The Dull Compulsion of the Economic (#1)

by Dollars and Sense

A series of blog entries by D&S collective member Larry Peterson.

Please note: this is a continuation of a series that began in March under the title "This Just In: Dollars & Sense Reads the News"; besides the terrific new name, taken from Chapter 28 of Volume One of Marx's Capital), I'm hoping to make the entries more regular (once a week, usually appearing on Monday, or early in the week), consistent in length (800-1000 words, though this entry will go beyond that), and, I hope, better thought out and less impressionistic in tone.

When I first heard about Paul Wolfowitz's difficulties at the World Bank involving his companion some weeks back, I thought it warranted nothing more than indulgence in some good, stupid fun. That one of the major architects of a duplicitous, illegal, and immoral war and breathtakingly negligent occupation was finally being forced to answer for his actions to an even miniscule degree, and over such a silly-sex issue, was certainly good for a smirk or two. The fact that the "anticorruption" campaigner at the bank found himself entangled in a conflict of interest was less satisfying; after all, this is the man who cut his teeth as U.S. ambassador to the supercorrupt Suharto in Indonesia in the 'seventies. (In what is surely one of the most disingenuous lines of the year, The Economist suggests that Wolfowitz's anticorruption stance was actually nurtured in the years he "observed" the crony capitalism rampant there, as if he stood back wringing his hands while the place went to pot all around him, and over his strenuous objections). And his peccadillos certainly don't begin to approach the kind of conspicuous corruption practiced by other associates of the Bush administration, like Tom DeLay, Jack Abramoff and Randy "Duke" Cunningham. But now that he's finally gone, perhaps it's a good time to take a good, hard look at the bank. Is it still the éminence grise of the global economy, skulking behind the scenes, baiting benighted countries (or their elites, anyway) with Faustian bargains designed to ensure their economic dependency and, hence, political passivity? Or is it time we on the left starting turning our attentions to other things? And if so, what might those other things be?

First, a history review. The World Bank, like its sister organization, the International Monetary Fund, was founded at a famous conference held at Bretton Woods, New Hampshire, right before the end of World War II. These so-called "Bretton Woods" institutions, amongs whose founders was John Maynard Keynes, were originally designed to aid in the reconstruction of Europe and to provide a safety valve for countries finding themselves experiencing balance of payments problems of the sort that led to the hyper-inflation experienced in Germany after World War I, which, in turn, contributed to the sort of capital flight that gave rise to the depression worldwide, the protectionist measures taken in its wake, and, ultimately, to resumption of world war. Under this scheme, the IMF would provide grants, below market-rate loans and economic advice to countries experiencing difficulties in meeting their foreign obligations, while the World Bank would focus on microeconomic reconstruction and development (low cost investment in infrastructure, especially).

While European reconstruction was spectacularly successful, the intensification of the Cold War, expansion of global markets—itself a consequence of successful European reconstruction—and discovery of natural resource deposits in historically impoverished areas pushed the IMF and WB into a somewhat different role: that of placating corrupt elites who were allied with the West, or provided its essential natural resources, like oil. After the double-digit inflation of the 'seventies, the "great reversal"—an unprecedented series of interest rate hikes by the Federal Reserve—forced the US economy into recession in the early 'eighties; but its effects on some of the IMF and WB clients was much, much greater: huge cuts in the prices of key commodities (oil, agricultural products, metals: many of the items whose very production was financed with World Bank and private-sector loans when times were good) dried up national incomes at the same time that interest rates were skyrocketing.

You would be forgiven, at this point, for thinking that, under these circumstances, further largesse from the IMF and WB would be regarded with some suspicion. These were interesting times, and for elites in the poor world, already witnessing the restoration of profitability enabled by Reagan's policies, and feeling the heat from their long-downtrodden populations—whose birthrates were huge—it was all too easy to assume that another export wave was on the way. But crushing debt and currencies that failed to keep pace with the dollar's recovery (which was based precisely on the high interest rates that accompanied Reagan's military spending deficits) in the early 'eighties meant that the resumption of exports, far from restoring development, would ensure, under deteriorating monetary conditions, ever-increasing penury. To prevent economic breakdown, or even revolution, only one alternative remained for many of these countries: to borrow more!

But if the elites hadn't learned anything, the bankers and politicians had. This time, loans were extended only on condition that severe austerity measures would be taken in the event of non-payment. In a clear reversal of the founders' intentions, IMF and WB loans were granted not so much to prevent balance-of-payments and subsequent currency difficulties as to lock countries into a dependency that would—almost inevitably—arise with onset of the former. These measures included privatizations, drastic fiscal cutbacks and monetary rigidity, reaching absurdly inhumane proportions in the case of Sri Lanka, where, as Naomi Klein notes, the bank forced telecom privatization on the government as a condition for aid in the wake of the Asian tsunami.

Many countries found themselves so damaged by these conditions that, in the wake of the Asian crash of 1998 and the dot.com/9-11 meltdown in the West, they embarked on a concentrated effort to get the Bretton Woods institutions out of their lives forever. Since the United States, notwithstanding its burgeoning budget and current account deficits in 2001, could borrow in its own currency at will, and not suffer repercussions of the sorts developing countries were only too used to, lowered interest rates about 500 basis points (5%) in the space of a few months after September 11th, exporters in many countries saw a unique opportunity: a population being exhorted by its commander-in-chief to express its patriotism by shopping even in the midst of what would prove to be prolonged wage stagnation, and, hence, the ability to build up foreign exchange reserves the likes of which the world had never seen, all financed by the kind of debt-immiseration they had only just been victimized by. So, they financed our housing boom, and are sitting on the foreign exchange reserves to show for it: and suddenly, the IMF and World Bank aren't needed any more. In addition, the explosion of liquidity made possible by exceptionally lax monetary policy has created a situation in which private investors worldwide are jonesing for yield; hence, anybody with anything to sell can finance whatever scheme he will at rates on or near market ones on stock exchanges or via bond issuances throughout the world. What use is the IMF or WB under these circumstances?

So what is the role of the bank under such conditions? Well, the Asia Times carried a story on May 22nd, in which it claimed, on the basis of a leaked document, that Wolfowitz had, contrary to his own promise, appointed a new country manager for Iraq, Simon Stolp. Perhaps the bank, made redundant partially by the very disinflationary conditions it itself had fostered (largely on the backs of the desperately poor, it should be remembered), was to become some sort of ghostly appendage to U.S. imperial Middle East policy; perhaps Iraq is such a benighted society that they won't-even with all their oil-find the wherewithal to escape the clutches of the Bretton Woods institutions like the Asians did. But this simply casts Wolfowitz's "corruption busting" credentials in an even more absurd light. For, as the Financial Times reported on May 23d, Congress is now looking at perhaps $5 billion (and 100,000-300,000 bbl of oil a day) in losses a year through corruption in Iraq. Shunned by the rest of the world, Wolfowitz insists (perhaps thereby gaining essential European support for his departure compromise?) on maintaining the bank's presence in Iraq, one that had been discontinued, due to the deteriorating security situation, since August of 2003. Maybe the bank, a failed institution if there ever was one, is destined (at least in the fantasies of its depraved former-officers) to become the abusive nanny of a failed state. What would the great Keynes have thought of that?

But we on the left can't leave it at this. The irrelevance of the international institutions casts all the more responsibility on us, the members and allies of the working classes in the rich countries, to be ever more vigilant in accounting for how our consumer outlays, pension saving, and taxes are spent. The very withdrawal of the Bretton Woods institutions, among others, I fear, is fostering an attitude in which "transparency" and "good governance" are possibly being used to establish a foothold among highly vulnerable labor forces. Consider the debt forgiveness movement: has anyone suspected that this may constitute the first step (debt cancellation would improve the business climate for multinationals immeasurably) in integrating previously shunned, but even more exploitable labor forces than that offered by China (recently suffering from a severe bout of wage-and even more so-speculative inflation) or India? Don't get me wrong: these debts are abominable; but we must insist that debt cancellation isn't merely followed up by yet another outward thrust by multinationals. And that means that all of us must be extra vigilant in observing that the prices that we pay are fair, and that the concerns our pensions are invested in observe just and sustainable targets, just as much as we expect—well, a few of us, anyway, still—our unions to protect our own standards of living. The sad lesson of the World Bank is the same one we have been learning for 175 years: that of the indispensability of solidarity. 

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5/25/2007 10:53:00 AM