are invariably picked up by the average taxpayer on whose savings the governments provide the bailouts.
The trillion dollar question that arises is: Why should the governments intervene? Aren't the markets supposed to be self-regulatory and self-contained? And more importantly, why should the governments try to keep the markets alive?
Before we investigate the matter any further, let me assure you of one thing. These firms were no ordinary business houses. As others have said, they represented the pride of the American financial system. They had the best of talent, attracting the highest achievers from business schools. They advised foreign governments and provided expert opinions. They have rewritten economic and monetary policies for the World Bank/IMF and the World Trade Organisation. Such has been the power of the markets that the mainline economic thinking the world over has become its mute disciple.
Privatisation has been the economic buzzword of our times, forcing the governments to open up their markets to foreign direct investment. Markets became the ultimate economic nirvana.
In India, pressure is on to disinvest the remaining public sector companies, and now pressure is also building up to privatise the nationalised banks. The arguments are the same as we have heard before, and every mainstream economist worthy of his title will argue in favour of privatising the nationalised banks. But when the private sector goes bust or the markets explode, it is invariably the governments that are expected to nationalise them.
India managed to escape the heavy shocks thanks to the left parties, but the tremors still forced the Reserve Bank of India to pump US $18 billion into the domestic banking system through the liquidity adjustment facility. Let us not forget that the UPA government was keen to open up the financial sector, to bring in a legislation to allow dilution of government equity in public sector banks, and to reform the insurance sector. Further privatisation of banks and opening up of the insurance sector will now be on hold following the global meltdown.
Reviewing the impact of the financial crisis, Indian Prime Minister Manmohan Singh asked his ministers to "stay alert on the global turmoil." Without drawing any lessons from the collapse, Finance Minister P Chidambaram however remains bullish on financial reforms. If the left parties had allowed him to have his way, India would have been in the throes of a terrible economic and political crisis.
The US $85 billion bailout for AIG by the US government is the biggest nationalisation in history. Rescuing AIG was crucial because its failure posed a much bigger threat to the entire financial system. The one trillion dollar bailout package, equivalent to the size of India's GDP, is in reality what will keep the markets alive. If nationalisation is now justified and it is the government which actually keeps the markets thriving, I fail to understand how the government was considered ‘bad' in the first place. Why was it ever branded as a remnant of the bygone socialist era?
In the days to come we will see more and more of such bailouts - meaning more companies and firms being nationalised. It is no wonder that Prof Nouriel Roubini of New York University's Stern School of Business once called it the "privatisation of profit and socialisation of losses."
We come down heavily on the police intelligence when the terrorist strikes do not stop, to the point that even the Home Minister becomes a target of ridicule. But when the financial intelligence fails us, and that too with the brightest of the money managers from the best of the business schools in control, we refrain from even pointing a finger. We don't ridicule the chiefs of the corporate world, nor do we mock what the so-called prestigious business schools produce.
The reason why is very simple. We are all implicated in a system of greed, which in one word defines the reason behind the financial meltdown. Let us accept, in other words, that we are all beneficiaries of a corrupt financial system - forcing us to refrain from standing up and calling a spade a spade.
However hard we may try to reform a financial system based on greed, let me assure you that it cannot ever be unclogged and truly regulated. The hypocrisy shrouding the success of the market economy must therefore come to an end. Let the market operate freely and survive on its fundamentals. Let the market learn to manage its own risks, without the government coming to its rescue. Let capitalism sustain itself, without lifesaving intravenous injections from government treasuries. Then let us see for how long the markets will survive.
Until then, we don't need to shed any tears for the estimated 24,000 hungry people who perish with each passing day in an endless wait for their next morsel of food. They have been told bluntly time and again that the governments have no money to feed them. Their legitimate right to food has in reality been snatched by the markets to fill our pockets - a small price that the poor must pay to sustain our dreams.
13 Comments so far
Show AllIn spite of the many excellent points here, (especially the subtitle!) I disagree with the conclusion. We must not "let the market operate freely." We can fix things, even short of a religious transformation of the world, which is how I interpret Sharma's view about greed.
He states: "We are all implicated in a system of greed, which in one word defines the reason behind the financial meltdown. Let us accept, in other words, that we are all beneficiaries of a corrupt financial system - forcing us to refrain from standing up and calling a spade a spade." Yes and no. Yes, clearly we are in some ways. No, we really do not benefit from the starvation of the world, in other ways.
I heard, maybe two days ago on Democracy Now that the U.S. has the largest gap between rich and poor ever in our history, the largest of any of the wealthier industrial nations. That's how the "benefits" have gone here. Let us not forget that the U.S. is the most powerful agricultural exporter in the world. We have had world export market shares above 60% for some major commodites like corn and soybeans, even to 90%. We're hugely affected by the LOW farm prices that have caused, long term, so much world poverty, malnutrition and starvation.
Domestically, according to Stewart Smith at the University of Maine, the farm share of the food dollar dropped by 80% from from 37.6% in 1910 to 7.7% in 1997. This projects out to zero by 2020 (though the trend has likely changed some). The market share (output complex) rose from 48.2% in 1910 to 72.9% in 1997. The input share also increased, from 14.1% in 1910 to 19.6% in 1997. This is even worse for grains. Using data on farm prices from NASS and food prices from Safeway, Farmers Union found combined farm/input shares here as follows: cereal: 2.6%, bread 5.7%, boneless ham 14.2%, lettuce, 17.1%, carrots 25.8%, eggs 48.7%. These figures, compared with Smith's suggest that real domestic farm share of cereal may often be less than 1%. This again illustrates that the benefits are not shared.
USDA-Economic Research Service data for what are essentially full commodity costs vs market prices show that market prices were below cost on U.S. markets almost always, 1981-2006, for corn, wheat, cotton, rice, soybeans, grain sorghum, barley, and oats. That shows that we exported these commodities, including those where we have been bigger than OPEC, at below U.S. costs for a quarter century. It adds up to the hundred billions, just for teh commodities listed. This wealth was lost to economic multipliers here, which raises the historical impact into the trillions. Subsidies, the often inadequate compensations to U.S. farmers for these losses, do not represent any income into the U.S.
Clearly, freer and free trade (ie. increasingly lowered, 1953-1995 price floors and no farm commodity price floors 1996-2008+) have poured wealth into the U.S. and multinational agribusiness output complexes through below cost gains, but ALL of those particular below cost gains, when on exports, are U.S. losses. We've lost money, lost multitrillions in below living-wage/fair-trade (lost) economic multiplied wealth. We've lost multitrillions in implementing free trade policies that starve the poor. In so doing, we've further destroyed huge markets for agricultural exports, as so many who would buy from us, the world's dominate farm commodity exporter, couldn't affort to. The world lost multitrillions and many multrillions more in lost economic multipliers.
Yes this was greed! Yes certain of our rich benefited enormously. Forbes Magazine has repeatedly showed that the output complex has profited enormously, with record after record in profits, from the 1980s farm crisis and all the rest up through 2006. But America as a whole was an enormous loser, not a beneficiary, from these practices of freer and free trade since 1953.
Farm Commodities lack price responsiveness on both supply and demand sides. "It's price responsiveness! It's price responsiveness! IT'S PRICE RESPONSIVENESS!" wrote the University of Tennessee's Daryll E. Ray of APAC (online). America loses under a free market. We all do, except those few at the top.
As we now face the prospect of another Great Depression, in spite of Bush's "economic stimulus," (borrowing to give us money to be paid back later in higher taxes, a kind of "credit card" approach), let's look at a real stimulus package: exporting farm commodities at a profit, with international supply management, price floors, and also price ceilings and commodity reserves. That was the New Deal, and the Steagall Amendment for "parity" out of the banking committees. The Common Dreams piece from Willie Nelson, "It's About America" (9/24/08) tells some of this history, as does Mark Ritchie of the Institute for Agriculture and Trade Policy in "Crisis by Design" (online) and George Naylor in "Legacy of Crisis" (online). These are the farm bill proposals of the National Family Farm Coalition today, nffc.org. NFFC and IATP are working for world implementation as well, through Via Campesina and Global Farmer.
It worked well before. Set up internationally (ie., see the Africa Group on supply management) it will work even better today. Humans are far from perfect, but we here in the U.S. came together for justice out of the Great Depression and we can do so again today.
But yes, Sharma makes excellent points. I'm speaking on one side, from a U.S. farm perspective. And yes, we need an immediate $700 billion (in fair-trade, living-wage priced, 3rd world purchased) food for the world's starving, (often rural, or recently rural) people, which the U.S. can pay off, with the managed trade policies I'm advocating.
War and the pursuit of global power are just plain more exciting and sexier than aiding hungry people. Any aid a State might give will be solely so it can boast to the media, "See? We're not such bad people after all; we care!"
(And where does the money come from? The State coerces it from the taxpayers ...)
You Decide
I am an economist, business person and an American. Here are 10 points to send to your congress people.
1. Let the investment banks fail. Someone will step forward if the function is needed.
2. They were the experts at risk management. They failed. Let them fall.
3. The money went somewhere. Where did it all go? Who got obscenely rich and where is the money?
4. The bailout plan will devalue the US currency by over 10%
5. The bailout plan is not needed. Businesses fail. Others step forward.
6. If we can consider $1 trillion in bailouts to the lambskin wallet crowd, let's bailout through infrastructure projects around the world, people desperate for food and work.
7. See No. 1
8. The devaluation of the US currency if the bailout goes through means $5+ gasoline and higher food prices.
9. See No. 1
10. No one is above the law or the review of the courts. If Paulson is granted such authority, you may check the box that says you now live in a fascist country.
"Money is a new form of slavery, and distinguishable from the old simply by the fact that it is impersonal -- that there is no human relation between master and slave.": Leo Nikolaevich Tolstoy - (1828-1910) A reply I sent to prospective Presidential candidate with some additions ''Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create deposits." : Sir Josiah Stamp (1880-1941) President of the Bank of England in the 1920's, the second richest man in Britain
"Endless money forms the sinews of war." : Marcus Tullius Cicero -
(106-43 B.C.) Roman Statesman, Philosopher and Orator“The process by which banks create money is so simple that the mind is repelled.”Professor. J. K. GalbraithYou are living in a totalitarian tripartite dictatorship, viz Elected, Press and financial. The last sustaining the two former, due to the fact that money is created out of NOTHING as an interest bearing DEBT enslaving you all from cradle to grave. Any other legislation is only cosmetic, giving a semblance of democracy. What is needed is a basic paradigm shift in the Noe classical economics which governed by interest bearing DEBT, get the money lenders out of the market, get the elected government to issue the money towards productive capacity as interest free loans, to be repaid and debt cancelled, hence counter inflationary.
The insidious and invidious practice of usury is NOT necessary or inevitable.You are all doing a good job but running in the wrong direction just as the rest of the poor devils.Unless you addresses the question of Money Supply, you all will remain enslaved, and the enslaved will do any thing as they are ordered to do and be willing connon foder to fight illegal illicit wars based on lies. In the Third World a child is killed EVERY THREE SECONDS, the HOLOCAUST is alive and well and had been for decades, you all have been blind.
The above was a reply sent to US presidental candidate.
Lastly I throw a challenge to the author,organise a two days conference, and I will bring in eminent academics from Canada, Europe and the US to out line a non violent economic model which will ensure steady organic growth, abolish poverty with in five years, etc.
I have writen to you earlier, but you are a busy person and may not have had the time to reply.
Look forward to hearing from other contributors too
I totally agree with the author about the bailout of free markets and stuff, but I'm not so sure about the connection between money and poverty. Will throwing even $1 trillion really eradicate poverty? starvation? in many countries, food is simply not available, and gov'ts refuse to address this systemic problem. They can temporarily buy food if they were given this money, but it would not help eradicate poverty because gov't would use the money for other stuff and to address developmental changes. In other countries (Zimbabwe) we see that more "money" in the system only inflates everything, without really changing social realities. The fact is, countries do have money, but its all appropriated by gov'ts who don't want to use it for the people.
Opal
I feel deeply ashamed of my country's government and people. Although it is impossible to overstate the extent to which the people have been misled and lied to, swindled and attacked in a vicious class warfare. Still, it was within our power to stop the insatiable greed before it escalated to the point of threatening the rest of the world. And we didn't stop it. We were bought off by the benefits gained by ripping off the faraway poor.
The only silver lining in all this is that now we in the US will be forced to cut back on our endless pursuit of glittery useless stuff. Maybe our painful downfall will advance our capacity for empathy.
Sioux Rose
The article is powerfully configured, and truly shows the amoral nature of international business and its major players. Every human being has a modicum of self interest and an ego, otherwise there would be no boundaries making us individuals. The amount of greed, however, can easily move across a spectrum from sane to insane, and the would-be asylum inmates have run things to the point of absolute SPIRITUAL and ECOLOGICAL impoverishment, in other words, they have sacrificed the pricless for temporal gain. To think that the CEOS who couldn't wisely manage their own companies and enormous assets STILL get to walk away with gigantic fiscal bonuses, which as this article pointed out, could otherwise alleviate hunger and misery for so many others shows how far too many have traveled in the direction of darkness, creating a moral blackhole that is beyond what the mortal mind can wrap itself around.
Jail time for the Subprime Cronies!!!!
This is the weirdest October Surprise I've ever heard of. "We're on our way out and our party hasn't looted enough. We need one last grab and that should do it." The response should be "Then out you go and don't come back." Instead I hear from co-workers and others things like "Well, I remember the S & L bailout and it didn't seem so bad" and "Well, there will always be greedy..."
Ubeleivable.
When will we ever have the political will to re-prioritize? We in the United States waste our votes on Republicans and Democrats, who clearly will spend money on bailouts, militarization, but not on health care, fixing global warming, or feeding people nutritious food. STOP voting inside the two-party system! Vote only for progressive candidates who actually love all of us.
an online letter to stop the bailout
http://ga3.org/campaign/congress_no_blank_check/xixdkn34p7iewd3b?qp_source=20080922%5fnoblankchck
Thank you so much for this link! It took about 2-3 minutes to complete. I appreciate your effort.
These wise words and suggestions must be heeded or the conditions the author mentions will come true.
Poverty can be alleviated by putting limits on the absurd levels of abstract surplus value which fuels this crises.
The vastness of ill-gotten wealth accumulated through expropriated capital is growing exponentially and destroying the lives of billions.
Something has to give.
Helping the poor is always needed.
But limiting wealth not earned by labor is necessary-if we want to have a humane global society
based on equitable distribution, and a cooperation between all productive forces.