Economist Anis Chowdhury talks at length with Nahid Riyasad about the current global economic crisis, growing inequality and the ways to overcome the situation in an interview with New Age
New Age: We have just started a new decade. In the last decade, it now seems democracy was in retreat, both globally and locally. Trump’s win in the US and Modi’s second term in power speak to this turn in global political economy. How do you think these political changes will impact on global economy in the next decade?
Anis Chowdhury: You will find cautious optimistic views about the world economy in recent reports of different multilateral organisations and rating/financial investment agencies. The IMF is particularly optimistic and has a higher growth forecast of 3.3 per cent than its sister organisation, the World Bank’s 2.5 per cent for 2020. The OECD’s forecast is 2.9 per cent and the UN’s is 2.5 per cent. Generally, at the beginning of the year, an optimistic picture is projected, because none wants to be seen as a doomsayer for the fear of a self-fulfilling prophecy. The cooling of US-China trade tension or the clear victory of Boris Johnson with a predictable outcome for Brexit is seen positively. The Goldman Sachs, which foresees the global economy growing at 3.4 per cent in 2020, described these ‘good news’ as ‘A Break in the Clouds’. Likewise, the editor of Investopedia believes that the global economy ‘will start to pick up some steam’ as ‘all the leading economic indicators still have some juice in them’.
Forecasting is a gamble and extremely treacherous task. Anything can derail the world economy. For example, the flaring-up of US-Iran tension or the Middle-East conflict — these are not entirely impossible or unpredictable; whereas the coronavirus pandemic is unpredictable and can surprise and spoil the projected forecast.
What is important, however, is to look at the fundamentals. The global economy is now fundamentally much weaker than it was prior to the 2007-2008 financial crises. The World Bank has warned about rapid accumulation of both public and private debt globally that had reached a historic peak of 230 per cent of GDP in 2018. Emerging economies and low-income countries are particularly vulnerable with debt-GDP ratios of 170 per cent (or $55 trillion) and 67 per cent (or $270 billion) respectively. The UN has warned about climate crisis and growing inequality which is already dangerously high.
Ignoring fundamental weaknesses and focusing excessively on short-term issues can have serious consequences. Let me give you an example. In 2005, UN warned about fundamental weaknesses in the US financial sector. They warned two years ahead of the sub-prime mortgage market collapse that had dragged down the whole financial sector and eventually the global economy. However, at the time, UN was accused of causing concerns unnecessarily. Contrastingly, beholden to the interest of the finance capital, the IMF projected a rosy picture and the OECD dismissed any prospect of an impending global recession. While the IMF revised its forecast upward just a month before the onset of the global financial crisis in 2008, the OECD was confident that any soft-landing of the US economy would be offset by robust performances of the European economies. Unfortunately, the event turned out to be completely opposite to what the IMF and the OCED were saying. To sum up, the world economy remains very precarious; anything can push it off the edge.
New Age: You are talking about the control of IMF and World Bank in global economy. Many economists in recent years have also talked about the corporate takeover.
Anis Chowdhury: Corporate domination has always been there, but there is a difference today. During the great depression of the 1930s, apart from steps to recover, major causes of the crisis were addressed properly. At the time, anti-competition/anti-trust laws were strengthened and monopolies were broken up, tax system was reformed, social welfare system was expanded and stronger regulatory mechanisms were put in place for the financial sector. In contrast, the fundamental causes of the 2008-09 global economic crises such as excessive speculative activities in the financial sector, exorbitant executive pays, and declining progressivity of the taxation system, were not addressed. Today, checks and balance in the financial sector are at grave risks. For example, president Trump dismantled whatever little regulatory measures president Obama put in place to prevent banks from doing all sorts of activities — insurance, banking, credit card business, share brokerage and financial advising — with serious conflict of interests. Governments around the word are now controlled by big businesses, corporations and the super-rich. We see severe fiscal austerity programmes destroying the lives of the common people, who played no role in the financial crisis, while governments are bailing out big businesses.
Recently, in Australia, the government was forced to establish a Banking Royal Commission, which found lots of irregularities, including illegal activities, such as money laundering, selling shoddy products, and charging fees to even the dead persons for non-existent services. But the pro-corporation government was very reluctant and not keen on such a commission. The prime minister himself was a merchant banker. Therefore, the Royal Commission was instituted with very limited terms of reference. Still, it managed to unearth so many misdeeds. The Banking Royal Commission has exposed one of the four big banks which deliberately violated money laundering regulations more than 23 million times.
Policy making is captured by big corporations and the financial sector. Easy money is borrowed for share buy-backs to artificially inflate the share market by the CEOs who have share options to benefit themselves. Low marginal income tax and various tax loopholes are further incentive for them to manipulate share markets for fattening share option bonuses. Easy money is also used for mergers and acquisitions which do not create any new capital. In other words, the easy money due to unconventional monetary policy (called quantitative easing) since the great recession of 2008-2009 is not used for productive investment. As a result, fictitious capital is created and the nature of this capital is exactly like the one witnessed just before the recession of 2008-09.
So, yes, the direct and indirect capture of the state by big corporations, especially finance capital is part of the story. This phenomenon, which began in the 1980s with the Thatcher-Reagan revolution of privatisation and deregulation, accelerated in the 1990s as the centre-left social democratic parties capitulated, for example under Blair and Clinton, hiding their sell-off to big businesses behind the veil of ‘new Labour’ or ‘ new Democrat’ or a so-called ‘third way’.
New Age: And, the control of some nations, some corporations and institutions means vulnerability of the rest, a situation best described by a slogan from the Occupy Wall Street movement — ‘We the 99 per cent.’ Would like to talk about the escalating inequality?
Anis Chowdhury: Inequality and wealth concentration are rising around the world and inequality is ten-fold than it was in the last decade. From the 1970 onwards, both absolute and relative income inequality are increasing in an unprecedented rate. For example, OXFAM’s 2016 report said, the richest one per cent of the population has captured 82 per cent of the global wealth. On the other hand, workers’ salaries, in terms of their share in the GDP, are either stagnant or decreasing. As a result, purchasing power of the majority of the people is nose-diving. Therefore, rising inequality and wealth concentration is holding back economic recovery and may even cause recessions. It is also causing significant uncertainty and fuelling populist politics.
To artificially boost the global demand, debts are created at an unprecedented rate.
This is not sustainable. And the world does not have the capacity to address another global economic recession like it had during the 2008-09. The global debt is at record high and major central banks have exhausted all their ammunitions by lending money at negative interest rates with unconventional monetary policy.
Developing countries are more vulnerable, especially when global trade has come to a halt due to a lacklustre economic recovery, and is now under growing threats of trade and currency wars among major economies. Easy money from the US, the UK, the EU and Japan are flowing to developing countries in search of better returns. Developing countries are complacent — as I mentioned before, debt in emerging economies and low-income countries has risen to 170 per cent of the GDP (or $55 trillion) and 67 per cent (or $270 billion) respectively. Many of them have not invested these debts in productive uses. So, they will have problem in repaying, especially foreign debt when their exports are stagnant and commodity prices are falling. They will have further distress and are likely to see capital flights when interest rates in the US and other major economies will eventually rise. The large inflow of foreign money has also made the financial sector of developing countries fragile.
Economic inequality has reached such a level that it is now an existential crisis for the human race.
New Age: Why do you think it is an existential crisis for the human race?
Anis Chowdhury: I will point out three specific reasons for which I think this level of inequality amounts to an existential crisis. The first, the lifestyle of the super-rich is seriously contributing to the global climate crisis. Even the super-rich advocates of green economy, many of them are global celebrities, are leading a lifestyle that leaves a high carbon footprint. A study, published in Ecological Economics, shows that as the rich get richer, CO2 emission rises. Another study, published in Environment and Behavior, finds that rich people emit more carbon, even when they recycle and buy canvas tote bags full of organic veggies. Furthermore, the political clout and economic power of the wealthiest individuals prevent regulations on carbon emissions. What matters is not inequality as such, but income and wealth concentration at the top end of the distribution.
The second is biotechnology or genetic engineering. Stephen Hawking, in his Brief Answers to Big Questions (2018) said that human would go as far as creating ‘super human’ by genetic technologies. The Fortune magazine predicted that designer babies would be available within 20–30 years and ‘when baby genes are for sale, the rich will pay’. The evolution process is based on random selection, but when we selectively and deliberately choose the genes and characteristics of a certain species, the natural order would be breached. Jamie Metzl, a former White House advisor, claims in his book Hacking Darwin, ‘From this point onward, our mutation will not be random. It will be self-designed. From this point onward, our selection will not be natural. It will be self-directed.’ Only the ultra-rich could afford such technologies and this will further strengthen their lineage and wealth. This possibility carries the risk of creating a permanent inequality between different economic classes.
The third reason is even scarier. I am talking about artificial intelligence (AI). Capital compromises with labour even when the latter is exploited; capital needs labour to reproduce or regenerate. With the advancement of AI, labour will be separated from capital. Affluent gated communities around the world will not need human labour in the near future because they can fund AI research and afford those technologies separating labour from capital. If you look at the current patent laws, they are hugely favouring the rich as new innovations are becoming increasingly undemocratic.
Peter Frase, a futurologist, speculates in his book Four Futures that the economically redundant hordes ‘outside the gates’ will only be tolerated as long as they are needed. ‘What happens if the masses are dangerous but are no longer a working class, and hence of no value to the rulers?’, he wonders. ‘Someone will eventually get the idea that it would be better to get rid of them.’
In Guns, Germs and Steel, Jared Diamond described how gaps in power and technology, even without genetic superiority, determined the fates of human societies during the past 13,000 years. Now with ‘designer genetic superiority’ and weaponised AI — enabled by concentration of wealth and power — it would be a world defined by the ‘genocidal war of the rich against the poor’.
New Age: How did we come to this point?
Anis Chowdhury: The 1970s was a defining decade. 1971 and 1975 are particularly worth mentioning.
The global economic governance system has a strong link with economic crisis or stability. The Bretton Woods system was developed following the World War II. Despite all its imperfections, it was serving well until 1971. In August 1971, that system broke down and it had connections to the Vietnam War. When the Vietnam War became unpopular in the US, president Johnson announced two decisions — he would not be the candidate in the next elections and he would not fund the war with taxpayers’ money. Therefore, the Vietnam War financing came from two channels: the CIA became involved in narcotics production and drug trade; you will find detailed evidence in Mahmood Mamdani’s Good Muslims, Bad Muslims. Secondly, the Federal Reserve System started to print dollars beyond what its gold reserve could support. This created inflation and destabilised US dollar — stability of this currency was the core of the Bretton Woods system. Countries had fixed exchange rate arrangements with the US and they could exchange their US dollar reserves for gold at a fixed rate. That is, the Bretton Woods System was a de facto gold standard system via US dollar. Devaluation of dollar forced many countries to demand gold supposedly kept against their dollar reserves, but was non-existent.
So, in August 1971, president Nixon unilaterally moved out of the Bretton Woods system declaring that the US would not honour its Bretton Woods commitment to gold convertibility. The OPEC oil price hike in 1973 was partly a response to this to recover the real value of dollar value of oil exports, which precipitated stagflation — high unemployment and high inflation — in industrial countries.
Till date, we do not have any system in place of that. During the Bretton Woods conference in 1944, developing countries were not at the table, but as in the 1970s, many countries were decolonised, the world needed a new economic order. The newly independent developing countries demanded a new international economic order at the UN in a 1974 General Assembly resolution. That order would have allowed developing countries to grow without being excessively dependent on aid by preventing powerful multinational corporations from plundering their natural resources. Sadly, that order has never materialised. What evolved is complete opposite to the one envisioned in the UN resolution for a New International Economic Order.
Now the significance of 1975, when USA was defeated in the Vietnam War, the progressive force and the political left thought of it as their ultimate victory, and hence became complacent. However, the right-wing conservatives regrouped and started analysing their defeat. They realised that they were defeated in their lounge rooms when horrendous atrocities by the US and its allies were exposed in the media. This created serious anti-war sentiments around the world. The conservative forces also fell behind in the universities or in the intellectual arena. So, they moved to control media and educational institutions. The result was a clear victory of the conservative forces. In 1979, Margaret Thatcher won in the UK and Ronald Reagan won in the 1980 USA presidential election. Both were intellectually far inferior to many well-known conservative politicians such as Churchill or even Eisenhower. It was easy for the neo-cons to fill the intellectual vacuum of such politicians with extreme right-wing ideas and policies, such as deregulation and privatisation. They also took the advantage of debt crisis in developing countries caused by the collapsed of the Bretton Woods system to push such policies through the IMF and the World Bank’s conditions for financial support. Massive amounts of public assets were transferred to private hands for token money ultimately creating a class of people who are now controlling the media and technology. When journalism becomes ‘embedded’, a code word for censorship, you don’t see any serious popular anti-war movement despite almost permanent wars by the US and its allies on behalf of the multinational corporations to control resources.
New Age: What is the way forward?
Anis Chowdhury: We need to democratise politics. We have to go beyond press and election, and strengthen the rights of the working class to form unions. We need mass political mobilisation. Without that press can be bought and election can be controlled or manipulated. In other words, press freedom, and free and fair elections are just misnomers without the rights of the working class to unite. You find the so-called free media, even in the advanced democratic countries, often portray the rich and the capital class as ‘wealth creators’, which by default implies all others, especially the working class, are ‘wealth destroyers’. Here, the politics of language is important. In the absence of mass political mobilisation, so-called free and fair elections are mere farce where big money plays the controlling role. Social media is being successfully used to create and spread fake news, while monopoly of social media is a source of massive wealth of their billionaire owners. At the policy making and legislative level, the system becomes pro-multinational corporations, and anti-union; pro-rich, anti-people and anti-planet.
Nahid Riyasad is a staff writer at New Age.
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