------------------------------ From: "A. Gunder Frank" <[EMAIL PROTECTED]> Tue, 13 Jun 1995 16:00:57 -0400 (EDT) To: Harriet Friedmann <[EMAIL PROTECTED]> cc: Martha Gimenez <[EMAIL PROTECTED]>, Michael Lebowitz <[EMAIL PROTECTED]> Subject: post to pen-l,psn, etc? Forwarded mail.... ---------- Forwarded message ---------- Date: Tue, 13 Jun 1995 09:09:03 -0500 (EST) From:[EMAIL PROTECTED] To: Michel Chossudovsky <[EMAIL PROTECTED]> Subject: ----------------------------Original message---------------------------- KINDLY POST THE FOLLOWING TEXT ON THE INTERNET FOR IMMEDIATE RELEASE Ottawa, 13 June 1995 THE FOLLOWING TEXT WILL BE PRESENTED IN THE SESSIONS OF THE HALIFAX INITIATIVE (CANADIAN MDB CAMPAIGN) HELD IN PARALLEL WITH THE G7 SUMMIT IN HALIFAX THE G7 POLICY AGENDA CREATES GLOBAL POVERTY by Michel Chossudovsky Professor of Economics, University of Ottawa The first part of this text contains an overview of the global economic crisis focussing on issues of debt and macro- economic reform. The second part consists of a critical review and assessment of the Halifax G7 Summit Communiqu!. Sessions at the Nova Scotia Community College, Halifax, Nova Scotia June 13-15, 1995 THE GLOBALIZATION OF POVERTY At the dawn of the 21st century, the global economy is at a dangerous cross-roads. In the developing World, the process of economic restructuring has led to famine and the brutal impoverishment of large sectors of the population while contributing to the "thirdworldisation" of the countries of the former Eastern block. Since the early 1980s, the "macro-economic stabilisation" and "structural adjustment" programmes imposed by the IMF and the World Bank on developing countries (as a condition for the renegotiation of their external debt) have led to the impoverishment of hundreds of millions of people. Contrary to the spirit of the Bretton Woods agreement which was predicated on "economic reconstruction" and stability of major exchange rates, the structural adjustment programme has largely contributed to destabilising national currencies and ruining the economies of developing countries. Global Debt In the developing World, the burden of the external debt has reached 1.9 trillion dollars: entire countries have been destabilised as a consequence of the collapse of national currencies often resulting in the outbreak of social strife, ethnic conflicts and civil war... The restructuring of the World economy under the guidance of the Washington based international financial institutions increasingly denies individual developing countries the possibility of building a national economy: the internationalisation of macro-economic policy transforms countries into open economic territories and national economies into "reserves" of cheap labour and natural resources. The restructuring of individual national weakens the State, industry for the internal market is undermined, national enterprises are pushed into bankruptcy. Moreover, these reforms --when applied simultaneously in more than one hundred countries-- are conducive to a "globalization of poverty", a process which undermines human livelihood and destroys civil society in the South, the East and the North. Internal purchasing power has collapsed, famines have erupted, health clinics and schools have been closed down, hundreds of millions of children have been denied the right to primary education. In all major regions of the developing World, the economic reforms have been conducive to a resurgence of infectious diseases including tuberculosis, malaria and cholera. Structural Adjustment in the Developed Countries Since the early 1990s, the macro-economic reforms adopted in the OECD countries contain many of the essential ingredients of the "structural adjustment programme" applied in the Third World and Eastern Europe. These macro-economic reforms have been conducive to the accumulation of large public debts. Since the early 1980s, the private debts of large corporations and commercial banks have been conveniently erased and transformed into public debt. This process of "debt conversion" is a central feature of the crisis: business and bank losses have systematically been transferred to the State. During the merger boom of the late 1980s, the burden of corporate losses was shifted to the State through the acquisition of bankrupt enterprises. The latter could then be closed down and written off as tax losses. In turn, the "non-performing loans" of the large commercial banks were routinely written off and transformed into pre-tax losses. The "rescue packages" for troubled corporations and commercial banks are largely based on the same principle of shifting the burden of corporate debts onto the State Treasury. In turn, the many State subsidies and corporate "handouts" rather than stimulating job creation, were routinely used by large corporations to finance their mergers, introduce labour saving technology and relocate production to the Third World. Not only were the costs associated with corporate restructuring borne by the State, public spending directly contributed to increased concentration of ownership and a significant contraction of the industrial workforce. In turn, the string of bankruptcies of small and medium sized enterprises and lay-off of workers (who were also tax payers) were conducive to a significant contraction in State revenues. In the group of OECD countries, public debts have increased beyond bounds (currently in excess of 13 trillion dollars). Ironically, the very process of "reimbursing this global debt" has been conducive to its enlargement through the systematic creation of new debts. In the US --which is by far the largest debtor nation-- the public debt increased fivefold during the Reagan-Bush era. It is currently of the order of 4.9 trillion dollars. A vicious circle had been set in motion. The recipients of government "hand-outs" had become the State's creditors. The bonds and treasury bills issued by the Treasury to fund big business had been acquired by banks and financial institutions, which were simultaneously the recipients of State subsidies. An absurd situation: the State was "financing its own indebtedness", government "hand-outs" were being recycled towards the purchase of public debt. The government was being squeezed between business groups lobbying for subsidies on the one hand and its financial creditors on the other hand. And because a large portion of the public debt was held by private banking and financial institutions, the latter were also able to pressure governments for an increased command over public resources... The debt crisis had also triggered the development of a highly regressive tax system, which also contributed to the enlargement of the public debt. While corporate taxes were curtailed, the new tax revenues appropriated from the (lower and middle) salaried population (including the value added taxes) were recycled towards the servicing of the public debt. While the State was collecting taxes from its citizens, "a tribute" was being paid by the State to big business in the form of hand-outs and subsidies. Capital Flight In turn, spurted by the new banking technologies, the flight of corporate profits to offshore banking havens in the Bahamas, Switzerland, the Channel Islands, Luxembourg, etc., contributed to further exacerbating the fiscal crisis. The Cayman islands, a British Crown colony in the Caribbean, for instance, is the fifth largest banking centre in the World (ie. in terms of the size of its deposits, most of which are by dummy or anonymous companies). The enlargement of the budget deficit in the US bears a direct relationship to massive tax evasion and the flight of unreported corporate profits. In turn, large amounts of money deposited in the Cayman Islands and the Bahamas (part of which is controlled by criminal organisations) are used to fund business investments in the US. Under the Political Tutelage of the Creditors The debts of parastatal enterprises, public utilities, state, provincial and municipal government's are carefully categorised and "rated" by financial markets (eg. Moody's and Standard and Poor ratings). Moreover, ministers of finance are increasingly expected to report to the large investment houses and commercial banks. Moody's downgrading of Sweden's sovereign debt rating in January was instrumental in the decision of the minority Social Democratic government to curtail core welfare programmes including child allowances and unemployment insurance benefits. Similarly, Moody's credit rating of Canada's public debt was a major factor in the adoption of massive cuts in social programmes and lay-offs by the Canadian Minister of Finance in February. In the US, the controversial "balanced budget amendment" (which was narrowly defeated in the Senate) in March 1995, would have entrenched the rights of the State's creditors in the US Constitution... Crisis of the State In the West, the democratic system has been steered into a quandary: those elected to high office increasingly act as bureaucrats. The State's creditors have become the depositaries of real political power operating discretely in the background. In turn, a uniform political ideology has unfolded. A "consensus" on macro-economic reform extends across the political spectrum. A new global financial environment has also unfolded: the wave of corporate mergers of the late 1980s paved the way for the consolidation of a new generation of financiers clustered around the merchant banks, the institutional investors, the stock brokerage firms, the large insurance companies, etc. In this process, commercial banking functions have coalesced with those of the investment banks and stock brokers. While these "money managers" play a powerful role on financial markets, they are, however, increasingly removed from entrepreneurial functions in the real economy. Their activities (which escape State regulation) include speculative transactions in commodity futures and derivatives and the manipulation of currency markets. Major financial actors are routinely involved in "hot money deposits" in "the emerging markets" of Latin America and Southeast Asia, not to mention money laundering and the development of (specialised) "private banks" ("which advise wealthy clients") in the many offshore banking havens. The daily turnover of foreign exchange transactions is of the order of one trillion dollars a day of which only 15 percent corresponds to actual commodity trade and capital flows. Within this global financial web, money transits at high speed from one banking haven to the next, in the intangible form of electronic transfers. "Legal" and "illegal" business activities have become increasingly intertwined, vast amounts of unreported private wealth have been accumulated. Favoured by financial deregulation, the criminal mafias have also expanded their role in the spheres of international banking. The Demise of Central Banks Moreover, the practices of central banks in many OECD countries have been modified to meet the demands of financial markets. Central banks have become increasingly "independent" and "shielded from political influence". What this means in practice is that the national Treasury is increasingly at the mercy of private commercial creditors. Under article 104 of the Maastricht Treaty, for instance, "[c]entral bank credit to the government is entirely discretionary, the central bank cannot be forced to provide such credit". These statutes are therefore directly conducive to the enlargement of the public debt held by private financial and banking institutions. In practice, the Central Bank (which is neither accountable to the government nor to the Legislature), operates as an autonomous bureaucracy under the trusteeship of private financial and banking interests. The latter (rather than the government) dictate the direction of monetary policy. In other words, monetary policy no longer exists as a means of State intervention; it largely belongs to the realm of private banking. In contrast to the marked scarcity of State funds, "the creation of money" (implying a command over real resources) occurs within the inner web of the international banking system in accordance with the sole pursuit of private wealth. In contrast to the inability of central banks to effectively intervene, powerful private financial actors not only have the ability of creating and moving money without impediment, but also of manipulating interests rates and precipitating the decline of major currencies as occurred with the spectacular tumble of the pound sterling in September 1992. What this signifies, in practice, is that central banks are no longer able to regulate the creation of money in the broad interests of society (eg. in view of mobilising production or generating employment). Money creation including the command over real resources is controlled almost exclusively by private financiers. The Instability of Global Financial Markets Deregulation alongside the development of large public debts have favoured increasingly unstable pattern on global financial markets. Since Black Monday, October 19, 1987, considered by analysts to be very close to a total meltdown of the New York stock exchange, a highly volatile pattern has unfolded marked by frequent and increasingly serious convulsions on major bourses, the ruin of national currencies in Eastern Europe and Latin America, not to mention the plunge of the new "peripheral financial markets" (eg. Mexico, Bangkok, Cairo, Bombay) precipitated by "profit taking" and the sudden retreat of the large institutional investors...A global financial breakdown can no longer be ruled out. Moreover, in contrast to the 1920s, major exchanges around the World are interconnected through instant computer link-up: instability on Wall Street, "spills over" into the European and Asian stock markets thereby rapidly permeating the entire financial system, including foreign exchange and commodity markets... ASSESSMENT OF THE HALIFAX SUMMIT COMMUNIQU --------------------------- Michael A. Lebowitz Economics Department, Simon Fraser University Burnaby, B.C., Canada V5A 1S6 Office: (604) 291-4669; Office fax: (604) 291-5944 Home: (604) 255-0382; fax/modem (with notice):(604) 254-3510 Lasqueti: (604) 333-8810 e-mail: [EMAIL PROTECTED]