The gossip, moronic jokes and idiotic memes that now constitute the preferred method of communication of Brazil’s native corporate media – BTW, adopted also in good extent by the alternative one – provided the necessary camouflage to cover up the opening of yet another chapter in the book of Brazil’s hybrid re/neo/colonization war. It concerns the swearing-in ceremony of Alexandre de Moraes to the TSE (Superior Electoral Court) recently held in Brasília.
The presence of Alexandre de Moraes in the STF (Superior Federal Court, the Brazilian Supreme Court) is by itself an attestation of the recrudescence of the imperial hybrid war against Brazil. This minister was appointed by Michel Temer, Dilma Roussef’s vice-president from 2014, and one of the main conspirators and protagonists in the political crisis that led to her impeachment – basically a illegal and illegitimate process, as some ministers in the STF itself have already admitted. Temer, who governed for about two years, was implicated in many of the alleged acts that justified Roussef’s deposition, not to mention a myriad of controversies related to his corruption records, yet he was still appointed a minister of the STF, a lifetime position at the top of the hierarchy of the Brazilian judiciary. In short, one could easily conclude that Moraes’ very presence on the court is illegitimate.
Inauguration of Alexandre de Moraes as president of the TSE. Dilma and Temer were separated by former presidents Lula and Sarney – PHOTO: TSE
The presidency of the TSE is, in principle, occupied by rotation among the ministers of the STF, a procedure that constitutes a merely protocolar and administrative act. Or, at least, that is how it should be. In the case of Moraes’ inauguration, we saw a ceremony comparable to the coronation of a king. The current president of the Republic and almost all the former presidents since the redemocratization were present, as well as military high rank personnel, senators, etc. Not to mention the live broadcast, with commentator and everything else. Pompous and empty speeches about the importance of democracy in Brazil were held in the place…
But, be aware, democracy in Brazil is not especially threatened.
Or rather, our democracy is no more threatened than it has always been. At least since we adopted electronic ballot boxes – duly encrypted and unauditable – and allowed the native media corporations – all close collaborators with our former military dictatorship – to operate outside the most basic regulatory mechanisms, always spreading the worst in terms of “culture and entertainment,” executing an explicit anti-national political agenda. Not to mention the such things as an autonomous Central Bank and the independent Public Ministry – read it as “free to coordinate efforts and make agreements with foreign intelligence agencies, to act against interests, and sequester the assets, of Brazilian institutions and enterprises – and the many other chimeras that make up our tortured democratic order.
The irony of the situation quickly turns to scorn when one realizes that the current super-guardian of democracy will be none other than Moraes, who learned quickly enough from (Gilmar) Mendes to become the most avid and shameless anti-democrat of recent years. This is the same Moraes who has been engaged in persecuting the PCO (Party of Worker Cause), aiming at its complete suppression from the communication space. He, who recently rehearsed – and then backtracked – blocking Telegram in Brazil. Moraes decides what is truth or lie in the Brazilian media, obviously suing the “liars”.
Alexandre de Moraes on the top.
If anything, the deliberately pompous – and let’s be honest, rather corny – act that marked the rotation of the TSE president, resembles more a celebration of a collective handshake, or as a friend would say, a collective tug of tails between rats, operated between different sectors of the Brazilian political and ruling class. And this has nothing to do with democracy. In fact, it never could, not with the actors in question.
Just to name the presidents of the Republic, there was the colonel and landowner from Maranhão. Along with the one who for eight years refused to regulate the corporate media while letting the Federal Police seize and destroy equipment from community radios. Along with the one who let Moro’s /CIA Lava-jato Operation run wild and still passed a ludicrous anti-terrorism law that made it impossible for its own supporters to defend her and grounded the arbitrary expulsion of a federal university professor scientist from Brazil – Adlène Hiqueur Affair– on suspicion of terrorism, without any right to defense, let alone evidence or proof. And the conspirator and traitor, who while in office, wasted no time in appointing a military minister of Defense and pushed down the throat of Brazilian society a labour reform that threw the mass of workers in the most abject precariousness. And what about the most recent president, it is not even necessary to comment on. And what about the Brazilian military who in every election threaten the population with a coup d’état if they vote for certain candidates?
It could never be about democracy after Victoria Nuland’s visit – who had come to talk about… “democracy”.
So, what was that pompous and grotesque pantomime about?
What would be the “guarantees” that the puppet masters who stretch the strings of the Brazilian political class have obtained to chancel Brazilian democracy with such enthusiasm? We can only wonder,
1- Consolidation of the national “juristocracy”, with the STF as the spearhead and main guarantor of the neo-colonial regime, in summary the liaison of the imperial elites. Note that in the letter-manifesto devoted to the defense of democracy, there is talk about popular sovereignty – which surmounts to a great and flexible fantasy– and it is not about national sovereignty.
2 – The irreversibility of the criminal privatizations of the past and the continuation of the liquidation of the assets – population included, of course – of the Brazilian state. Here enters the internationalization of Amazonia and the privatization of the water resources that were sold, without actually being advertised, together with the Eletrobras hydroelectric plants.
3- Maintaining Brazil as a geopolitical dwarf, submissive and subservient to the Western empire and far from an assertive role and approachment to the BRICS partners. Let alone some articulation of national interests and insertion in the new multipolar order.
These are the main axes around which Brazil’s domestic and foreign policy has been running a downward orbit in recent years. And, of course, there is the total marginalization of the population in the political and decision-making process of the country. With such an anomic, confused and headless dismayed population, and such morally and ethically bankrupt political parties/leaderships – and its deluded and naïve militancy – no coup d’état (anymore) is really necessary. The broad agreement against the people and the country, being the best cost-benefit choice for the local “comprador elites”, can be celebrated with all pomp, under the spotlight and cameras. That is what happened at the TSE inauguration ceremony.
The war currently underway in Ukraine, which pits Ukraine as a proxy for the collective West against Russia, is primarily an ideological or religious one, with Russia representing what is left of Christian Europe, and “the West” representing a totalitarian ideology that abhors religion in general and Christianity in particular. This statement may sound strange, given the fact that some Westerners – though fewer every day – still see “the West,” (basically Europe and North America) as Christian, and Russia as Communist, or crypto-Communist. But this is no longer the case, and has not been for some considerable time. In fact, the thirty years that have passed since the fall of the Berlin Wall and the end of the Soviet Union, has seen a complete reversal of roles; the collective West is now a totalitarian and aggressively anti-religious power-block that seeks to export its anti-Christian and anti-human ideology onto the rest of the world. And Russia is loathed by the West’s ruling elite precisely because it has resisted this process and moreover has gone in the opposite direction: having once been an active proponent of “scientific materialism” and atheism, Russia has reverted to its Orthodox Christian roots and has rolled back the more pernicious policies and attitudes of the Soviet era.
In order to demonstrate the truth of this, we need to look at the history of Russia and its interaction with the West since the early 1990s.
By 1991, when the Soviet Union was officially abolished, it was clear that the West had won the Cold War. Russia itself, under its new president Boris Yeltsin, openly proclaimed the end of all hostilities. Russia’s satellites in Eastern Europe were permitted to go their own way, and autonomous republics within the Soviet Union were allowed to declare themselves independent countries. The old Soviet system of state ownership was officially abolished, and almost everything was privatised. The press and media in general were freed of all censorship and could now say whatever they wanted. Russia under Yeltsin reached out the hand of friendship to the West – a gesture that was not reciprocated and ultimately snubbed by the West.
The euphoria of 1991 soon gave way and the1990s turned out to be a catastrophic decade for Russia and her people. First and foremost, the policy of privatisation turned out to be disastrous. A law was passed which forbade foreigners from buying Russian utilities and industries; only Russians could do so. Unfortunately, nobody in Russia, hitherto a Communist country, had any money. However, certain groups within the country – mainly ethnic Jews – had important and wealthy connections abroad. These arranged to have funds sent into Russia for the purpose of purchasing the country’s state-owned industries. Desperate for any dollars and euros it could lay its hands on, the Yeltsin administration sold these industries for a tiny fraction of their true value. (Russia’s natural resources alone make it potentially one of the wealthiest countries on the planet). The buyers of said industries became the notorious “oligarchs,” who systematically plundered the country for almost ten years, in what has been described as the biggest act of looting in history. Rather than plow some of the profits back into the businesses, the oligarchs exported almost all of them, impoverishing both their employees and the country in general. The result was that large segments of the population began to experience severe hardship. Many came close to starvation and many died of hypothermia during the bitter Russian winters. Some state employees were paid in cabbages, and it is estimated that Russia suffered over five million excess deaths between 1991 and 2000. The majority of these were caused by simple diseases such as influenza, which developed into pneumonia for want of funds to buy an antibiotic. But deaths from all causes, including murder, suicide, alcoholism, and drug addiction, rocketed. Russia was a country falling apart, and the population began to plummet.
During this time, a Chechen independence movement, spurred on by funds from Saudi Arabia and (allegedly) the West, launched a violent campaign against the Russian authorities. A savage war followed, which claimed tens of thousands of lives, and eventually resulted in 1997 in Yeltsin’s recognition of a semi-independent Chechnya. Independence movements began to appear in other autnomous regions and it was clear that Russia itself stood on the verge of disintegration.
During all of this, the attitude of the West, or of those who control the West, was striking. Western media, by that time in the hands of a few mega-corporations, was almost gleeful in its reporting of Russia’s trauma. In their suffering, the Russian people became the butt of the West’s shadenfreude. And it should be borne in mind that it was precisely in the 1990s that American corporations commenced massive “outsourcing” of their industries to other, and less expensive, locations. Entire factories, together with their machinery and technology, were exported en masse, primarily to China. Almost nothing went to Russia. This in spite of the fact that China continued to be a Communist and indeed totalitarian country. Not even the massacre of Tiananmen Square (1989) and the subsequent brutal repression could halt the American plutocracy’s enthusiasm for exporting work and business. So Russia, which had held out the hand of friendship to the West, and had permitted the subjugated peoples to go free, continued to be treated as an enemy, and was effectively plundered by Western interests, whereas China, which did no such thing, was now treated as a favored trading and business partner. How to explain such an astonishing disparity?
There seems to be no logical explanation other than to assume an underlying cultural/religious antipathy towards Russia and her people on the part of a very large segment of the West’s ruling plutocracy. I suggest that this is the case, and it is Russia’s religion that is at the root of it.
During the Communist era, Christianity was suppressed in Russia and throughout the Soviet block. At its worst, under Lenin and Stalin, the Communist regime massacred millions of Christians. Victims were mainly Orthodox, but Christians of every denomination suffered. Even after the death of Stalin and into the 1980s religion continued to be persecuted. All children were required to attend lessons in atheism, during which Christianity and religious faith in general was mocked. By the end of Communism, the Orthodox Church was a small remnant of its former self under the Tsars, but that soon began to change. Hardship birthed a spiritual revival; by the mid-1990s the Russian Orthodox Church, as well as other branches of Christianity, began to experience noticeable growth. It was not however until the first decade of the twenty-first century, and the presidency of Vladimir Putin, that this movement became really significant.
Putin had occupied a senior position in the Yeltsin administration, and he was no doubt viewed by the oligarchs, at that time the real rulers of Russia, as a safe pair of hands who could be relied upon to continue the policies which had allowed them to plunder the country for almost a decade. He was appointed Prime Minister on 9th August 1999 and, just four months later, in December, acting President of Russia, following the unexpected resignation of Boris Yeltsin. A presidential election on 20th March 2000 was easily won by Putin with 53% of the votes. One reason for Putin’s popularity was that he was seen as a strong leader during the Second Chechen War, which commenced on 7th August 1999, just two days before his appointment as Prime Minister. The war ended in April 2000, with Chechnya again part of the Russian Federation, a victory which enhanced Putin’s reputation as a strongman, willing and able to restore stability and enforce the law.
Over the next five years, Putin showed that the ruling plutocrats were very much deceived had they imagined him to be under their control and part of their team. On the contrary, the new president set about breaking their power. The next decade witenessed a series of legal cases and trials which left some of the oligarchs in prison and others forced to pay substantial compensation. Others, arguably the most criminal, fled the country and their assets were confiscated. The breaking of the oligarchs’ power, together with that of the “Russian mafia” which enforced their corrupt rule, began to restore some form of normality.
In parellel with his economic reforms, Putin oversaw a revival of the Russian Orthodox faith. In an act heavy with symbolic import, he made a visit to the great Orthodox monastic settlement of Mount Athos in Greece in 2001, just one year into his presidency. Although this attempt had to be aborted owing to a storm which grounded his helicopter, and a second attempt in 2004 similarly shelved when he had to return to Russia to deal with the Beslan School siege, he finally made it to the Holy Mountain in 2005. There he established a bond with the monks that transformed their community and impacted the lives of ordinary Russians. A major program of church-construction commenced, and the numbers attending church began to grow. Putin made it clear that he regarded Orthodoxy as Russia’s national religion and the Church was accorded a favored legal position. And such symbolic gestures were backed by new legislation which began to transform Russian society: the country’s abortion laws, hitherto some of the most liberal in the world, were tightened. In October 2011, the Russian Parliament passed a law restricting abortion to the first 12 weeks of pregnancy, with an exception up to 22 weeks if the pregnancy was the result of rape. The new law also made mandatory a waiting period of two to seven days before an abortion could be performed, to allow the woman to “reconsider her decision.”
During this period, the portrayal of Russia in the Western media moved from one of condescension to outright hostility. As early as 2005, scholars Ira Straus and Edward Lozansky remarked upon a pronounced negative coverage of Russia in the US media, contrasting negative media sentiment with largely positive sentiment of the American public and US government. As Russia displayed increasing signs of a Christian revival, so the media reporting in the West became increasingly hostile. Only rarely however did journalists openly attack Russia for its “Christianization”; normally, columnists, conscious of the fact that large numbers of people in the West continued to describe themselves as Christian, portrayed their anti-Russian commentary as a result of Russia’s “aggression,” “corruption,” or “lack of democracy.” All that however changed with the new abortion law of 2011. Now the attacks against Russia became explicitly ideological. The Russians, we were told, were oppressing women and turning their backs on “progress.”
It was not until 2013 however that the anti-Russian rhetoric went hyperbolic. In that year, the Russian parliament passed its so-called “Gay Propaganada” law. The bill, described as “Protecting Children from Information harmful to their Health and Development,” explicitly banned Gay Pride parades, as well as other forms of LGBT material, such as books and pamphlets, which attempted to normalize homosexuality and to influence children in their attitudes to homosexuality. In actual fact, since around 2006 many districts in Russia had been imposing their own local bans on such material, though these rules had no power outside their own jurisdiction. The bill, which was signed into law by Putin on June 30 2013, was extremely popular, and passed through the Russian Parliament unanimously, with just one abstention. But the impact upon the Western nomenklatura who form the gatekeepers of acceptable opinion, was immediate. Almost unanimously, Western media outlets now began to compare Putin with Adolf Hitler; he was a “thug,” a “fascist,” a “murderer.” Between bouts of seething rage, he became the butt of scathing satire. He was cast in the role of a caricature James Bond villain, routinely murdering and torturing those he held a grudge against. There is even evidence, admittedly somewhat circumstantial, that Western Intelligence bodies, such as the CIA and MI5, became actively involved in anti-Russian propaganda.
The effect of this deluge of demonization upon ordinary Westerners soon began to show: Whereas in 2006 only 1% of Americans listed Russia as “America’s worst enemy” by 2019 32% of Americans, including 44% of Democrat voters, shared this view. Only 28% of Republicans however agreed; a remarkable reversal of opinion. During the Cold War, Republican voters, traditionally the more religious and nationalistic element of the American political divide, viewed the Russians as the major threat; now it was the less or non-religious (and more pro-LGBT) Democrats who held this opinion.
But the Western elites did not confine its efforts to irate editorials in the London Times or the Washington Post: Economic sanctions now began to be discussed. There were immediate calls to boycott the Winter Olympics, held in February 2014 in Sochi, Russia. Whilst the call to boycott was generally resisted by athletes, many Western politicians refused to attend, and the Russophobic temperature in the Western media ratcheted up. And things were about to get much worse.
In 2010 Viktor Yanukovych, a native of Russian-speaking Donetsk, was elected President of Ukraine, defeating Prime Minister Yuliya Tymoshenko, in what was judged by international observers to be a free and fair election. In November 2013 Yanukovych delayed signing a pending European Union association agreement, on the grounds that his government wished to maintain economic ties with Russia, as well as with the European Union. Russia had in fact offered a more favorable loan bailout than the European Union was prepared to offer. This led to protests and the occupation of Kiev’s Independence Square, a series of events dubbed the “the Euromaidan” by those in favor of aligning Ukraine with the European Union. Whilst at times it looked as if the protests would fizzle out, there is no question that almost from the beginning there was a concerted effort on the part of Western politicians to keep them going. Beginning early in December, several politicians from Berlin and Brussels paid “morale-boosting” trips to the square, and these were followed, on December 15, by the arrival of American Senators John McCain and Chris Murphy. To the assembled crowds, McCain announced that “we are here to support your just cause.” The Russians, for their part, condemned America’s “crude meddling” in Ukraine’s affairs.
Victoria Nuland, at that time Assistant Secretary of State for European and Eurasian Affairs in the Obama administration, arrived in Ukraine shortly afterwards, and immediately set about fanning the flames of an already volatile situation. In speech after speech she promised the protestors and rioters that America was behind them. The result was the by early February 2014 Ukraine appeared to be on the brink of civil war; violent clashes between anti-government protestors and police left many dead and injured. Fearing for his life, on February 21 Yanukovych fled the capital, initially travelling to Crimea and ultimately to Russia. A new interim government, handpicked by Nuland, and virulently anti-Russian, was immediately installed in Kiev.
When considering the actions of America and the collective West at this time we have to remember that Ukraine was and is a deeply divided society. Half the country, roughly the north and west, regards itself as Ukrainian and is historically antagonistic towards Russia. The other half, predominantly the south and east, is pro-Russian and views itself as simultaneously Ukrainian and Russian. A glance at the electoral map of the country demonstrates this division in a most graphic way, for it was the Russian part of the country, the south and east, which overwhelmingly put Yanukovych into power. In supporting a violent overthrow of the latter, the American government quite deliberately threw its weight behind the anti-Russian half of the population. And it is impossible to believe that the political elite in Washington did not understand what they were doing. They had to have known that they were making civil strife – if not outright civil war – an absolute certainty.
The civil strife was not long in coming. As the anti-government mobs in Kiev were in the process of throwing out Yanukovych, major protests against the coup began to occur in the south and east. Crimea, which was overwhelmingly Russian and had only been transferred to the jurisdiction of Kiev in 1954 by Khruschev, held a referendum, resulting in a 97% vote for reunion with Russia. Putin, infuriated by American actions in Kiev, accepted the result of the vote, and formally announced the return of Crimea to the Russian Federation. Simultaneous with this, cities and towns throughout the south and east of the country, saw massive “anti-Maidan” protests, with many people calling for secession from Ukraine and union with Russia. The new Washington-appointed regime in Kiev reacted with force. Forty-seven pro-Russian demonstrators in Odessa were besieged in the city’s Trade Union building and burned to death by a Neo-Nazi mob. Seeing the way things were going, the ethnically-Russian provinces (“Oblasts”) of Lugansk and Donetsk declared independence and prepared to defend themselves. This quickly escalated into full-scale war, and over the next two years or so around 14,000 people, mainly ethnic Russian civilians, died, as the Kiev government fought to return the two provinces to Ukraine.
The fighting in Lugansk and Donetsk (the “Donbas”) de-escalated after the signing of the so-called Minsk 2 Accord in 2015. This deal, brokered by Russia, the US and the UN, provided for a degree of autonomy for the two breakaway provinces, as well as recognition and respect for their Russian language and culture. The deal also called for the immediate halting of all military action.
Had the Minsk agreement been fully implemented, it is quite possible that all hostilities would have ended, but this was never the case. The new government in Kiev, which from May 2014 was headed by Petro Poroshenko, made no attempt whatsoever to abide by the Accord’s provisions. On the contrary, the Russian language, hitherto one of the official languages of Ukraine, was demoted, and Russian culture in general denigrated. Even worse, none of those who had committed murder in Odessa and elsewhere were brought to justice, and the Neo-Nazi militias responsible for these atrocities were actually integrated into the Ukrainian army. Worst of all, sporadic shelling of civilian targets in Lugansk and Donetsk continued – for the next six years.
To repeat; the collective “West” could not have been unaware of the dangers of its interference in the affairs of Ukraine. This was a deeply divided country; to intervene on behalf of one section of the country at the expense of the other could not fail to deepen divisions and ultimately cause the disintegration of the state. That the West took the side of the anti-Russian half of the population was entirely in harmony with the increasingly hysterical tone of anti-Russian rhetoric in the Western media in the years leading up to the Maidan Revolution. And we can take with a pinch of salt the idea that Nuland and the Obama Adminstration was concerned with “corruption” in the Yanukovych regime: America is and always has been on very friendly terms with governments far more corrupt, violent and totalitarian than that of Yanukovych.
I would suggest that the real reason, or certainly an extremely important though unspoken reason, for Nuland’s mission was that Yanukovych’s pivot towards Russia was seen by the “woke” establishment in Washington as a sign that Ukraine would follow Russia into adopting an increasingly Christian-friendly social culture; one that the “liberals” and “progressives” in Washington despised. We should note too that one of Poroshenko’s first actions as President of Ukraine was to provide openings for George Soros’ Open Society Foundation, and to simultaneously support the establishment of LGBT input into the educational system. Gay “Pide” parades became a regular feature of life in Kiev where, though distinctly unpopular with the great majority of the population, they received massive support and protection from the security forces.
Emmet Sweeney is the author of several works dealing with problems in the history of the ancient Near East.
Following the 2034 collapse of Britain and the popular overthrow of its millennial Establishment after nearly two decades of political turmoil, England moves ahead. Last week international arrest warrants were issued by the new People’s Government for the detention of the elderly war criminals Blair (Serbia, Afghanistan, Iraq), Cameron (Libya, Syria and the Yemen) and Johnson (the Ukraine), who are all believed to be in hiding, cowering from justice somewhere in Florida, where they are now being hunted down.
As regards internal changes to the English Capital, just today the following changes have been announced by the People’s Government in London, the Capital of England, part of its programme of ‘Re-Englanding England’, also known as ‘Debritainisation’.
England Square
Today, exactly two hundred years after ‘Trafalgar Square’ in London was given the name of an Arabic-named Cape in Spain, the Square is to be renamed ‘England Square’. The statue of Nelson on its column is to be replaced by a statue of the effective founder of England, King Alfred the Great, known as ‘England’s Darling’, ‘The Truthteller’ and ‘The Lawgiver’. It will then be known as ‘Alfred’s Column’. A spokesman for the People’s Government said that it in no way wished to denigrate Nelson, whose tactical genius and personal bravery are undoubted, but Demilitarisation is an inherent part of Debritainisation. The statue will be removed to the English Museum, formerly called ‘The British Museum’. This has plenty of empty space, since so many of its artefacts, looted from around the world by British imperialists mainly since the eighteenth-century, have been returned to their countries of origin.
At the same time the four lions around the base of Alfred’s Column will also be sent to the English Museum as part of the policy of Demilitarisation, that is, as part of the policy of the removal of aggressive symbols of imperialist militarism. They will be replaced by four female figures, personifying Motherhood, Peace, Justice and Freedom. The four plinths for statues on England Square, at present occupied by three statues (the fourth plinth is empty) of the German King George IV and the imperialist militarists, Napier and Havelock, are also to be sent to the English Museum. They will be replaced by statues of literary and social geniuses of English history, known as ‘The Four Williams’: William Langland (1332-1386), William Shakespeare (1564-1616), William Blake (1757-1827) and William Cobbett (1763-1835).
As readers may know, Langland wrote a visionary English-language poem and allegory called ‘Piers Plowman’, in which he denounced the corruption of the medieval Catholic Church and praised the simple faith of the people. As for Shakespeare, he was the most brilliant poet of the English language and a very perceptive psychologist, who described in detail the good and bad in human nature and their motivations. Blake was the visionary poet and artist who opposed the appalling exploitation of his age and wrote the new English National Anthem, ‘Jerusalem’, in which he denounced the ‘dark, satanic mills’ of the so-called ‘Industrial Revolution’, that is, of the mass exploitation of industrial workers. Cobbett was a politician who struggled for social justice and wrote against the collectivisation, or privatisation, that is, just plain theft, of the common land in England, euphemistically called the ‘Enclosures’. He constantly campaigned against corruption and poverty and in favour of rural prosperity and freedom.
As for the busts of the three imperialist Admirals, Jellicoe, Beatty and Cunningham, in England Square, they are also to be sent to the English Museum and be replaced by busts of three well-known poets: a soldier (Wilfred Owen), a merchant sailor (John Masefield) and an airman, John Gillespie Magee (author of ‘High Flight’). They are in memory of the sacrifices of ordinary men, ‘the lions led by donkeys’, in the imperialist wars of the British past. The statue of Charles I on the south side of England Square, usurped and then beheaded by a clique of grasping merchants, will be retained. However, the statues in front of the National Gallery, of the Scottish King James II and of the slave-owning colonist George Washington, will be sent to the English Museum and be replaced by statues of the two Patronal Saints of England, St George and St Edmund.
The Square of the Peoples
Meanwhile, there will also be changes to the statues outside ‘Parliament’, renamed ‘The House of the People’ since the abolition of the House of Lords, to that in the Guildhall, and to the twelve statues in Parliament Square, now renamed ‘The Square of the Peoples’. Outside the House of the People, the statue of Cromwell is to be replaced by a statue of an Irish peasant, at least 200,000 (10% of the population) of whom the brutal thug Cromwell had massacred. In the Guildhall the statue of Thatcher is to be replaced by the statue of a Yorkshire coal-miner. Both old statues are to be taken to the English Museum to protect them from vandalism.
In The Square of the Peoples, nine of the present twelve statues are also to be removed. These are, in anti-clockwise order: the statue of Churchill, replaced by that of an English child orphaned by bombing in the Second World War; that of David Lloyd George by an injured World War One Welsh soldier; that of the South African Prime Minister Smuts by a Boer woman from a British concentration camp during the Boer War; that of the British Imperialist Prime Minister Palmerston by that of a Russian peasant-soldier from the British invasion of Russia (the so-called ‘Crimean War’); that of the British Imperialist Prime Minister Smith-Stanley (the Earl of Derby) by that of a Chinese woman suffering in the so-called, British-caused ‘Opium War’ (Genocide of China); that of the British Imperialist Prime Minister Disraeli by that of a Bulgarian peasant-woman, oppressed by the Ottomans whom Disraeli immorally supported; that of the British Imperialist Prime Minister Peel by that of a starving Irishwoman from the Irish Potato Famine; that of the British Imperialist Prime Minister Canning by that of a Scottish crofter, removed by force from his land which was stolen from him in the so-called ‘Highland Clearances’; that of Lincoln by that of a Tasmanian Aborigene, representing the treatment of North, Central and South American Natives, Australian Aborigenes, genocided Tasmanians and Maori, all as a result of British ‘colonisation’ (land-theft). The statues of Nelson Mandela, Mahatma Gandhi and Millicent Fawcett will remain as symbols of the striving for freedom of Africans, Indians and of women, who were freed from Victorian oppression and the deprivation of rights.
Europe
The new English People’s Government, elected by over 85% of the electorate according to the new proportional democracy, is keen to depose the old tyrants and celebrate the victims of tyranny. It has come to our knowledge that parallel events are about to occur not only in newly-reunited Ireland and newly-independent Scotland and Wales, but also in the newly-freed countries of the former EU. This follows last month’s sacking of the EU headquarters in the Berlaymont building in Brussels. Everywhere in Western Europe the flags of freedom are beginning to flutter defiantly.
In Paris the Arc de Triomphe in Paris is to be renamed ‘L’Arc du Peuple’ (‘The People’s Arch’) and Napoleon’s bloody battles are to be removed from it. Rome, Brussels, Vienna, Berlin, Madrid, Lisbon – all are reviewing names of streets, statues and monuments. As for the English Government, it has already joined the new Confederation of Free European Nations (CFEN), a loose structure which will meet in various European Capitals. It was originally suggested by the paternal Russian government and has been formed to replace the old centralised EU and its unelected bureaucrats and tyrants.
15 August 2035
Breaking News:
It has just been announced that Antony Blair has been captured by the Free American Police after being found hiding in a hole in the ground near a farmhouse outside Miami. Blair was shown in a photograph with a full beard and hair longer than in his familiar appearance. He was described by police officials as being in good health despite his 82 years. The details of his double trial, which is to take place in Belgrade and then in Baghdad, have not yet been determined. The local police call their prisoner ‘Vic’, which stands for ‘Very Important Criminal’. Officials said that Blair whined to them after his arrest: ‘I am innocent, I did not do anything, I was only following orders from the White House’.
الحسكة | يكاد لا يمرّ يوم واحد على مدن الشريط الحدودي السوري مع تركيا وبلداته، من دون أن تتعرّض لقصف مدفعي أو صاروخي أو مسيّر تركي، أو من فصائل «الجيش الوطني» التابع لأنقرة، في محاولة لاستنزاف «قسد»، وإجبارها على سحب قوّاتها بعمق 30 كلم عن الحدود. وتعمّد الجيش التركي، أخيراً، استهداف القوات الكردية في معاقلها في كلّ من عامودا والدرباسية والقامشلي في الحسكة، وعين العرب في ريف حلب، لإثبات جدّية مطالبه في إخلاء كامل الشريط الحدودي، وليس فقط تل رفعت ومنبج، اللتين يُعتقد أنهما ستكون هدفاً أوّل لأيّ عملية عسكرية جديدة. وتريد تركيا، من وراء هذا التصعيد أيضاً، التأكيد أن وجود مناطق مشتركة بين «قسد» والجيش السوري أمر مرفوض، لأنه سيبقي الخطر على حدودها، وهو ما أشار إليه صراحة وزير الخارجية، مولود تشاويش أوغلو، في تصريحات سابقة، بالقول إن «الاحتماء بعلَم النظام أو ارتداء لباسه، لن يضلّل تركيا في استهداف الإرهابيين». وتَركّز القصف الأخير على مدن لم تطلْها المعارك منذ بداية الحرب على سوريا، كعامودا والدرباسية والقحطانية والقامشلي في الحسكة، بالإضافة إلى عين العرب. واستهدفت الطائرات والمدفعية التركية، أوّل من أمس، مركز مدينة عين العرب، وعشر قرى وبلدات في أريافها، بالإضافة إلى قرية سنجق سعدون في ريف عامودا شمال الحسكة، ما أدّى إلى مقتل خمسة من عناصر «قسد»، ومدنيَين اثنَين وإصابة آخرين.
وجاء هذا التطوّر بعد وقت قصير من تصريحات لتشاويش أوغلو، تحدّث فيها عن لقاء سريع جمعه مع نظيره السوري، فيصل المقداد، مشدّداً على «ضرورة إيجاد آلية للمصالحة بين النظام والمعارضة وتوحيد الجهود ضدّ الإرهابيين»، في إشارة إلى «قسد». كما أتى بعد تداول وسائل إعلام تركية معلومات عن عزم رئيس «حزب الوطن» التركي، الحليف لإردوغان من خارج الحكومة، دوغو بيرينتشيك، ورجل الأعمال إيتهام سانجاك، وآخرين، زيارة سوريا خلال الأيام المقبلة، حيث سيلتقون الرئيس بشار الأسد وشخصيات رفيعة المستوى. وأمام ذلك، ربّما رأت «قسد» أنه من الضروري التشويش على أيّ محاولات تقارب بين الجانبَين السوري والتركي، وتقويض الجهود الروسية – الإيرانية في هذا السياق، من خلال اللجوء إلى استهداف مخفر حدودي تركي من داخل قرية تل جارغلي في ريف عين العرب الغربي، بعدّة قذائف صاروخية، ما أدّى إلى مقتل جندي تركي وإصابة 4 آخرين، وفق إعلان والي أورفة. وسارعت «قسد» إلى نَفي ضلوعها في العملية، على رغم تأكيد مصادر أهلية وميدانية أن القصف تمّ من منصّة صواريخ نصبتها «قسد» لوقت قصير في قرية تل جارغلي المقابلة للمخفر المستهدَف، قبل أن يغادر عناصرها المكان. وفي المقابل، اعتبرت أنقرة أن الاستهداف فرصة لتوجيه ضربة لـ«قسد»، وإيصال رسائل إلى الجيش السوري، وفي الوقت نفسه استرضاء الفصائل المسلّحة الموالية لها، وامتصاص الغضب الذي اشتعل ضدّها في مدن الشمال، بعد تصريحات تشاويش أوغلو.
ترشح معلومات عن عزم شخصيات سياسية تركية غير حكومية زيارة سوريا خلال الأيام المقبلة
ومع تزايد حدّة التصعيد الميداني التركي، أكّد القائد العام لـ«قسد»، مظلوم عبدي، في تصريح إلى قناة «الحرة»، أن «هناك إجماعاً على رفض العملية العسكرية التركية شمال سوريا (…) ونحن على تواصل مستمرّ مع الولايات المتحدة الأميركية والتحالف الدولي بشأن التهديدات التركية»، مضيفاً أن الموقف «أقوى من العامَين 2018 و2019، وهو موقف إيجابي». وتابع أن «كامل المؤسّسات الأميركية أبدت معارضتها للعملية العسكرية التركية (…) وقيل لنا إنه في الاجتماع الأخير بين الرئيس جو بايدن والرئيس التركي الذي عقد في مدريد، هناك أيضاً أبدت أميركا موقفاً واضحاً من العملية»، مستدركاً بأن هذا «ليس على مستوى تطلّعاتهم، لأن التهديدات مستمرّة». ويشي كلام عبدي بأن «قسد»، وعلى رغم كلّ الحديث عن التقارب مع موسكو ودمشق، لا تزال تعوّل على المدَد الأميركي، مع أن واشنطن أبلغتها رسمياً أن غالبية المناطق المهدَّدة بالاجتياح التركي، تقع ضمن مناطق النفوذ الروسية. كما لم يُسجّل الأميركيون أيّ موقف تجاه سقوط قذيفة في محيط قاعدة لـ«التحالف الدولي» منذ عدّة أيام في محيط بلدة القحطانية في ريف الحسكة الشمالي، في ظلّ شكوك متزايدة بتزويد واشنطن، أنقرة، بإحداثيات عن تحركات «قسد» ومواقعها في المنطقة. وفي خضمّ ذلك، توحي المعطيات الميدانية بأن التصعيد التركي سيتواصل إلى حين قبول «قسد» بإخلاء مواقعها على الشريط الحدودي، وبعمق 30 كلم. وبهذا، تضيق خيارات «الإدارة الذاتية» في ظلّ غياب أيّ تحرّك لصالحها من الأميركيين، وإصرار الروس على مقترحهم بتسليمها الشريط الحدودي وجنوبه بعمق 30 كلم إلى الجيش السوري، أو مواجهة الهجوم التركي وحيدة.
Hey, everyone, this is Ben Norton, and you are watching or listening to the Multipolarista podcast. I am always privileged to be joined by one of my favorite guests, Michael Hudson, one of the greatest economists living today.
We’re going to be talking about the inflation crisis. This is a crisis around the world, but especially in the United States, where inflation has been at over 8%. And it has caused a lot of political problems. It’s very likely going to cause the defeat, among other factors, of the Democrats in the mid-term elections in November.
And we’ve seen that the response of the US government and top economists in the United States is basically to blame inflation on wages, on low levels of unemployment and on working people.
We’ve seen that the chair of the Federal Reserve, Jerome Powell, has said that inflation is being caused by wages supposedly being too high. We’ve also seen that the top economist and former Clinton administration official Larry Summers has claimed that the solution to inflation is increasing unemployment, potentially up to 10%.
So today I’m joined by economist Michael Hudson, who has been calling out this kind of neoliberal snake oil economics for many years. And Professor Hudson has an article he just published that we’re going to talk about today. You can find this at his website, which is michael-hudson.com. It’s titled “The Fed’s Austerity Program to Reduce Wages.” and I’m going to let Professor Hudson summarize the main points of his article.
Professor Hudson, as always, it’s a pleasure having you. Can you respond to the decision by the Federal Reserve to increase interest rates by 0.75%? It doesn’t sound like a lot – it’s less than 1% – but this was the largest rate hike since 1994.
And now we’ve already seen reports that there’s going to be a depression. The Fed chair is blaming this on wages. Can you respond to the position of the Fed and the inflation crisis in the US right now.
MICHAEL HUDSON:
For the Fed, the only two things that it can do is, number one, raise the discount rate, the interest rate; and number two, spend $9 trillion buying stocks, and bonds, and real estate mortgages to increase real estate prices, and to increase the amount of wealth that the wealthiest 10% of the population has.
To the wealthiest 10%, especially the 1%, it’s not only inflation that’s a problem of wages; every problem that America has is the problem of the working class earning too much money. And if you’re an employer, that’s the problem: you want to increase your profits. And if you look at the short term, your profits go up the more that you can squeeze labor down. And the way to squeeze labor down is to increase what Marx called the reserve army of the unemployed.
You need unemployment in order to prevent labor from getting most of the value of what it produces, so that the employers can get the value, and pay that to the banks and the financial managers that have taken over corporate industry in the United States.
You mentioned that while the Fed blames the inflation it on labor, that’s not President Biden’s view; Biden keeps calling it the Putin inflation. And of course, what he really means is that the sanctions that America has placed on Russia have created a shortage of oil, gas, energy, and food exports.
So really we’re in the Biden inflation. And the Biden inflation that America is experiencing is the result basically of America’s military policy, its foreign policy, and above all, the Democratic Party’s support of the oil industry, which is the most powerful sector in the United States and which is guiding most of the sanctions against Russia; and the national security state that bases America’s power on its ability to export oil, or control the oil trade of all the countries, and to export agricultural products.
So what we’re in the middle of right now isn’t simply a domestic issue of wage earners wanting higher salaries – which they’re not particularly getting; certainly the minimum wage has not been increased – but you have to put this in the context of the whole cold war that’s going on.
The whole US and NATO confrontation of Russia has been a godsend, as you and I have spoken before, for the oil industry and the farm exporters.
And the result is that the US dollar is rising against the euro, against sterling, and against Global South currencies. Well, in principle a rising dollar should make the price of imports low. So something else is at work.
And what’s at work, of course, is the fact that the oil industry is a monopoly, that most of the prices that have been going up are basically the result of a monopolization, in the case of food, by the marketing firms, like Cargill and Archer Daniels Midland, that buy most of the crops from the farmers.
The irony is that while food prices, next to oil prices, are the major factor that is soaring, farmers are getting less and less for their crops. And yet farmers’ costs are going up – up for fertilizer, up for energy, up for other inputs – so that you’re having enormous profits for Archer Daniels Midland and the food monopolies, of the distributors, and enormous, enormous gains for the oil industry, and also of course for the military-industrial complex.
So if you look at what’s happening in the overall world economic system, you can see that this inflation is being engineered. And the beneficiaries of this inflation certainly have not been the wage earners, by any stretch of the imagination.
But the crisis that the Biden policy has created is being blamed on the wage earners instead of on the Biden administration’s foreign policy and the basically the US-NATO war to isolate Russia, China, India, Iran, and Eurasia generally.
BENJAMIN NORTON:
Professor Hudson, I want to talk about the increase in interest rates by the Fed. There has been a lot of attention to this, although, again, it’s 0.75%, which is not that big. But it’s of course going to have an outsize impact on the economy.
raising interest rates will cure inflation by deterring borrowing to spend on the basic needs that make up the Consumer Price Index and its related GDP deflator. But banks do not finance much consumption, except for credit card debt, which is now less than student loans and automobile loans. Banks lend almost entirely to buy real estate, stocks and bonds, not goods and services.
So you argue that one of the effects of this is that it’s actually going to roll back homeownership in the United States. You note that the rate of homeownership has been falling since 2008.
So can you expand on those arguments? What will be the impact of the increase of the interest rates by the Fed?
MICHAEL HUDSON:
Well, in order to get an economics degree which is needed to work at the Fed or at the Council of Economic Advisors, you have to take economics courses in the universities, and all of the textbooks say just what you quoted me as saying they say.
The pretense is that banks actually play a productive role in society, by providing the money for factories to buy machinery, and build plants, and do research and development, and to hire labor; and that somehow the money that banks create is all lent out for industrial economy, and that that will enable companies to make more money that they’ll spend on labor; and of course, as they spend more money on labor, that supports to bid prices up as the reserve army of the unemployed is depleted.
But that’s all a fiction. The textbooks don’t want to say that banks don’t play a productive role like that at all. And the corporations don’t do what the textbooks say.
If you look at the Federal Reserve balance sheet and statistics that it publishes every month, you’ll see that 80% of bank loans in the United States are mortgage loans to commercial real estate and mostly for home real estate. And of course the home mortgage loans have been nothing, like under 1% for the last 14 years, since 2008.
Only the banks and the large borrowers, the financial sector, have been able to borrow at these low rates. Homeowners all along have had to pay very high rates, just under 4%, and now it’s going above 4%, heading to 5%.
Well, here is the situation that the Federal Reserve has created. Suppose that you’re a family right now going out to buy a home, and you find out that in order to borrow the money to buy the home – because if the average home in America costs $600,000 or $700,000, people haven’t saved that much; the only way you can buy a home is to take out a mortgage.
Well, you have a choice: you can either rent a home, or you can borrow the money to buy a home. And traditionally, for a century, the carrying charge for financing a home with the mortgage has been about the equivalent of paying a rent. The advantage is, of course, that you get to own the home when it’s over.
Well, now let’s look at what’s happening right now. All of a sudden, the carrying charge of mortgages have gone way, way up. The banks are making an enormous gap. They can borrow at just around 1%, and they lend out at 4.5%. They get a windfall gain of the markup they have in mortgages, lending to prospective homeowners.
And of course, the homeowners don’t have enough money to be able to pay the higher interest charged on the mortgages that they take out. So they are not able to buy as expensive a home as they wanted before.
But they’ve been a declining part of the population. At the time Obama took office, over 68% of Americans owned their own home. Obama started the great wave of evictions, of 10 million Americans who lived in homes, essentially to throw them out of their homes, especially the victims of the junk mortgages, especially the lower income and racial minorities who were redlined and had to become the main victims of the mortgages.
America’s homeownership rate is now under 61%. What has happened? You’ve had huge private capital firms come into the market thinking, wait a minute, we can now buy these properties and rent them out. And we can buy them for all cash, unlike homeowners, we’re multibillionaires, we Blackstone, BlackRock.
You have these multibillion-dollar funds, and they say, well, we can’t make much money buying bonds or buying stocks that yield what they do today, now that the Federal Reserve has ground down interest rates. What we can do is make money as landlords.
And so they’ve shifted, they’ve reversed the whole shift away from the 19th-century landlordism to an economy based on financialization, and the wealthy classes making money on finance, to go back to making money as landlords.
And so they are buying up these homes that American homeowners can’t afford to buy. Because when you raise the mortgage rate, that doesn’t affect a billionaire at all. Because the billionaire firm doesn’t have to borrow money to buy the home. They have the billion dollars of their own money, of pension fund money, of speculative money, of the money of the 1% and the 10% to spend.
So what you’re having by increasing the interest rates is squeezing homeowners out of the market and turning the American economy into a landlord-ridden rental economy, instead of a homeowners economy. That’s the effect.
And it’s a windfall for the private capital firms that are now seeing that are making money as landlords, the old fashioned way, it worked for 800 years under feudalism. It’s coming back in style.
BENJAMIN NORTON:
Professor Hudson, you point out in this article at your website that more than 50% of the value of U.S. real estate already is held by mortgage bankers. And of course, that percentage is increasing and increasing.
Now, you, Professor Hudson, have argued a point that I haven’t seen many other people make, although it’s an obvious, correct point, which is that there has actually been a lot of inflation in the United States in the past several years, but that inflation was in the FIRE sector: finance, insurance, and real estate.
We see that with the constant increase in real estate prices; they go up every single year; rent goes up every single year. The difference now is that there’s also a significant increase in the Consumer Price Index.
And there is an interesting study published by the Economic Policy Institute, which is, you know, a center-left think tank, affiliated with the labor movement; they’re not radicals, they’re progressives. And they did a very good study.
And they found – this was published this April – they found that corporate profits are responsible for around 54% of the increase of prices in the non-financial corporate sector, as opposed to unit labor costs only being responsible for around an 8% increase.
So they showed, scientifically, that over half of the increase of prices in the non-financial corporate sector, that is in the Consumer Price Index, over half of that inflation is because of corporate profits.
Of course, that’s not the way it’s discussed in mainstream media. That’s not the way the Fed is discussing it all. We see Larry Summers saying that we need to increase unemployment. Larry Summers, of course, was the treasury secretary for Bill Clinton.
He’s saying that the U.S. has to increase unemployment; the solution to inflation is increasing unemployment. Even though these studies show that over half of inflation in the Consumer Price Index is because of corporate profits.
I’m wondering if you can comment on why so many economists, including people as revered as Larry Summers, refuse to acknowledge that reality.
MICHAEL HUDSON:
Most economists need to get employment, and in order to be employed, you have to give a picture of the economy that reflects how well your employer helped society at large. You’re not allowed to say that your employer is acting in ways that are purely predatory. You’re not allowed to say that the employer does not earn an income.
You talked about corporate profits and the classical economists. If you were a free-market economist like Adam Smith, or David Ricardo, or John Stuart Mill – these are monopoly rents. So what you call corporate profits are way above normal corporate rates of return, normal profits. They’re economic rents from monopoly.
And that’s because about 10 or 15 years ago, the United States stopped imposing its anti-monopoly laws. It has essentially let monopolies concentrate markets, concentrate power, and charge whatever they want.
And so once you’ve dismantled the whole legal framework that was put in place from the 1890s, from the Sherman Antitrust Act, down through the early 20th century, the New Deal, once you dismantle all of this state control, saying – essentially what Larry Summers says is, we’re for a free market.
A “free market” is one in which companies can charge whatever they want to charge for things; a free market is one without government regulation; a free market is one without government; a free market is a weak enough government so that it cannot protect the wage earners; it cannot protect voters. A “democracy” is a country where the bulk of the population, the wage earners, have no ability to affect economic policy in their own interests.
A “free market” is one where, instead of the government being the planner, Wall Street is the planner, on behalf of the large industries that are basically being financialized.
So you’ve had a transformation of the concept of what a free market is, a dismantling of government regulation, a dismantling of anti-monopoly regulation, and essentially the class war is back in business.
That’s what the Biden administration is all about. And quite frankly, it’s what the Democratic Party is all about, even more than the Republican Party. The Republican Party can advocate pro-business policies and pro-financial policies, but the Democratic Party is in charge of dismantling the legacy of protection of the economy that had been put in place for a century.
Now, I also wanted to get your response, Professor Hudson, to these comments that you highlighted in a panel that was organized by the International Manifesto Group – a great organization, people can find it here, their channel here at YouTube. And they held a conference on inflation. And you were one of several speakers.
And you highlighted these comments that were made by the Fed chair, Jerome Powell. And this is according to the official transcript from The Wall Street Journal. So this is not from some lefty, socialist website. Here’s the official transcript of a May 4 press conference given by the Fed chief, Jerome Powell.
In this press conference, he said, discussing inflation, he said, in order to get inflation down, he’s talking about things that can be done “to get wages down, and then get inflation down without having to slow the economy and have a recession and have unemployment rise materially.”
So this is another proposal. Larry Summers says 6% unemployment for five years, or 10% unemployment for one year. The Fed chair, Jerome Powell, says the solution is “to get wages down.” I’m wondering if you can respond to that as well.
MICHAEL HUDSON:
Well, the important thing to realize is that President Biden re-appointed Jerome Powell. President Biden is a Republican. The Democratic Party is basically the right wing of the Republican Party, the pro-financial, the pro-Wall Street wing of the Republican Party.
Why on earth, if the Democrats were different from the Republicans, why would would Biden re-appoint an anti-labor Republican, as head of the Federal Reserve, instead of someone that would actually try to spur employment?
Imagine, here’s a party that is trying to be elected on a program of, “Elect us, and we will create a depression and we will lower wages.” That is the Democrat Party slogan.
And it’s a winning slogan, because elections are won by campaign contributions. The slogan is, “We will lower wages by bringing you depression,” is a tsunami of contributions to the Democratic Party, by Wall Street, by the monopolists, by all the beneficiaries of this policy.
So that’s why the Supreme Court ruling against abortions the other day is a gift to the Democrats, because it distracts attention from their identity politics of breaking America into all sorts of identities, every identity you can think of, except being a wage earner.
The wage earners are called deplorables, basically. And that’s how the donor class thinks of them, as sort of unfortunate overhead. You need to employ them, but it really it’s unfortunate that they like to live as well as they do, because the better they live, the less money that you will end up with.
So I think that this issue of the inflation, and what really causes it, really should be what elections are all about. This should be the economic core of this November’s election campaign and the 2024 election campaign. And the Democrats are leading the fight to lower wages.
And you remember that when President Obama was elected, he promised to increase the minimum wage? As soon as he got in, he said the one thing we cannot do is raise the minimum wage. And he had also promised to back card check. He said, the one thing we must not do is increase labor unionization with card check, because if you unionize labor, they’re going to ask for better wages and better working conditions.
So you have the Democratic Party taking about as hard a right-wing position as sort of Chicago School monetarism, saying the solution to any any problem at all is just lower wages and somehow you’ll be more competitive, whereas the American economy is already rendered uncompetitive, not because wages are so high, but because, as you mentioned before, the FIRE sector, the finance, insurance, and real estate sector is so high.
Rents and home ownership, having a home is too expensive to be competitive with foreign labor. Having to pay 18% of GDP on medical care, privatized medical care, prices American labor out of the market. All of the debt service that America has paid is pricing America out of the market.
So the problem is not that wages are too high. The problem is that the overhead that labor has to pay in order to survive, for rent, for medical care, for student loans, for car loans, to have a car to drive to work, for gas to drive to work, to buy the monopoly prices that you need in order to survive – all of these are too high.
None of this even appears in economic textbooks that you need to get a good mark on, in order to get an economics degree, in order to be suitably pliable to be hired by the Federal Reserve, or the Council of Economic Advisers, or by corporations that use economists basically as public relations spokesmen. So that’s the mess we’re in.
BENJAMIN NORTON:
Professor Hudson, in your article at your website, michael-hudson.com, you have an important section about the quantitative easing policies. We were talking about how there has been inflation in the past decade, but then inflation was largely in the FIRE sector, pushing up, artificially inflating the prices of real estate and stocks.
You note that:
While home ownership rates plunged for the population at large, the Fed’s “Quantitative Easing” increased its subsidy of Wall Street’s financial securities from $1 trillion to $8.2 trillion – of which the largest gain has been in packaged home mortgages. This has kept housing prices from falling and becoming more affordable for home buyers.
And you, of course, note that “the Fed’s support of asset prices saved many insolvent banks – the very largest ones – from going under.”
I had you on to discuss, in late 2019, before the Covid pandemic hit, we know that the Fed had this emergency bailout where it gave trillions of dollars in emergency repo loans to the biggest banks to prevent them from from crashing, trying to save the economy.
I do want to talk about this as well, because sometimes this is used by right-wingers who portray Biden hilariously as a socialist. You were just talking about how the Democrats have a deeply neoliberal, right-wing economic program.
But of course, there is this rhetoric that we see from Republicans and conservatives claiming that Biden is a socialist. They claim that the reason there is inflation is because Biden is just printing money and giving money to people.
Of course, that’s not at all what’s happening. What has happened is that the Fed has printed trillions of dollars and given that to stockholders, to big corporations, and to banks.
And this is a point that I saw highlighted in that panel I mentioned, the conference on inflation that was organized by the International Manifesto Group. A colleague of yours, a brilliant political economist, Radhika Desai, she invited everyone to go to the Fed website and look at the Fed balance sheet.
And this is the Fed balance sheet from federalreserve.gov. This is the Board of Governors of the Federal Reserve System website. And it is pretty shocking to see this graph, which shows the total assets of the U.S. Federal Reserve.
Back in 2008, the Federal Reserve had around $900 billion in assets. Now it’s at nearly $9 trillion in assets.
And we can see, after the financial crash, or during the financial crash, it increased to around $2 trillion. And then around 2014, it increased to around $4.5 trillion. And then especially in late 2019 and 2020, it skyrocketed from around $4 trillion up to $7 trillion. And since then, it has continued skyrocketing to $9 trillion in assets.
Where did all of that money go? And what was the impact on the economy, of course?
MICHAEL HUDSON:
Well, the impact on the economy has been to vastly increase the wealth of the wealthiest 1% of Americans who own most of the stocks and bonds.
Sheila Bair, the former head of the Federal Deposit Insurance Corporation, pointed out that a lot of this $8 trillion is spent to buy junk bonds.
Here’s the problem. The problem really began with President Obama. He inherited a system where you had the largest wave of commercial bank fraud in American history.
As my colleague Bill Black at the University of Missouri at Kansas City has pointed out, everybody knew that there was a bank fraud on. The newspapers referred to junk mortgages and “NINJA” borrowers: “no income, no jobs, no assets.”
So banks had written mortgages way above the actual value of homes, especially to racial and ethnic minorities, without any ability of the borrowers to actually pay.
And then these banks had packaged these mortgages, and sold them to hapless pension funds, and other institutional investors and to the European banks that are always very naive about how honest American banks are.
You had this whole accumulation of what the 19th century called fictitious capital. Mortgages for property that wasn’t worth anywhere near as much as the mortgage is for.
So if the mortgage was defaulted, if homeowners had jingle mail – in other words, you just mail the keys back to the bank and say, ok, take the house, I find I can buy a house now at half the price that Citibank or one of these other banks lent out.
Well, normally you’d have a crash of prices back to realistic levels, so that the value of mortgages actually reflected the value of property, or the value of junk bonds issued by a corporation reflected the actual earning power of the corporation to pay interest on the junk bonds.
So by the time Obama took over, the whole economy was largely fictitious capital. Well, Obama came in and he said, my campaign donors are on Wall Street. He called in the Wall Street bankers and he said, I’m the guy standing between you and the crowd with the pitchforks, the people who voted for me. But don’t worry, I’m on your side.
He said, I’m going to have the Federal Reserve create the largest amount of credit in human history. And it’s all going to go to you. It’s going to go to the 1% of the population. It’s not going to go into the economy. It’s not going to build infrastructure. It’s not going into wages. It’s not going to reduce the price of homes and make them more affordable to Americans.
It’s going to keep the price of these junk bonds so high that they don’t crash back to non-fictitious values. It’s going to keep the stock market so high that it’s not going to go down. It’s going to create the largest bond market boom in history.
The boom went from high interest rates to low interest rates, meaning a gigantic rise in the price of bonds that actually pay interest that are more than 0.1%.
So there was a huge bond market boom, a huge stock market, a tripling of stock market prices. And if you are a member of the group that owns 72% of American stocks, I think that’s 10% of the population, you have gotten much, much richer.
But if you’re a member of the 90% of the population, you have had to go further and further into debt just in order to survive, just in order to pay for medical care, student loans, and your daily living expenses out of your salary.
So if American wages were at a decent level, American families would not be pushed more and more into debt. The reason the personal debt has gone up in the United States is because families can’t get by on what they earn.
So obviously, if they can’t get by on what they earn, and they have to borrow to get by, they are not responsible for causing the inflation. They’re being squeezed.
And the job of economists, and of Democratic Party and Republican politicians, is to distract attention from the fact that they’re being squeezed and blame the victim, and saying, you’re doing it to yourself by just wanting more money, you’re actually creating the inflation that is squeezing you.
When actually it’s the banks, and the government’s non-enforcement of the monopoly policy, and the government support of Wall Street that is responsible for what is happening.
BENJAMIN NORTON:
Very, very well said.
Professor Hudson, I should have highlighted another part of this graph here. This is, again, this is at the Federal Reserve Board website. It’s even more revealing when you look at the selected assets of the Fed, and you see that all of these assets basically are securities, securities held outright by the Fed.
We see that around 2008, the Fed had less than $500 billion in securities. And you have this policy of quantitative easing. And since then, basically all of the increase has been in securities. Of the roughly $9 trillion in assets the Fed holds, about about $8.5 trillion is in securities.
I’m wondering if you can compare this to central banks in other countries. We’ve seen, for instance, that the Western sanctions on Russia were aimed at trying to destroy the Russian economy.
President Biden claimed they were trying to make the ruble into rubble. In fact, the ruble is significantly stronger now than it was before the sanctions. To such a degree that the Russian government and Russian national bank are actually trying to decrease the value of the ruble, because they think it’s a little overvalued; it makes it a little harder to be competitive.
So how does this policy of the US Fed having $8.5 trillion worth of securities compare to the policies of other central banks?
You have experience working with the Chinese government as an advisor. Do other governments’ central banks have this policy?
And and that $8.5 trillion in securities, what are those securities? Even from the perspective of these neoliberal economics textbooks that you were talking about, that people are taught in universities, this seems to me to be totally insane. I don’t see how there is even an academic, neoliberal textbook explanation for this policy.
MICHAEL HUDSON:
Very few people realize the difference between a central bank and the national treasury. The national treasury is what used to perform all of the policies that central banks now do. The national treasury would be in charge of issuing money and spending it.
Central banks were broken off in America in 1913 from the Treasury in order to shift control of the money supply and credit away from Washington to New York. That was very explicit.
The original Federal Reserve didn’t even permit a Treasury official to be on the board of directors. So the job of a central bank is to represent the interest of the commercial banks.
And as we just pointed out, the interest of the commercial banks is to produce their product: debt. And they create their product against existing assets, mainly real estate, but also stocks and bonds.
So the job of the central bank here is to support the financial sector of the economy, and that sector that holds wealth in the form of stocks, bonds, and loans, and especially bank bonds that make their money off real estate credit.
Same thing in Europe, with Europe’s central bank. Europe is going into a real squeeze now, and has been going into a squeeze ever since you had the Greek crisis.
In Europe, because right-wing monetarist designed the euro, part of the eurozone rule is you cannot run a budget deficit, a national budget deficit of more than 3% of gross domestic product.
Well, that’s not very much. That means that you can’t have a real Keynesian policy in Europe to pull the economy out of depression. That means that if you’re a country like Italy right now, and you have a real financial squeeze there, a corporate squeeze, a labor squeeze, the government cannot essentially rescue either Italian industry or Italian labor.
However, the European central bank can, by the way that it creates credit, by central bank deposits, the European central bank can vastly increase the price of European stocks, bonds, and packaged mortgages. So the European central bank is very much like the commercial bank.
China is completely different, because, unlike the West, China treats money and credit as a public utility, not as a private monopoly.
And as a public utility, China’s central bank will say, what are we going to want to create money for? Well, we’re going to want to create money to build factories; we’re going to want to create money so that real estate developers can build cities, or sometimes overbuild cities. We can create money to actually spend in the economy for something tangible, for goods and services.
The Chinese central bank does not create money to increase stock market prices or bond prices. It doesn’t create money to support a financial class, because the Communist Party of China doesn’t want a financial class to exist; it wants an industrial class to exist; it wants an industrial labor force to exist, but not a rentier class.
So a central bank in a Western rentier economy basically seeks to create credit to inflate the cost of living for homebuyers and for anyone who uses credit or needs credit, and to enable corporations to be financialized, and to shift their management away from making profits by investing in plant and equipment and employing labor to produce more, to making money by financial engineering.
In the last 15 years, over 90% of corporate earnings in the United States have been spent on stock buybacks and on dividend payouts. Only 8% of corporate earnings have been spent on new investment, and plants, and equipment, and hiring.
And so of course you have had the economy deindustrialized. It’s this idea that you can make money financially without an industrial base, without a manufacturing base; you can make money without actually producing more or doing anything productive, simply by having a central bank increase the price of the stocks, and bonds, and the loans made by the wealthiest 10%.
And of course, ultimately, that doesn’t work, because at a certain point the whole thing collapses from within, and there’s no industrial base.
And of course, when that happens, America will find out, wait a minute, if we close down the economy, we’re still reliant on China and Asia to produce our manufacturers, and to provide us with raw materials, and to do everything that we need. We’re really not doing anything but acting as a world – well, people used to say parasite – as a world rentier, as getting something for nothing, as a kind of financial colonialism.
So America you could look at as a colonial power that is a colonial power not by military occupation, but simply by financial maneuvering, by the dollar standard.
And that’s what’s being unwound today as a result of Biden’s new cold war.
BENJAMIN NORTON:
Professor Hudson, you criticized the strategy of simply trying to increase the interest rates to bring down inflation, noting that it’s going to lead to a further decline in homeownership in the United States. It’s going to hurt working people. I think that’s a very valid criticism.
I’m curious, though, what your take is on the response of the Russian central bank to the Western sanctions. We saw that the chair of the Russian central bank, Elvira Nabiullina, she – actually this is someone who is not even necessarily really condemned a lot by Western economists; she is pretty well respected by even, you know, Western neoliberal economists.
And she did manage to deal with the sanctions very well. She imposed capital controls immediately. She closed the Russian stock market. And also, in a controversial move, she raised the interest rates from around 9% up to 20%, for a few months. And then after that, dropped the rates.
MICHAEL HUDSON:
A few days, not a few months. That was very short. And now she has moved the interest rates way down.
BENJAMIN NORTON:
Back to 9%.
MICHAEL HUDSON:
She was criticized for not moving them further down.
BENJAMIN NORTON:
Yeah, well go ahead. I’m just curious. So she immediately raised it to 20%, and then has dropped the interest rates since then. I’m curious what you think about that policy. Yeah, go ahead.
MICHAEL HUDSON:
There is very little that a central banker can do when the West has declared a war, basically, a war on a country that is completely isolated.
The response has come from President Putin and from Foreign Secretary Lavrov. And they pointed out, well, how is Russia going to going to trade and get what it needs. And this is what the recent meetings of the BRICS are all about.
Russia realizes that the world is now broken into two halves. America and NATO have separated the West. Basically you have a white people’s confederation against all the rest of the world.
And the West has said, we’re isolating ourselves from you totally. And we think you can’t get along without us.
Well, look at the humor of this. Russia, China, Iran, India, Indonesia, and other countries are saying, hah, you say we we can’t get along without you? Who is providing your manufacturers? Who is providing your raw materials? Who is providing your oil and gas? Who is providing your agriculture, and the helium, the titanium, the nickel?
So they realize that the world is breaking in two, and Eurasia, where most of the world’s population is concentrated, is going to go its own way.
The problem is, how do you really go your own way? You need a means of payment. You need to create a whole international system that is an alternative to the Western international system. You need your own International Monetary Fund to provide credit, so that the these Eurasian countries and their allies in the Global South can deal with each other.
You need a World Bank that, instead of lending money to promote U.S. policies and U.S. investments, will promote mutual gains and self-sufficiency among the countries.
So already, every day in the last few weeks, you have had meetings with the Russians about this, who said, ok, we’re going to create a mutual trading area, starting among the BRICS: Brazil, Russia, India, China, and South Africa.
And how are we going to pay? We can’t pay in dollars, because if we have money in a dollar bank, or a euro bank in Europe, they can just grab the money, like they grab Venezuela’s money. They can just say, we’re taking all your money because, essentially, we don’t want you to exist as an alternative to the finance capital world that we are creating.
So essentially, Russia, China, and these other countries are saying, ok, we’re going to create our own international bank. And how are we going to fund it? Well, every member of the bank will contribute, say, a billion dollars, or some amount of their own currency, and this will be our backing. We can also use gold as a means of settlement, as was long used among countries.
And this bank can create its own special drawing rights, its own bank order, is what Keynes called it. It can create its own credit.
Well, the problem is that, if you have Brazil, for instance, or Argentina, joining this group, or Ecuador, that sells almost all of its bananas to Russia, how is it going to get by?
Well, if there is a BRICS group or a Shanghai Cooperation Organization bank, obviously the Western governments are not going to accept this.
So Russia realizes that as a result of Biden’s Cold War Two, there is going to be a continued rise in energy prices. You think gasoline prices are not high now? They’re going up. You think food prices are not high now? They’re going up more.
And Europe is especially the case, because Europe now cannot buy Russian gas to make the fertilizer to make its own crops grow.
So you’re going to have a number of countries in the Global South, from Latin America to Africa, being squeezed and wanting to trade with the Eurasian group.
And the problem is Russia says, all right, we know that you can’t afford to pay. We’re glad to give you credit, but we don’t want to give you credit that you’re going to simply use the money you have to pay your dollar debts that are coming due.
Because one of the effects that I didn’t mention of the Federal Reserve raising interest rates is there is a huge flow of capital from Europe and England into the United States, so that if you’re a billionaire, where are you going to put your savings? You want the highest interest rates you want. And if the United States raises interest rates, the billionaires are going to move their money out of England, out of the euro, and the euro is going back down against the dollar. It’s almost down to a dollar a euro.
The British pound is heading downwards, towards one pound per dollar.
This increase in the dollar’s exchange rate is also rising against the currencies of Brazil, Argentina, the African countries, all the other countries.
So how are they going to pay this summer, and this fall, for their food, for their oil and gas, and for the higher cost of servicing their dollar debts?
Well, for Eurasia, they’re going to say, we want to help you buy our exports – Russia is now a major grain exporter, and obviously also an oil exporter – saying we want to supply you and give you the credit for this, but you’re really going to have to make a decision. Are you going to join the U.S.-NATO bloc, or are you going to join the Eurasian bloc?
Are you going to join the White People’s Club or the Eurasian Club? And it really comes down to that. And that’s what is fracturing the world in these two halves.
Europe is caught in the middle, and its economies are going to be torn apart. Employment is going to go down there. And I don’t see wages going up very much in Europe.
You’re going to have a political crisis in Europe. But also you’ll have an international diplomatic crisis over how are you going to restructure world trade, and investment, and debt.
There will be two different financial philosophies. And that’s what the new cold war is all about.
The philosophy of US-sponsored finance capitalism, of making money financially, without industrialization, and with trying to lower wages and reduce the labor force to a very highly indebted workforce living on the margin.
Or you’ll have the Eurasian philosophy of using the economic surplus to increase productivity, to build infrastructure, to create the kind of society that America seemed to be growing in the late 19th century but has now rejected.
So all of this is ultimately not simply a problem of interest rates and central bank policy; it really goes beyond central banks to what kind of a social and economic system are you going to have.
And the key to any social and economic system is how you treat money and credit. Is money and credit going to be a public utility, or will it be a private monopoly run for the financial interests and the 1%, instead of a public utility run for the 99%?
That’s what the new cold war is going to be all about. And that’s what international diplomacy week after week is trying to settle.
BENJAMIN NORTON:
Very, very well said. And I really agree about this increasing kind of bipolar order, where the US-led imperialist system is telling the world they have to pick a side. You know, as George W. Bush said, you’re either with us or you’re against us; you’re with us or you’re with the terrorists.
That’s what Biden is saying to the world. And we see the West has drawn this iron curtain around Russia. And now they’re threatening to do the same around China.
Now, of course, the difference is that China has the largest economy in the world, according to a PPP measurement. It’s even larger than the US economy. I don’t know how they can try to sanction the Chinese economy, considering China is the central factory of the world.
But this is related to a question I had for you, Professor Hudson, and this is from a super chat question from Manoj Payardha, and it’s about how Chinese banks say they’re not ready yet to develop an alternative to the SWIFT. He asked, how will the Third World pay Russia for resources?
And we’ve seen, maybe you can talk about the measures being implemented. India has this rupee-ruble system that they’ve created.
But I want to highlight an article that was published in Global Times. This is a major Chinese newspaper, and this is from April. And it quotes the former head of China’s central bank, who was speaking at a global finance forum in Beijing this April.
And basically he said, we need to prepare to replace Swift. He said the West’s adoption of a financial nuclear option of using SWIFT to sanction Russia is a wake up call for China’s financial development. And he said, “We must get prepared.”
So it seems that they’re not yet prepared. But this is something that you’ve been talking about for years. Or maybe you disagree and maybe you think they already are prepared with the SWIFT alternative?
MICHAEL HUDSON:
Well they’re already using an alternative system. If they weren’t using an alternative system – Russia is adopting part of the Chinese system for this – they wouldn’t be able to have banks communicate with each other.
So, yes, they already have a rudimentary system. They’re making it a better system that can also be immune from U.S. computer espionage and interference. So yes, of course there’s already a system.
But I want to pick up on what you said about Biden, how Biden characterizes things.
Biden characterizes the war of the West against Eurasia as between democracy and autocracy. By “democracy,” he means a free market run by Wall Street; he means an oligarchy.
But what does he mean by autocracy? What he means by autocracy, when he calls China an autocracy, an “autocracy” is a government strong enough to prevent an oligarchy from taking power, and taking control of the government for its own interests, and reducing the rest of the economy to debt peonage.
An “autocracy” is a country with public regulation against monopolies, instead of an oligarchic free market. An “autocracy” uses money and credit, essentially, to help economies grow. And when debts cannot be paid in China, if a factory or a real estate company cannot pay debts, China does not simply say, ok, you’re bankrupt, you’re going to have to be sold; anybody can buy you; the Americans can buy you.
Instead, the Chinese say, well, you can’t pay the debts; we don’t want to tear down your factory; we don’t want your factory to be turned and gentrified into luxury housing. We’re going to write down the debt.
And that’s what China has done again and again. And it’s done that with foreign countries that couldn’t pay the debt. When a debt that China has come due for China’s development of a port, or roads, or infrastructure, it says, well, we understand that you can pay; we will delay payment; we will have a moratorium on your payment. We’re not here to bankrupt you.
For the Americans, to the international funds, they’re saying, well, we are here to bankrupt you. And now if we lend you, we the IMF, lends you money to avoid a currency devaluation, the term is you’re going to have to privatize your infrastructure; you’re going to have to sell off your public utilities, your electric system, your roads, your land to private buyers, mainly from the United States.
So you have a “democracy” supporting bankruptcy, foreclosure, financialization, and privatization, and low wages by a permanent depression, a permanent depression to keep down wages.
Or you have “autocracy,” seeking to protect the interests of labor by supporting a living wage, to increase living standards as a precondition for increasing productivity, for building up infrastructure.
You have these two diametrically economic systems. And, again, that’s why there’s a cold war on right now.
BENJAMIN NORTON:
And there’s another super chat question here, Professor Hudson. You mentioned the International Monetary Fund, the IMF. We have talked about that many times. This is from Sam Owen. He asked, why do countries continue to accept bad IMF loans when they have such a poor track record? Is it just the US government meddling in the national politics? Are there cases of good IMF loans?
MICHAEL HUDSON:
Well, what is a country? When you say a country to most people, people think, ok, let’s talk about Brazil; let’s talk about all the people in Brazil; you have a picture in the mind of the Amazon; you have a big city with a lot of people in it.
But the country, in terms of the IMF, is a group of maybe the 15 wealthiest families in Brazil, that own most of the money, and they are quite happy to borrow from the IMF, because they say, right now there’s a chance that Lula may become president instead of the neo-fascist Bolsonaro. And if Lula comes in, then he is going to support labor policies, and he may stop us from tearing down the Amazon. So let’s move our money out of the country.
Well, normally this would push the exchange rate of the cruzeiro (real) down. So the IMF is going to make a loan to Brazil to support the cruzeiro (real), so that the wealthy 1% of Brazil can move their money into dollars, into euros, into foreign currency and offshore bank incentives, and load Brazil down with debt, so that then when there is an election, and if Lula is elected, the IMF is going to say, well, we don’t really like your policies, and if you pursue a pro-labor, socialist policy, then there’s going to be a capital flight. And we’re insisting that you pay all the money that you borrowed from the West right back now.
Well, that’s going to lead Lula either to sit there, follow the IMF direction, and let the IMF run the economy, instead of his own government, or just say, we’re not going to pay the foreign debt.
Well, until now, no country has been in a strong enough position not to pay the foreign debt. But for the first time, now that you have the Eurasian group – we’ll call it BRICS, but it’s really Eurasia, along with the Southern groups that are joining, the Global South – for the first time, they can say, we can’t afford to stay in the West anymore.
We cannot afford to submit the economy to the IMF demands for privatization. We cannot submit to the IMF rules that we have to fight against labor, that we have to pass laws banning labor unions, that we have to fight against laborers’ wage, like Western democracies insist on. We have to go with the Chinese “autocracy,” which we call socialism.
And of course, when America accuses China being an “autocracy,” autocracy is the American word for socialism. They don’t want to use that word. So we’re back in Orwellian double-think.
So the question is what, will the Global South countries do when they cannot afford to buy energy and food this summer, without an IMF loan? Are they going to say, ok, we can only survive by joining the break from the West and joining the Eurasian group?
That is what the big world fracture is all about.
And I described this global fracture already in 1978. I wrote a book, “Global Fracture,” explaining just exactly how all of this was going to happen.
And at that time, you had Indonesia, you had Sukarno taking the lead, the non-aligned nations, India, Indonesia, were trying to create an alternative to the financialized, American-centered world order. But none of these countries had a critical mass sufficient to go their own way.
Well, now that America has isolated Russia, China, India, Iran, Turkey, all these countries, now it has created a critical mass that is able to go its own way. And the question is, now you have like a gravitational pull, and will this Eurasian mass attract Latin America and Africa to its own group, away from the United States? And where is that going to leave the United States and Europe?
BENJAMIN NORTON:
And we saw one of the clearest examples yet of this bipolar division of the world between, you know, the West and the rest, as they say, with this ridiculous meeting that was just held of the G7.
Of course, the G7 are the white, Western countries. And then they’ll throw in U.S.-occupied Japan in there, to pretend they’re a little more diverse.
But we saw that the G7 just held a summit, and basically the entire summit was about how can we contain China? How can we expand the new cold war on Russia into a new cold war on China?
It’s also absurd considering that China’s Belt and Road Initiative, which involves over half of the countries on Earth, is estimated at many trillions of dollars in infrastructure projects. So the US and its allies think that they can challenge that with $600 billion in public-private partnerships.
I should stress, of course, what they announced is going to be a mixture of so-called public initiative and then contracts for private corporations.
So it’s yet another giveaway to the private sector, in the name of building infrastructure.
But I’m wondering if if you can comment on the G7 summit that just was held.
MICHAEL HUDSON:
Well, nothing really came out of it. They all said that they could not agree on any more sanctions against Russia, because they’re already hurting enough. India, in particular, stood up and said, look, there’s no way that we’re going to join the sanctions against Russia, because it’s one of our major trading partners. And by the way, we’re getting a huge benefit from importing Russian oil, and you’re getting a huge benefit by getting this oil from us at a markup.
So the G7 could not get any agreement on what to do. It is already at a stalemate. And this is only June. Imagine the stalemate it’s going to be in September.
Well, next week, President Biden is going to Saudi Arabia and saying, you know, we’re willing to kill maybe 10 million more of your enemies; we’re willing to help Wahhabi Sunni groups kill more of the Iranian Shiites, and sabotage Iraq and Syria. We’ll help you back al-Qaeda again, if you will lower your oil prices so that we can squeeze Russia more.
So that’s really the question that Saudi Arabia will have. America will send give it more cluster bombs to use against Yemen. And the question is, is Saudi Arabia going to say, ok, we’re going to earn maybe $10 billion less a month, or however much they’re making, just to make you happy, and so that that you will kill more Shiites who support Iran?
Or are they going to realize that if they throw in their lot with the United States, all of a sudden they’ll be under attack from Iran, Russia, Syria, and they’ll be sitting ducks? So what are they going to do?
And I don’t see any way that Biden can actually succeed in getting Saudi Arabia to voluntarily earn less on its oil prices. Maybe Biden can say it’s only for a year, only for one or two years. But as other countries know, when America says only for a year or two, it really means forever. And if you don’t continue, then somehow they have a regime replacement, or a regime change and a color revolution.
So Biden keeps trying to get foreign countries to join the West against Eurasia, but there is Saudi Arabia sitting right in the middle of it.
And all that Europe can do is watch and wonder how it’s going to get by without without energy and without much food.
BENJAMIN NORTON:
Yeah, in fact, Venezuela’s President Maduro just confirmed that the Biden administration has sent another delegation basically begging Venezuela to try to work out some deal because, of course, the U.S. and the EU have boycotts of Russian energy.
So it’s really funny to me that, after years of demonizing Venezuela, portraying it as a dictatorship and all of this, the U.S. had to decide, well, the war in Venezuela is not as important as the war on Russia right now; so we’re going to temporarily pause our war on Venezuela to stick the knife deeper into Russia.
So echoing the same perspective that we hear from Biden, U.S. government officials constantly say that the US needs to challenge China in the Global South. So Europe pledged €300 billion – however, once again, important asterisk – “in private and public funds over five years to fund infrastructure in developing countries.”
So once again, we see another neoliberal private-public partnership. It’s going to be another public giveaway to private corporations.
And “she said that this is part of the G7’s drive to counter China’s multitrillion-dollar Belt and Road project.”
Now, this is really just tying everything together that we have been talking about today, Professor Hudson – in your article “The Fed’s Austerity Program to Reduce Wages,” you conclude the article noting that the depression that people in the United States are on the verge of facing because of these neoliberal policies – telling workers in the U.S. that they need to decrease their wages and be unemployed in order to stop inflation – you point out that:
Biden’s military and State Department officers warn that the fight against Russia is just the first step in their war against China’s non-neoliberal economy, and may last twenty years. That is a long depression. But as Madeline Albright would say, they think that the price is “worth it.”
And you talk about the new cold war against the socialist economy in China and the state-led economy in Russia.
So you predict not only a depression is coming. We have seen that in mainstream media outlets. Larry Summers said, you know, a depression could be coming for a few years. But you say, no, not only is a depression coming; it’s going to be a long depression. We could be seeing 20 years.
And basically the U.S. government and other Western leaders, as we see Ursula von der Leyen from the EU, they’re basically telling their populations, tighten your belts; we have decades of depression coming, because we have collectively decided, as Western leadership, that we are going to force the world through a long depression economically, or at least forced the West through a long economic depression, in order to try to halt the rise of China and Russia.
They’re basically telling their populations, suck it up, tighten your belts for decades, because in the end, the price is worth it in order to prevent the collapse of our empires.
MICHAEL HUDSON:
That’s right. When they’re talking about private-public initiatives, they’re talking about Pentagon capitalism. That means the government will give trillions of dollars to private firms and ask them to build infrastructure.
And if they build a port or a road in a Global South country, they will operate this at a profit, and it will be an enormously expensive infrastructure, because to make financial money off this infrastructure, you have to price it at the cost of production, which is Pentagon capitalism, hyper inflated prices; you have to pay management fees; you have to pay profits; you have to pay interest rates.
As opposed to the Chinese way of funding as equity. The Western mode of funding is all debt leverage. China takes as collateral for the infrastructure that it pays, an equity ownership in the port or whatever infrastructure in the Belt and Road that it’s building.
So you have the difference between equity ownership, debt-free ownership, where if it can afford to pay, fine; if it doesn’t make an income, there are no dividends to pay.
Or you have the debt leverage that is intended that the government cannot pay it, so that the government that will be the co-signer for the debt for all of this infrastructure will somehow be obliged to tax its whole population to pay the enormous super-profits, the enormous monopoly rents, the enormous debt charges of von der Leyen’s Margaret Thatcher plan.
Von der Leyen thinks that she can do to Europe and to America what Margaret Thatcher did to England. And if she does, then then America and Europe deserve it.
BENJAMIN NORTON:
And Professor Hudson, as we start wrapping up here, I know you have to go pretty soon, just a few short questions here at the end.
I’m wondering if what we’re also seeing is not only this fundamental crisis in the Western neoliberal, financialized economies, but it’s also this bubble that has burst, or at least this phase that is over.
At least this is my reading, I’m curious if you agree. In the 1990s, the peak of, you know, the so-called golden age of neoliberalism; we had Bill Clinton riding this wave, and it was the “end of history,” in Francis Fukuyama’s nonsense prediction and all that.
How much of that was not only based on this exorbitant privilege, as the French call it, of the dictatorship of the US dollar – we talked about that based on your book “Super Imperialism,” how the US was given this massive global free lunch economically because of dollar hegemony – but how much of it was not just that, but also the fact that in the 1990s and the first decade of the 2000s, the US and Western Europe had access to very cheap consumer goods from Asia and very cheap energy from Russia?
To me, it seems like those two factors are some of the most important reasons why this golden age of neoliberalism in the ’90s and early 2000s was even possible.
It was on the back of low-paid Asian workers, and based on this idea that Russia would permanently be, what Obama called it: a gas station.
Well, we’ve seen that, one, East Asian economies have lifted themselves up of poverty, especially China has ended extreme poverty and raised median wages significantly.
And now, of course, the West has sanctioned itself against buying Russian energy, massively increasing the cost of energy around the world.
So do you think that that bubble, or that brief moment of the end of history, the golden age of neoliberalism, that can never come back?
Because unless the West can succeed in overthrowing the Russian government and imposing a new puppet like Yeltsin, and overthrowing the Chinese government, it seems like that that the golden in the 1990s is never going to come back.
MICHAEL HUDSON:
Well, you’ve left out the key element of the golden age: that is military force, and the willingness to assassinate any foreign leader that does not want to go along with US policy.
BENJAMIN NORTON:
Of course.
MICHAEL HUDSON:
You’re neglecting what America did to [Salvador Allende]; you’re neglecting how America took over Brazil; America’s meddling and control, and in Europe, the wholesale bribery and manipulation of Europe’s political system, to put in charge of the [German] Green Party a pro-war leadership, an anti-environmental leadership, to put in charge of every socialist party of Europe right-wingers, neoliberals.
Every European socialist and labor party turned neoliberal largely by American maneuvering and meddling in their foreign policy.
So it’s that meddling that was intended to prevent any alternative economic philosophy from existing to rival neoliberalism.
So that when you talk about the end of history, what is the end of history? It means the end of change. It means stop; there will be no reform; there will be no change in the neoliberal system that we have locked in.
And of course, the only way that you can really end history is by what Biden is threatening: atomic war to blow up the world.
That is the neoliberal end of history. And it’s the only way that the neoliberals can really stop history. Apart from that, all they can try to do is to prevent any change that is adverse to locking in the neoliberal order.
So the “end of history” is a declaration of war against any country that wants to go its own way. Any country that wants to build up its own economy as a way that will keep the benefits of its economic growth in its own country, instead of letting it go to the global financial class centered in the United States and Britain.
So we’re talking about, neoliberalism was always a belligerent, implicitly military policy, and that’s exactly what you’re seeing in the proxy war of US and NATO in Ukraine today.
BENJAMIN NORTON:
Yeah, very well said. That’s the other key ingredient: overthrowing any government that is a challenge, that shows there is an alternative, to try to prove the maxim that “there is no alternative.”
MICHAEL HUDSON:
Yes.
BENJAMIN NORTON:
Here’s an interesting comment from Christopher Dobbie. He points out that in Australia, the average age for their first homeowner was 27 in 2001; now it’s 35, and increasing more and more by the year.
Now, in the last few minutes here, Professor Hudson, here’s another brief question that I got from someone over at patreon.com/multipolarista – people can go and support this show. One of my patrons asked this question: who who is hurt most by the Fed or other central banks raising interest rates? People, average consumers, or companies?
And obviously, you talked earlier about how the US Federal Reserve is different from other central banks, but it’s kind of an open question. Who is hurt more by raising interest rates?
MICHAEL HUDSON:
Well, companies are certainly hurt because it means that any possibility of getting productive credit is raised. But they’re also benefited, because if interest rates raised go up high enough, then it will not pay corporate raiders to borrow money to take over and raid companies and empty them out, like they did in the 1980s.
So everything cuts both ways. Raising the interest rates have given commercial banks an excuse to raise the interest charges on credit card loans and mortgage debts.
So raising interest rates, to the banks, have enabled them to actually increase their margin of monopoly profits on the credit that they extend.
And that certainly hurts people who are reliant on bank credit, either for mortgages or for consumer debt, or for any kind of loans that they want to take out.
Basically, raising interest rates hurts debtors and benefits creditors.
And benefiting creditors very rarely helps the economy at large, because the creditors are always really the 1%; the debtors are the 99%.
And if you think of economies, when you say, how does an economy benefit, you realize that, well, if the economy is 1% creditors and 99% debtors, you are dealing with a bifurcation there.
And you have to realize that the creditors usually occupy the government, and they claim we are the country. And the 99% are not very visible.
Democracy can only be afforded if they population’s voting has no effect at all on the government, that it’s only symbolic. You can vote exactly which oligarch you want to rule your country. Ever since Rome that was the case, and it’s the case today.
Is there really any difference between the Republicans and Democrats in terms of their policy? When you the same central bank bureaucracy, the same State Department blob, the same military-industrial complex, the same Wall Street control, what does democracy mean in a situation like that?
The only way that you can have what democracy aims at is to have a government strong enough to check the financial interests, to check the 1%, acting on behalf of the 99%. And that’s what socialism is.
BENJAMIN NORTON:
Very well said.
Here is another brief question from patreon.com/multipolarista – people can become a patron and help support the show over there.
This question, Professor Hudson, is about the proposal of an excess profits tax as an alternative to try to contain inflation. What do you think about the proposal of an excess profits tax?
MICHAEL HUDSON:
Well, only the little people make profits. If you’re a billionaire, you don’t want to make a profit; you want to essentially take all of your return in the form of capital gains. That’s where your money is.
And the way you avoid making a profit is you establish an offshore bank or creditor, and you pay out all of your profits in the form of interest, which an expense. You expense all of what used to be, what really is, income. And you show no profits at all.
I don’t think Amazon has ever made a profit. You have huge, the biggest corporations, with all the capital gains, have no profits. Tesla is a gigantic stock market presence, and it doesn’t make a profit.
So the key is capital gains, is financial gains, stock market gains, gains in real estate prices, unearned income. That’s what the free lunch is.
You want to prevent profits being paid out in the form of interest. So I would vastly increase profits, by saying you cannot deduct interest as a business expense. It’s not a business expense. It’s a predatory parasitic expense. So you’re going to have to declare all of this as profit, and pay interest on it.
Pricing your output from a foreign offshore banking center, so that you don’t seem to make any profit, like Apple does, pretending to make all its money in Ireland, you can’t do that anymore. You’re going to have to pay a real return.
So the accounting profession has made profits essentially tax free. So the pretense of making money by taxing profits avoids talking about capital gains and all of fictitiously low profits that are simply pretended not to be profit, like interest, depreciation, amortization, offshore earnings, management fees.
All of these should be counted as profits, and taxed as such as they were, I’d say back at the Eisenhower administration levels.
BENJAMIN NORTON:
And finally, the last question here, Professor Hudson, someone asked about the U.S. government pressuring countries in Africa not to buy Russian wheat. And the U.S. is, of course, claiming that this wheat is supposedly stolen from Ukraine.
I know this could be a long point of discussion; it could be the entire interview. And I know you have to go soon. But just concluding here, I’m wondering if you could comment.
The United Nations itself has warned that there could be a famine, especially in Global South nations.
What do you think the role of these neoliberal policies and Western sanctions are in fueling that potential crisis?
MICHAEL HUDSON:
Well, the wealthiest families in the world used to go every year, now they go every few years, to Davos, to Klaus Schwab’s Davos World Economic Forum. And they say, the world is overpopulated; we need about 2 billion human beings to starve, preferably in the next year or two.
So it’s as if the wealthy families have got together and say, how can we thin out the population that really we, the 1%, don’t need?
And in all of their policies, it is as if they’ve decided to follow the World Economic Forum and deliberately shrink the world population, especially in Africa and Latin America.
Remember, these are white people at the World Economic Forum, and that is their idea of how to retain equilibrium.
They’re always talking about “equilibrium,” and equilibrium is going to be for countries that cannot afford to grow their own food, because they have put their money into plantation crops and cotton to sell to the West, instead of feeding themselves – they’re just going to have to starve to contribute to world “equilibrium.”
BENJAMIN NORTON:
And while we’re on the subject of the World Economic Forum, I guess I should just briefly add – we’ve talked about this a little bit, but I just feel remiss not mentioning it – it’s interesting to see how right-wingers have seized on the World Economic Forum and begun criticizing it a lot.
Obviously, it’s worth criticizing. It’s a horrible neoliberal institution that represents the Western capitalist class. But we’ve even seen, you know, Glenn Beck, the right-winger, former Fox News host, he published a book about the Great Reset and the World Economic Forum.
I’m just wondering really quickly if you could respond to the idea that the World Economic Forum is like some “socialist” organization. Obviously, it’s the exact opposite.
But what do you say to these conservatives who have a right-wing critique of the World Economic Forum, and think it’s like secretly socialist, and Biden is a socialist.
MICHAEL HUDSON:
They look at any government or managerial power as socialist, not drawing the distinction between socialism and oligarchy.
The question is government power can be either right-wing or left-wing, and to say that any government power is socialist is just degrading the word.
However, as I mentioned before, almost all of the European “socialist” parties are neoliberal. Tony Blair was the head of something that called itself the British Labour Party. Gordon Brown was the head of the British Labour Party.
You can’t be more neoliberal and oligarchic than that. And that’s why Margaret Thatcher said her greatest success was creating Tony Blair.
You have the same thing in France; the French “socialists” are on the right-wing of the spectrum. The Greek “socialist” party, on the right-wing of the spectrum.
You have “socialist” parties around the world being neoliberalized.
So what does the word socialism mean? You want to go beyond labels into the essence.
And the question is, in whose interest is the government going to be run for? Will it be run for the 1% or the 99%?
And the right wing wants to say, well, the 1% can be socialist, because they’re taking over the government and that’s the big government, and we’re against it.
Well, the right-wing is taking over the government, but it’s not really what the world meant by socialism a century ago.
BENJAMIN NORTON:
Yeah, very well said. I just always laugh when I see these right-wing critiques of the World Economic Forum. I mean, the World Economic Forum is the embodiment of capitalism. It is the group of the elite capitalists who get together to talk about how they can exploit the working class and help monopolize the global economy on behalf of Western capital.
So with that said, there still are many questions, but I know you have to go, and we’re already at an hour and a half.
I do want to thank everyone who joined. We’re at 1200 viewers right now, so it has been a really good response.
Professor Hudson, you’re very popular. You should do your own YouTube channel. Maybe we can talk about that, because every time I have you on, it’s always an amazing response that I get. And hopefully we can do this again more in future.
Aside from people going to your website, michael-hudson.com, is there anything else that you want to plug before we conclude?
MICHAEL HUDSON:
Well, the book that I just wrote, “The Destiny of Civilization,” is all about what we’ve been talking about. It’s about the world’s split between neoliberalism and socialism. So that was just published and is available on Amazon. And I have two more books that are coming out very shortly.
BENJAMIN NORTON:
Yeah, for people who are interested, I did an interview with Professor Hudson here at Multipolarista a few weeks ago about his new book, The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism.”
And of course, anyone who wants to support this show, you can go to patreon.com/multipolarista. And as always, this will be available as a podcast, if you want to listen to the interview again. I’m certainly going to listen to this discussion again. You can find that anywhere there are podcasts.
Professor Hudson, it’s always a real pleasure. Thanks so much for joining me.
MICHAEL HUDSON:
I enjoyed the discussion.
BENJAMIN NORTON:
And like I said earlier at the beginning, for me, I truly think it’s always a privilege, because I do think you’re one of the greatest living economists. So I always feel very privileged to have the opportunity to pick your brain about all of these questions.
And I want to thank everyone who commented, who watched, and who listened. I will see you all next time.
The Federal Reserve Board’s ostensible policy aim is to manage the money supply and bank credit in a way that maintains price stability. That usually means fighting inflation, which is blamed entirely on “too much employment,” euphemized as “too much money.”[1] In Congress’s more progressive days, the Fed was charged with a second objective: to promote full employment. The problem is that full employment is supposed to be inflationary – and the way to fight inflation is to reduce employment, which is viewed simplistically as being determined by the supply of credit.
So in practice, one of the Fed’s two directives has to give. And hardly by surprise, the “full employment” aim is thrown overboard – if indeed it ever was taken seriously by the Fed’s managers. In the Carter Administration (1777-80) leading up to the great price inflation of 1980, Fed Chairman Paul Volcker expressed his economic philosophy in a note card that he kept in his pocket, to whip out and demonstrate where his priority lay. The card charted the weekly wage of the average U.S. construction worker.
Chairman Volcker wanted wages to go down, blaming the inflation on too much employment – meaning too full. He pushed the U.S. bank rate to an unprecedented 20 percent – the highest normal rate since Babylonian times back in the first millennium BC. This did indeed crash the economy, and with it employment and prosperity. Volcker called this “harsh monetary medicine,” as if the crash of financial markets and economic growth showed that his “cure” for inflation was working.
Apart from employment and wage levels, another victim of Volcker’s interest-rate hike was the Democratic Party’s fortunes in the 1980 presidential election. They lost the White House for twelve years. The party thus is taking great courage – or simply being ignorant – by entering on this autumn’s midterm election by emulating Mr. Volcker’s attempt to drive down wage levels by financial tightening, which already has crashed the stock market by 20 percent.
President Biden has thoroughly backed up Republican-appointed Federal Reserve Chairman Jerome Powell in endorsing a financial crash in hope that it will roll back U.S. wage levels. That is the policy of the Democratic Party’s donor class and hence political constituency.
……………
To Wall Street and its neoliberal policy backers … the solution to any price inflation is to reduce wages and public social spending. The orthodox way to do this is to push the economy into recession in order to reduce hiring. Rising unemployment will oblige labor to compete for jobs that pay less and less as the economy slows.
This class-war doctrine is the prime directive of neoliberal economics. It is a feature of the tunnel vision of corporate managers and the One Percent. The Federal Reserve and IMF are are the operating arms for impoverishing the masses. Along with Janet Yellen at the Treasury, public discussion of today’s U.S. inflation is framed in a way that avoids blaming the 8.2 percent rise in consumer prices on the Biden Administration’s New Cold War sanctions on Russian oil, gas and agriculture, or on oil companies and other sectors using these sanctions as an excuse to charge monopoly prices as if America has not continued to buy Russian diesel oil, as if fracking has not picked up and as if corn is not being turned into biofuel. There has been no disruption in supply. We are simply dealing with monopoly rent by the oil companies using the anti-Russian sanctions as an excuse that an oil shortage will soon develop for the United States and indeed for the entire world economy.
Covid’s shutdown of the U.S. and foreign economies and foreign trade also is not acknowledged as disrupting supply lines and raising shipping costs and hence import prices. The entire blame for inflation is placed on wage earners, and the response is to make them the victims of the coming austerity, as if their wages are responsible for bidding up oil prices, food prices and other prices resulting from the crisis. The reality is that they are too debt-strapped to be spendthrifts.
The Fed’s Junk Economics of What Bank Credit Is Spent On
The pretense behind the Fed’s recent increase in its discount rate by 0.75 percent on June 15 (to a paltry range of 1.50% to 1.75%) is that raising interest rates will cure inflation by deterring borrowing to spend on the basic needs that make up the Consumer Price Index and its related GDP deflator. But banks do not finance much consumption, except for credit card debt, which in the United States is now less than student loans and automobile loans.
Banks lend almost entirely to buy real estate, stocks and bonds, not goods and services. Some 80 percent of bank loans are real estate mortgages, and most of the remainder are loans collateralized by stocks and bonds. So raising interest rates will not lead wage-earners to borrow less to buy consumer goods. The main price effect of less bank credit and higher interest rates is on asset prices – deterring borrowing to buy homes, and arbitragers and corporate raiders from buying stocks and bonds. So the main price effect of less bank credit and higher interest rates is to reduce stock and bond prices and demand for home mortgages.
Rolling Back Middle-Class Home Ownership
The most immediate effect of the Federal Reserve’s credit tightening will be to reduce America’s home-ownership rate. This rate has been falling since 2008, from nearly 68 percent to just 61 percent today. The decline got underway with President Obama’s eviction of nearly ten million victims of junk mortgages, mainly black and Hispanic debtors. That was the Democratic Party’s alternative to writing down fraudulent mortgage loans to realistic market prices, and reducing their carrying charges to bring them in line with market rental values. The indebted victims of this massive bank fraud were made to suffer, so that Obama’s Wall Street sponsors could keep their predatory gains and indeed, receive massive bailouts. The costs of their fraud fell on bank customers, not on the banks and their stockholders and bondholders.
The effect of discouraging new home buyers by raising interest rates is to lower home ownership – the badge of being middle-class. The Fed’s policy of raising interest rates will greatly increase the interest charges that prospective new home buyers will have to pay, pricing the carrying charge out of reach for many families. The United States is turning into a landlord economy.
As the United States has become more debt-ridden, more than 50 percent of the value of U.S. real estate already is held by mortgage bankers. That means that homeowners are left with only a minority share in the value of their homes; most is owed to their banks. The remaining homeowners’ equity – what they own net of their mortgage debt – has fallen even faster than home ownership rates have declined.
Real estate is being transferred from “poor” hands to those of wealthy landlord corporations. Private capital companies – the funds of the One Percent – are going to pick up the pieces from the coming wave of foreclosures to turn homes into rental properties. Higher interest rates will not affect their cost of buying this housing, because they buy for all cash to make profits (actually, real estate rents) as landlords. Within another decade the nation’s home ownership rate may fall toward 50 percent (and homeowners’ equity even lower), turning the United States into a landlord economy instead of the promised middle-class home ownership economy.
The Coming Economic Austerity (Indeed, Debt-Burdened Depression)
While home ownership rates have plunged for the population at large, the Fed’s “Quantitative Easing” has increased its subsidy of Wall Street’s financial securities from $800 billion to $9 trillion – of which the largest gain has been in packaged home mortgages. This has kept housing prices from falling and becoming more affordable for home buyers. But the Fed’s support of asset prices has saved many insolvent banks – the very largest ones – from going under. Sheila Bair of the FDIC singled out Citigroup, along with Countrywide, Bank of America and the other usual suspects. The working population is not considered to be too big to fail. Its political weight is small by comparison to that of Wall Street banks and other FIRE-sector beneficiaries.
Lowering the discount rate to only about 0.1 percent enabled the banking system to make a bonanza of gains by making mortgage loans at around 3.50 percent. The banks kept credit-card rates high – and made even more money on penalty fees for late payment than they “earned” on interest charges (in the range of 18 percent). And despite the stock market’s plunge of over 20 percent from nearly 36,000 to under 30,000 on June 17, America’s wealthiest One Percent, and indeed the top 10 Percent, have vastly increased their wealth in stocks, while the bond market has had the largest boom in history. But most Americans have not benefitted from this runup in asset prices, because most stocks and bonds are owned by only the wealthiest layer of the population. The Fed is all in favor of asset-price inflation. But For most American families, corporations and government at all levels, the financial boom since 2008 has entailed a growing debt burden. Many families face insolvency as Federal Reserve policy aims to create unemployment. Now that the Covid moratorium on the evictions of renters behind in their payments is expiring, the ranks of the homeless are rising.
The Biden Administration is trying to blame today’s inflation and related distortions on Putin, even using the term “Putin inflation.” The mainstream media follow suit in not explaining to their audience that Western sanctions blocking Russian energy and food exports will cause a food and energy crisis for many countries this summer and autumn. And indeed, beyond: Biden’s military and State Department officers warn that the fight against Russia is just the first step in their war against China’s non-neoliberal economy, and may last twenty years.
That portends a long depression. But as Madeline Albright would say, they think that the price is “worth it.” As seen by the Biden regime, the New Cold War is a fight between the “democratic” United States, with its privatized economic planning in the hands of the financial class, and “autocratic” China and Russia, where banking and money creation are treated as a public utility to finance tangible economic growth instead of serving the financialization of the economy.
There is no evidence that America’s neoliberal-neoconservative New Cold War can restore the nation’s former industrial and related economic power. The economy cannot recover as long as today’s debt overhead is left in place. Debt service, housing costs, privatized medical care, student debt and a decaying infrastructure have made the U.S. economy uncompetitive. There is no way to restore its economic viability without fundamental changes in economic policy. But there is little “reality economics” at hand to provide an alternative to the class war inherent in neoliberalism’s belief that the economy and living standards can prosper by purely financial means, by debt leveraging and corporate monopoly rent extraction while the United States has made its domestic manufacturing uncompetitive – seemingly irreversibly. To reduce their labor costs, U.S. corporations moved manufacturing offshore, thereby depriving the American work force of high value-added, high productivity jobs.
The Rentier Class Has Sought to Make America’s Neoliberal Privatization and Financialization Irreversible
It has succeeded to such a degree that there is no party or economic constituency promoting the policies needed for an industrial recovery. Yet the Democratic Party leadership, subjecting the economy to an IMF-style austerity plan, will make this November’s midterm elections unique. For the past half century, the Fed’s role has been to provide easy money for the economy, to give the ruling party at least the illusion of trickle-down prosperity to deter voters from electing the opposition party. But this time the Biden Administration is running on a program of financial austerity.
The Party’s identity politics address almost every identity except that of wage-earners and debtors. Advocating lower wages, more expensive financial charges for home mortgages and credit-card loans, and broken promises for student-debt writedowns does not look like a platform that can attract many voters, especially as the administration pours money into Ukraine. Republicans such as Tucker Carlson are appealing to the “deplorables” majority that the Democrats have left behind.
Addendum: Yves Smith of Naked Capitalism reminds me that: “Paul Volcker made it explicit that the Fed is in the business of crushing labor. As reported by William Greider in Secrets of the Temple, when Volcker was driving interest rates to the moon, he kept a note card in his pocket. It was a record of weekly average construction wages. Volcker wanted them to go down as proof his harsh medicine was working.”
M.K. Bhadrakumar, “West at inflection point in Ukraine war,” Indian Punchline, June 19, 2022
“Fundamentally, the Western economies are facing a systemic crisis. The complacency that the reserve-currency-based US economy is impervious to ballooning debt; that the petrodollar system compels the entire world to purchase dollars to finance their needs; that the flood of cheap Chinese consumer goods and cheap energy from Russia and Gulf States would keep inflation at bay; that interest rate hikes will cure structural inflation; and, above all, that the consequences of taking a trade-war hammer to a complex network system in the world economy can be managed — these notions stand exposed.”
In his latest book, economist Michael Hudson pits socialism against finance capitalism and tears apart the ‘dream civilization’ imposed by the 1 percent.
Let’s jump straight into the fray. Hudson begins with an analysis of the “take the money and run” ethos, complete with de-industrialization, as 90 percent of US corporate revenue is “used to share buybacks and dividend payouts to support company stock prices.”
Michael Hudson’s new book on the world’s urgent global economic re-set is sure to ruffle some Atlanticist feathers.Photo Credit: The Cradle
That represents the apex of “Finance Capitalism’s” political strategy: to “capture the public sector and shift monetary and banking power” to Wall Street, the City of London and other western financial centers.
The whole Global South will easily recognize the imperial modus operandi: “The strategy of US military and financial imperialism is to install client oligarchies and dictatorships, and arm-twist allies to join the fight against designated adversaries by subsidizing not only the empire’s costs of war-making (“defense”) but even the imperial nation’s domestic spending programs.” This is the antithesis of the multipolar world advocated by Russia and China.
In short, our current Cold War 2.0 “is basically being waged by US-centered finance capitalism backing rentier oligarchies against nations seeking to build up more widespread self-reliance and domestic prosperity.”
Hudson presciently reminds us of Aristotle, who would say that it is in the interest of financiers to wield their power against society at large: “The financial class historically has been the major beneficiary of empires by acting as collection agents.”
So inevitably the major imperial leverage over the world, a true “strategy of underdevelopment,” had to be financial: instrumentalizing IMF pressure to “turn public infrastructure into privatized monopolies, and reversing 20th century pro-labor reforms” via those notorious ‘conditionalities’ for loans.
No wonder the Non-Aligned Movement (NAM), established in Belgrade in 1961 with 120 nations and 27 observers, became such a threat to US global strategy. The latter predictably fought back with a slew of ethnic wars and the earliest incarnations of color revolution – fabricating dictatorships on an industrial scale, from Suharto to Pinochet.
The culmination was a cataclysmic Houston get-together in December 19, 1990 “celebrating” the dissolution of the USSR, as Hudson reminds us how the IMF and the World Bank “laid out a blueprint for Russia’s leaders to impose austerity and give away its assets – it didn’t matter to whom – in a wave of ‘shock therapy’ to let the alleged magic of free enterprise create a neoliberal free-for-all.”
Lost in a Roman wilderness of debt
To a large extent, nostalgia for the rape-and-pillaging of 1990s-era Russia fuels what Hudson defines as the New Cold War, where Dollar Diplomacy must assert its control over every foreign economy. The New Cold War is not waged only against Russia and China, “but against any countries resisting privatization and financialization under US sponsorship.”
Hudson reminds us how China’s policy “followed almost the same path that American protectionism did from 1865 though 1914 – state subsidy for industry, heavy public-sector capital investment…and social spending on education and health care to upgrade the quality and productivity of labor. This was not called Marxism in the United States; it was simply the logical way to look at industrialization, as part of a broad economic and social system.”
But then, finance – or casino – capitalism gained steam, and left the US economy mainly with “agribusiness farm surpluses, and monopolies in information technology (largely developed as a by-product of military research), military hardware, and pharmaceutical patents (based on public seed-money to fund research) able to extract monopoly rent while making themselves largely tax-exempt by using offshore banking centers.”
That’s the current State of Empire: relying only “on its rentier class and Dollar Diplomacy,” with prosperity concentrated in the top one percent of establishment elites. The inevitable corollary is US diplomacy imposing illegal, unilateral sanctions on Russia, China and anyone else who defies its diktats.
The US economy is indeed a lame post-modern remake of the late Roman empire: “dependent on foreign tribute for its survival in today’s global rentier economy.” Enter the correlation between a dwindling free lunch and utter fear: “That is why the United States has surrounded Eurasia with 750 military bases.”
Delightfully, Hudson goes back to Lactantius, in the late 3rd century, describing the Roman empire on Divine Institutes, to stress the parallels with the American version:
“In order to enslave the many, the greedy began to appropriate and accumulate the necessities of life and keep them tightly closed up, so that they might keep these bounties for themselves. They did this not for humanity’s sake (which was not in them at all), but to rake up all things as products of their greed and avarice. In the name of justice they made unfair and unjust laws to sanction their thefts and avarice against the power of the multitude. In this way they availed as much by authority as by strength of arms or overt evil.”
Socialism or barbarism
Hudson succinctly frames the central issue facing the world today: whether “money and credit, land, natural resources and monopolies will be privatized and concentrated in the hands of a rentier oligarchy or used to promote general prosperity and growth. This is basically a conflict between finance capitalism vs. socialism as economic systems.”
To advance the struggle, Hudson proposes a counter-rentier program which should be the Global South’s ultimate Blueprint for responsible development: public ownership of natural monopolies; key basic infrastructure in public hands; national self-sufficiency – crucially, in money and credit creation; consumer and labor protection; capital controls – to prevent borrowing or denominating debts in foreign currency; taxes on unearned income such as economic rent; progressive taxation; a land tax (“will prevent land’s rising rental value from being pledged to banks for credit to bid up real estate prices”); use of the economic surplus for tangible capital investment; and national self-sufficiency in food.
As Hudson seems to have covered all the bases, at the end of the book I was left with only one overarching question. I asked him how he analyzed the current discussions between the Eurasia Economic Union (EAEU) and the Chinese – and between Russia and China, further on down the road – as being able to deliver an alternative financial/monetary system. Can they sell the alternative system to most of the planet, all while dodging imperial financial harassment?
Hudson was gracious enough to reply with what could be regarded as the summary of a whole book chapter: “To be successful, any reform has to be system-wide, not merely a single part. Today’s western economies have become financialized, leaving credit creation in private hands – to be used to make financial gains at the expense of the industrial economy… This aim has spread like leprosy throughout entire economies – their trade patterns (dependency on US agricultural and oil exports, and IT technology), labor relations (anti-unionism and austerity), land tenure (foreign-owned plantation agriculture instead of domestic self-reliance and self-sufficiency in food grains), and economic theory itself (treating finance as part of GDP, not as an overhead siphoning off income from labor and industry alike).”
Hudson cautions that “in order to break free of the dynamic of predatory finance-capitalism sponsored by the United States and its satellites, foreign countries need to be self-sufficient in food production, energy, technology and other basic needs. This requires an alternative to US ‘free trade’ and its even more nationalistic ‘fair trade’ (deeming any foreign competition to US-owned industry ‘unfair’). That requires an alternative to the IMF, World Bank and ITO (from which Russia has just withdrawn). And alas, an alternative also requires military coordination such as the SCO [the Shanghai Cooperation Organization] to defend against the militarization of US-centered finance capitalism.”
Hudson does see some sunlight ahead: “As to your question of whether Russia and China can ‘sell’ this vision of the future to the Global South and Eurasian countries, that should become much easier by the end of this summer. A major byproduct (not unintended) of the NATO war in Ukraine is to sharply raise energy and food prices (and shipping prices). This will throw the balance of payments of many Global South and other countries into sharp deficit, creating a crisis as their dollar-denominated debt to bondholders and banks falls due.”
The key challenge for most of the Global South is to avoid default:
“The US raise in interest rates has increased the dollar’s exchange rate not only against the euro and Japanese yen, but against the Global South and other countries. This means that much more of their income and export revenue must be paid to service their foreign debt – and they can avoid default only by going without food and oil. So what will they choose? The IMF may offer to create SDRs to enable them to pay – by running even further into dollarized debt, subject to IMF austerity plans and demands that they sell off even more of their natural resources, forests and water.”
So how to break free from dollarized debt? “They need a critical mass. That was not available in the 1970s when a New International Economic Order was first discussed. But today it is becoming a viable alternative, thanks to the power of China, the resources of Russia and those of allied countries such as Iran, India and other East Asian and Central Asian countries. So I suspect that a new world economic system is emerging. If it succeeds, the last century – since the end of World War I and the mess it left – will seem like a long detour of history, now returning to what seemed to be the basic social ideals of classical economics – a market free from rent-seeking landlords, monopolies and predatory finance.”
Hudson concludes by reiterating what the New Cold War is really all about:
“In short, it is a conflict between two different social systems, each with their own philosophy of how societies work. Will they be planned by neoliberal financial centers centered in New York, supported by Washington’s neo-cons, or will they be the kind of socialism that the late 19th century and early 20th century envisioned – a ‘market’ and, indeed, society free from rentiers? Will natural monopolies such as land and natural resources be socialized and used to finance domestic growth and housing, or left to financial interests to turn rent into interest payments eating into consumer and business income? And most of all, will governments create their own money and steer banking to promote domestic prosperity, or will they let private banks (whose financial interests are represented by central banks) take control away from national treasuries?”
The views expressed in this article do not necessarily reflect those of The Cradle.
In a Financial Times op-ed, “Investors in Xi’s China face a rude awakening” (August 30, 2021), George Soros writes that Xi’s “crackdown on private enterprise shows he does not understand the market economy. … Xi Jinping, China’s leader, has collided with economic reality. His crackdown on private enterprise has been a significant drag on the economy.”
Translated out of Orwellian Doublethink, the “crackdown on private enterprise” means cutting back on what the classical economists called rent-seeking and unearned income. As for its supposed “drag on the economy,” Mr. Soros means the economy’s polarization concentrating wealth and income in the hands of the richest One Percent.
Soros lays out his plan for how U.S. retaliation may punish China by withholding U.S. funding of its companies (as if China cannot create its own credit) until China capitulates and imposes the kind of deregulation and de-taxation that Russia did after 1991. He warns that China will suffer depression by saving its economy along socialist lines and resisting U.S.-style privatization and its associated debt deflation.
Mr. Soros does recognize that China’s “most vulnerable sector is real estate, particularly housing. China has enjoyed an extended property boom over the past two decades, but that is now coming to an end. Evergrande, the largest real estate company, is over-indebted and in danger of default. This could cause a crash.” By that, he means a reduction of housing prices. That’s just what is needed in order to deter land becoming a speculative vehicle. I and others have urged a policy of land taxation in order to collect the land’s rising site value, so that it will not be pledged to banks for mortgage credit to further inflate china’s housing prices.
Warning about the economic consequences of China’s falling birth rate, Soros writes: “One of the reasons why middle-class families are unwilling to have more than one child is that they want to make sure that their children will have a bright future.” This is of course true of every advanced nation today. It is most extreme in the neoliberalized countries, e.g., the Baltics and Ukraine – Soros’s poster countries.
Soros gives his game away by stating that “Xi does not understand how markets operate.” What he means is that President Xi rejects rapacious rent-seeking, exploitative free-for-all, and shapes markets to serve overall prosperity for China’s 99 Percent. “As a consequence, the sell-off was allowed to go too far,” Soros continues. What he means is, too far to maintain the dominance of the One Percent. China is seeking to reverse economic polarization, not intensify it.
Soros claims that China’s socialist policies are hurting its objectives in the world. But what he really is complaining about is that it is hurting America’s neoliberal objectives for how it had hoped to make money for itself off China. This leads Soros to remind Western pension fund managers to “allocate their assets in ways that are closely aligned with the benchmarks against which their performance is measured.” But the tragedy of financializing pensions is that fund managers are rated on making money financially – in ways that hurt the industrial economy by promoting financial engineering instead of industrial engineering.
“Almost all of them claim that they factor environmental, social and corporate governance (ESG) standards into their investment decisions,” Soros writes. At least, that’s what their public relations advisors advertise. Exxon claims to be cleaning up the environment by expanding offshore oil drilling in Guyana, etc. As for “social standards,” the neoliberal mantra is trickle-down economics: by making our stock prices rise, by stock buybacks and higher dividend payouts, we are helping wage-earners earn a pension, even though we are offshoring and de-industrializing the economy, de-unionizing it and “freeing” the economy from consumer and workplace protection laws.
Soros has a radical solution, which he suggests “should obviously apply to the performance benchmarks selected by pensions and other retirement portfolios: … The US Congress should pass a bipartisan bill explicitly requiring that asset managers invest only in companies where actual governance structures are both transparent and aligned with stakeholders.”
Wow. Such a bill would block Americans from investing in many American companies whose behavior is not at all aligned with stakeholders. What proportion: 50%? 75? More?
“If Congress were to enact these measures,” Soros concludes, “it would give the Securities and Exchange Commission the tools it needs to protect American investors, including those who are unaware of owning Chinese stocks and Chinese shell companies. That would also serve the interests of the US and the wider international community of democracies.” So Mr. Soros wants to block the United States from investing in China. He seems not to see that this is President Xi’s objective also: China doesn’t need U.S. dollars, and is in fact de-dollarizing.
George Soros is obviously upset that President Xi is not Boris Yeltsin, and that China is not following the kleptocracy dependency that warped Russia’s economy. Soros thought the ending of the Cold War would simply let him buy up the most lucrative rent-yielding assets, as he has aimed to do in the Baltics and Ukraine. China said “No,” so it is not deemed to be a “market economy,” Soros-style. It has not made its social organization marketable, and has avoided the financial dependency that makes “markets” a vehicle for U.S. control via sanctions and foreign buyouts.
Marx and many of his less radical contemporary reformers saw the historical role of industrial capitalism as being to clear away the legacy of feudalism—the landlords, bankers, and monopolists extracting economic rent without producing real value. However, that reform movement failed. Today, the finance, insurance, and real estate (FIRE) sector has regained control of government, creating neo-rentier economies.
The aim of this postindustrial finance capitalism is the opposite of industrial capitalism as known to nineteenth-century economists: it seeks wealth primarily through the extraction of economic rent, not industrial capital formation.
Tax favoritism for real estate, privatization of oil and mineral extraction, and banking and infrastructure monopolies add to the cost of living and doing business. Labor is increasingly exploited by bank debt, student debt, and credit card debt while housing and other prices are inflated on credit, leaving less income to spend on goods and services as economies suffer debt deflation.
Today’s new Cold War is a fight to internationalize this rentier capitalism by globally privatizing and financializing transportation, education, health care, prisons and policing, the post office and communications, and other sectors that formerly were kept in the public domain. In Western economies, such privatizations have reversed the drive of industrial capitalism. In addition to monopoly prices for privatized services, financial managers are cannibalizing industry by leveraging debt and high-dividend payouts to increase stock prices.
1. Introduction
2. Marx’s View of the Historical Destiny of Capitalism: To Free Economies from Feudalism
3. Capitalism’s Alliance of Banks with Industry to Promote Democratic Political Reform
4. The Banking Sector Lobbies against the Real Estate Sector, 1815–1846
5. The Alliance of Banking with Real Estate and Other Rent-Seeking Sectors
6. The Rentier Squeeze on Budgets: Debt Deflation as a Byproduct of Asset-Price Inflation
7. Finance Capital’s Fight to Privatize and Monopolize Public Infrastructure
8. Finance Capitalism Impoverishes Economies while Increasing Their Cost Structure
9. Today’s New Cold War Is a Fight by Finance Capitalism against Industrial Capitalism
10. Summary: Finance Capital as Rent-Seeking
11. Some Final Observations: Financial Takeover of Industry, Government, and Ideology
‘The dependency thesis, like all good (and great) theories can be summed up in a single phrase: Modern ‘’underdevelopment’’ is not ‘’historical backwardness’’ the result of late and insufficient development; it is the product of capitalist development, which is polarizing by nature’. (Andre Gunder Frank -1996.)
The leader of the UK Conservative Party, Mrs Thatcher, first came to power in the UK in 1979 with a brief to end the post-war consensus which had prevailed from the Labour party victory in 1945. Although Labour lost the ensuing elections from 1951-1963, the Conservative Party nonetheless adopted many of Labour’s social-democratic policies, particularly the economic policies, which characterised the post-war years. The same process was to take place when Ronald Reagan established a similar ascendency in the United States. The Thatcher-Reagan duo was born and was to terminate the post-war settlement in both the UK and the US.
Theories were put forward by economic luminaries on both sides of the Atlantic, but particularly by Milton Friedman at the University of Chicago. The notion that there existed a magic panacea that would banish all the problems associated with the failing British and American economic policies of 1945-1979, formed the basis of the Thatcher-Reagan economic radicalism, which was to be followed by the Blair-Clinton consolidation of the 1990s. The so-called ‘supply-side’ revolution consisted of removing all the controls which undergirded capitalism, and which had been painstakingly put in place during the course of the 20th century, and simply letting the system find its own level. Privatisation, deregulation, and liberalisation were the components in this policy paradigm.
Of course none of this is news; it had been the staple of the West’s chattering classes in the late 20th century. But its effects were more than restricted to the North Atlantic bloc and was to have a global impact changing the political and economic policies and structures of the whole world.
NEO-LIBERALISM & GLOBALIZATION
In international terms ‘free’-trade as it was known was at the heart of the system – a system, which was later to become known as globalization, packaged and sold as an irresistible force of nature. Globalization was considered to be neo-liberalism writ large. But on the contrary, a more nuanced interpretation was to be put forward by one of the more astute commentators on the issue.
‘’The standard and most popular narrative is of globalization as the twin of neo-liberalism, expressing the market-fundamentalist view that state-intervention is bad for the economy. It is argued that the state interferes too much with the self-regulating power of the markets, thereby undermining prosperity. This perspective would explain why Alan Greenspan regarded it as fortunate that globalization was rendering the government as being redundant. We call this the anti-state narrative. An alternative narrative is actually considerably more germane: an anti-politics, specifically an anti-mass politics narrative. Greenspan’s statement incorporated the conventional presumption that the West has reached the frontiers of traditional politics: politics has lost its efficacy in the face of global forces. As a result, especially economic policy, is now pretty irrelevant if not actually detrimental, because everything is driven by – determined by – the impersonal force of globalisation. (1) So it is argued.
It was of course taken as axiomatic that free-trade – a vital component in the new economic paradigm – was always and everywhere the best policy. This conventional wisdom was to become known as the ‘Washington Consensus’ and was given a legitimating cachet by political, business, and academic elites around the world. However many of the elements – if not all – of the Washington Consensus where hardly new, many date back to the 18th and 19th centuries and perhaps beyond. It could be said that the newly emergent mainstream orthodoxy represented a caricature of an outdated and somewhat dubious political economy.
The free-trade canon is, of course, spoken of in almost reverential terms. It is as jealously guarded by the economics priesthood in Wall Street and the City of London and of course academia. In short, the theory is based upon a type of formal logic expounded by the early pioneers of political economy, viz., Adam Smith and David Ricardo; and in particular in Ricardo’s magnum opus, The Principles of Political Economy and Taxation first published in 1817. Briefly he argued that nations should specialise in what they do best and in that way world output would be maximised. The hypothetical example he used was England and Portugal and the production of wine and cloth, where he calculated that England should produce cloth and Portugal should produce wine. It was asserted, although no evidence was ever presented, that all would gain from this international division of labour.
However, even a cursory glance at economic history, and particularly the transition from agrarian to industrial societies, demonstrates the weaknesses, and indeed serves to falsify the whole Ricardian model – taken as a model of development. The brute historical fact is that every nation which has successfully embarked upon this transition, including most importantly the US and Germany, has done so adopting catch-up policies which were the exact opposite of those advocated by the free-trade school. (2)
In the world of actually existing capitalism free-trade is the exception rather than the rule. Contemporary free-trade is mainly a matter of intra-firm trading, that is to say, global companies trading with their own subsidiaries and affiliates mainly for tax avoidance purposes, transfer pricing for example. Next come the regional trading blocs – the EU, NAFTA, (which was superseded by the United States–Mexico–Canada Agreement USMCA) and Mercosur (in Latin America). With regard to Mercosur there is no common currency as is the case in most of the EU. Thirdly there is barter trade where goods and services are exchanged for other goods and services rather than money. Finally only about 20% of world trade can at most be considered free trade, and even here there are exceptions involving bilateral specifications and agreements.
INTERVENTIONISM
Modernisation and industrialisation, wherever it took place, involved tariffs, non-tariff barriers (3) infant industry protection, export subsidies, import quotas, grants for Research and Development (R&D), patents, currency manipulation, mass education and so forth – a smorgasboard of interventionist policies whereby the economy was directed from above by the state. For example, during its period of industrialisation, the United States erected tariff walls to keep out foreign (mainly British) goods with the intention of nurturing nascent US industries. US tariffs (in percentages of value) ranged from 35% to almost 50% during the period 1820-1931, and the US itself only became in any sense a free trading nation after WW2, that is once its financial and industrial hegemony had been established.
In Europe laissez-faire policies were also eschewed. In Germany in particular tariffs were lower than those in the US, but the involvement of the German state in the development of the economy was decidedly hands on. Again there was the by now standard policy of infant industry protection, and this was supplemented by an array of grants from the central government including scholarships to promising innovators, subsidies to competent entrepreneurs, and the organisation of exhibitions of new machinery and industrial processes. In addition ‘’during this period Germany pioneered modern policy, which was important in maintaining social peace – and thus promoting and encouraging social investment – in a newly unified country.’’ (4)
This path from under-development to modern industrial development, a feature of historical and dynamic economic growth and expansion which has taken place in the US, Europe, and East Asia is not a ‘natural’ progression, it was a matter of state policy. It has been the same everywhere that it has been applied. That being said the Ricardian legacy still prevails. But this legacy takes on the form of a free-floating ideology with little connexion to either practical policy prescriptions or the real world.
Turning to the real world it can be seen, by all of those who have eyes to see, that, ‘’ … history shows that symmetric free-trade between nations of approximately the same level of development, benefits both parties.’’ However, ‘’ … asymmetric trade will lead to the poor nation specialising in being poor, whilst the rich nation will specialise in being rich. To benefit from free-trade, the poor nation must rid itself of its international specialisation of being poor. For 500 years this has not happened anywhere without any market intervention.’’ (5)
GLOBAL ECONOMIC ASYMMETRY
This asymmetry in the global system is both cause and consequence of globalization. It should be borne in mind that the Least Developed Countries (LDCs) are the providers of cheap raw material inputs to the industrial countries of North America, Western Europe and East Asia. In technological terms the LDC’s find themselves locked into low value-added, dead-end production where no discernible technology transfer takes place. Thus under-development is a structural characteristic of globalization, not some unfortunate accident. Put another way,
‘’ … If rich nations (the North) as the result of historical tendencies (i.e., colonialism – FL) are relatively well-endowed with vital resources of capital, entrepreneurial ability, and skilled labour, their continued specialisation in products and processes that use these resources intensively can create the necessary conditions for their further growth. By contrast LDCs (the global South) endowed with abundant supplies of cheap unskilled labour, by intentionally specialising in products which use cheap, unskilled labour … often find themselves locked into a stagnant situation which perpetuates their comparative advantage in unskilled unproductive activities. This in turn inhibits the domestic growth of needed capital, and technical skills. Static efficiency becomes dynamic inefficiency, and a cumulative process is set in motion in which trade exacerbates already unequal trading relationships, distributes benefits largely to the people who are already well off, and perpetuates the physical and human resource under-development that characterises most poor nations. (6)
Examples of these unequal economic relationships are not difficult to find. US global trade policy was openly based upon a ‘Me Tarzan, you Jane’ set up. America’s trade ‘partners’ were somewhat less endowed with both political and economic capital compared with their senior trading associate – this fact provides a number of typical case studies in this connexion.
Agriculture was always a particular example of the double standard inherent in the trade liberalization agenda. The United States always insisted that other countries reduce their barriers to American products and eliminate subsidies for those products which competed against theirs. However, the US kept up barriers for the goods produced by the developing countries whilst it continued to underwrite massive subsidies for their own producers.
Agricultural subsidies encouraged American farmers to produce more output, forcing down global prices for the crops that poor developing countries produce and depend upon. For example, subsidies for one crop alone, cotton, went to 25,000 mostly very well-off US farmers, exceeded in value the cotton that was produced, lowering the global price of cotton enormously. American farmers, who account for a third of global output, despite the fact that US production costs twice the international price of 42 cents per pound, gained at the expense of the 10 million African farmers in Mali, West Africa, who depended on cotton for their meagre living. Several African countries lost between 1 and 2 percent of their entire income, an amount greater than what these particular countries received in foreign aid from the US. The state of Mali received US$37 million in aid but lost US$43 million from depressed cotton prices.
In other grubby little deals the US tried to keep out Mexican tomatoes, and Mexican trucks, Chinese honey, and Ukrainian women’s coats. Whenever an American industry is threatened, the US authorities swing into action, using so-called fair-trade laws, which had been largely blessed by the Uruguay Round.
Such Treaties were little more than a con game between two grossly unequal partners where one of the partners holds all the cards. Nor does it end there. Transnational Companies can and do avoid much local taxation by shifting profits to subsidiaries in low-tax venues by artificially inflating the price which they pay for their intermediate products purchased from these same subsidiaries so as to lower their stated profits. This phenomenon is usually called ‘transfer pricing’ and is a common practice of Transnational Companies (TNCs), one over which host governments can exert little control as long as corporate tax rates differ from one country to the next.
It should also be borne in mind that although the IMF and World Bank enjoin LDCs to adopt market liberalisation policies they apparently see – or conveniently ignore – the past and current mercantilist practices of developed nations. Agriculture, as has been noted, is massively subsidised in both NAFTA and the EU. But it really is a question of don’t do what I do – do as I say.
The hypocrisy at the heart of the problem represents the elephant in the room. We know that countries which attempt to open their markets when they are not ready to do so usually pay a heavy price (Russia during the Yeltsin period and the shock therapy for example). The countries which protect their growing industries until they are ready to trade on world markets – e.g. South Korea –have been the successes, even in capitalist terms. The wave of development during the 19th century and the development of East Asia in the 20th bears witness to this.
NOT IN THE DEVELOPMENT BUSINESS
But the object of the free-trade rhetoric and finger-wagging posture of the developed world is precisely to maintain the status quo. We should be aware that … ‘’Transnational Corporations are not in the development business; their objective is to maximise their return on capital. TNCs seek out the best profit opportunities and are largely unconcerned with issues such as poverty, inequality, employment conditions, and environmental problems.’’ (7)
Given the regulatory capture of the political structures in the developed world by powerful business interests, it seems that this situation is likely to endure for the foreseeable future. Development will only come about when the LDCs take their fate into their own hands and emulate the national building strategies of East Asia.
‘’…markets have a strong tendency to reinforce the status quo. The free market dictates that countries should stick to what they are good at. Stated bluntly, this means that poor countries are supposed to continue with the current practices in low-productivity, low-value added, and low research-intensive activities. But engagement in these activities is exactly what makes them poor in the first place. If they want to leave poverty behind, they have to defy the market and do the more difficult things that bring them higher income and development – there are no two ways about it.’’ (8)
APPENDIX
THE RUSSIAN ROAD.
The legacy of the Yeltsin years had left Russia badly exposed to a triumphalist Western US/EU/NATO bloc. The NATO expansion up to Russia’s western frontiers posed a serious threat to Russia’s security. Internationally Russia was relatively isolated. The socialist political and economic alliances (Warsaw Pact and Comecon) were disbanded, and their previous commercial and economic networks were dismantled. The Russian Federation was excluded from membership of the European Union and was not (yet) a member of the World Trade Organization (WTO). This was the background for the widespread popular support for the assertive policy of President Putin.
But the geopolitical situation was to say the least – challenging. For his part Putin objected to NATO’s deployment of missiles in Poland and Romania pointed directly at Russia. In 1999 the Visegrad countries, Czech Republic, Poland and Hungary, joined NATO and in 2004 they were joined by Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia and Slovenia. All these states joined in 2009. Albania and Croatia joined in the same year. Economically, politically and militarily, the ‘’West’’ had arrived at Russia’s borders.
In addition to its external enemies Russia had an abundance of internal foes. This latter group was a product of the Yeltsin model and prior to this a tottering bureaucratic system which barely worked and ultimately collapsed. It was possible to distinguish two main groups which, for better or worse, undermined the Soviet system, which were identified as 1. The Administrative Class, and 2. The Acquiring Class, to which should be added the black-market entrepreneurs who were keen to emulate their western business icons in addition to the American mafia. Powerful reactionary and criminal elements in Russia were keen to bring about deep-rooted changes at the expense of the Russian people.
‘’Ostensibly the reforms in Russia were overseen by a group of senior state officials headed by one Yegor Gaidar and advised, supported and encouraged by senior figures from the US administration, as well as by various American ‘experts.’ But according to an American scholar, Janine Wedel, the Russian reforms were worked out in painstaking detail by a handful of specialists from Harvard University, with close ties to the American government, and were implemented in Russia through the politically dominant ‘Chubais Clan’. (Wedel – 2001). Chubais was officially reported as having engaged foreign consultants including officers of the CIA, to fill leading roles in the State Property Committee. Jonathan Hay, citizen of the USA and Officer in the CIA, was appointed director of the Foreign Technical Aid and Expertise Section and Deputy to the chairperson of the committee (Anatoliy Chubais) within the Expert Commission. The Expert Commission was empowered to review draft decrees of the president of Russia to review for the decisions by the government and instructions by the Chairman and Deputy Chairman of the State Property Committee of the Russian Federation of the details of privatisation in various sectors of the economy … The memoirs of Strove Talbott, Assistant to the US President William Jefferson Clinton on Russian affairs, left no doubt that the US administration viewed (the then) Russian President, Boris Yeltsin, as a reliable conduit for its interests in Russia.
The US neo-liberal economists Jeffrey Sachs and Andrei Shleifer, and Jonathan Hay, had an unprecedented degree of influence over Russia’s economic policy which was unparalleled for a sovereign state. Together with Gaidar and Chabais they formulated decisions that were inserted directly into Presidential decrees … Analysis shows that the implementation of Russian reforms organically combined an aspiration by Soviet bureaucrats to transform themselves from State functionaries into private property owners, and a desire on the part of the ruling elites in the West to impose their own system of values on their historical rival. It was thus inappropriate to speak of Russia and its neighbours in the CIS as having been independent in their conduct of radical economic reforms, and this very lack of independence was crucial for determining the strategy applied in these transformations.’’ (9)
Be that as it may, the damage to Russia carried out and orchestrated by both internal and external enemies was to push back Russian development at least two decades, if not more. Russia has been described by various informed opinion as being a ‘semi-peripheral economy’ and there is some truth in this, its main exports being raw materials and military and defence hardware. But this was a choice forced upon Russia by the US-western alliance. At the turn of the 19/20 century Russia needed to defend itself from western aggression. There were two absolute priorities. Agricultural security and military security. This was the sine qua non for Russia’s continued survival and development. The mixed economy – a characteristic of the western economic models, was for the moment, out of reach. But then the west started to run into its own problems, so things began to balance, particularly with the emergence of the Russian-Chinese alliance. However, the Yeltsin period which had produced a crop of cronies, co-conspirators, criminal and mafia elements, are still hidden in the shadows, often in very high places. The struggle goes on. La Lotta Continua.
NOTES
(1) Phillip Mullan – Beyond Confrontation – p.36
(2) These economic policies as advocated by Alexander Hamilton in the US. In the month of January of 1791, the Secretary of Treasury to the then President George Washington’s administration, Mr. Alexander Hamilton, proposed a seemingly innocuous excise tax on spirits distilled within the United States of America. The move was part of Hamilton’s initiative to encourage industrialization and higher degree of national sufficiency. In his December 1791 report to manufacturers, Hamilton called for protective tariffs to spur domestic production. Also, Hamilton called for the reduction of duties on goods that were carried by American ships.
This was also the case of Freidrich List in Germany in his short work – The National System of Political Economy.
(3) A non-tariff barrier (NTB) is a policy implemented by a government that acts as a cost or impediment to trade. It is not tariffs on products but rather different rules and regulations that are often the biggest practical barrier to trade between countries. Examples of non-tariff barriers include rules on labelling and safety standards on products. Other types of non-tariff barriers to trade can also be the result of policies that differentiate between national and international companies and firms. For example, domestic subsidies by governments to a carmaker may help keep that manufacturer in their country. However, that acts as essentially an indirect non-tariff barrier to other car companies looking to compete. Governments are also often likely to give preferential treatment to companies in their own country when it comes to government procurement contracts. Governments also buy products from their own industries in preference to foreign companies, these are called procurement policies another NTB. This can be seen as an impediment to free and fair international trade.
(4) Ha-Joon Chang – Kicking Away the Ladder – p.32/33.
(5) How Rich Countries Got Rich and Why Poor Countries Stay Poor. – Erik Reinert. It could be argued that political intervention would be the prerequisite for an industrial policy.
(6) Development Economics – Todaro and Smith – 2009
(7) Todaro and Smith – Development Economics – Ibid.
(8) Ha-Joon Chang – Bad Samaritans – p.210
(9) Ruslan Dzarasov – Russia, Ukraine and Contemporary Imperialism – Semi-Peripheral Russia and the Ukraine Crisis – pp.82-97
من المبالغة القول إنّ اعتذار الرئيس سعد الحريري عن تشكيل الحكومة، يشكل نهاية للحريرية السياسية. إذ إنّ الحريرية السياسية لم تعد مرهونة بشخص، بمقدار ما هي شبكة متجذرة داخل بيئة سياسية وطائفية واجتماعية محددة، وهي بالتالي جزء لا يتجزأ من نظام طائفي شامل ومتكامل لا يزال مستمراً، ومؤثراً وضاغطاً على الحياة السياسية في لبنان، وممسكاً بكلّ مفاصل ومؤسسات وأجهزة الدولة، وموجّهاً لمنظومته السياسية، ومحيطاً وراعياً لسلوكيات ومفاهيم ونهج وأداء مَن هم في داخلها.
لا نغالي إذا قلنا إنّ الحريرية السياسية متغلغلة ومتجذرة حتى اليوم في كلّ مكان. في الوزارات والمؤسسات، في النظام المصرفي، والمالي، والخدمي، في المجالس والجمعيات، والمنتديات، في قطاعات التلزيمات والمقاولات والصفقات والهندسات المالية، ويكفي سوليدير وأخواتها، وحاشيتها، ومشتقاتها، وتشعّباتها!
وإذا كان البعض يعتقد وهماً انّ الحريرية السياسية انتهت بالاعتذار، فهل يتصوّر هذا البعض أنه بالإمكان في هذه الظروف الحالية الإتيان بمرشح للحكومة من دون موافقة ومباركة الحريري، ونادي رؤساء الحكومات السابقين، وغطاء دار الإفتاء التي تحتضن سعدها؟!
المسألة اليوم ليست باعتذار شخص عن التكليف، كي تطوى صفحته السياسية، ومن يمثله في قلب التركيبة الطائفية المناطقية لنظام فاشل، مترهّل، عفن، استباح الدستور والقانون والقضاء، وكلّ القيم الأخلاقية والوطنية، ليضع في نهاية المطاف شعباً يلفظ أنفاسه على عتبات المنظومة السياسية الطائفية بكلّ ما فيها من فساد وموبقات.
إنّ الترقيع والتلحيم القسري الذي يعمد البعض على اللجوء إليه لإنقاذ ما يجب إنقاذه، لم يعد يجدي وينفع. مع نظام كهذا، ومنظومة حاكمة مترهّلة وبالية كهذه، تعرّت بعد أن سقطت عنها ورقة التوت أمام الشعب اللبناني والعالم كله.
لم يعد من حلّ أمام اللبنانيين إلا باقتلاع أسس النظام الطائفي من جذوره، ومن حماته، ورعاته وكلّ المستفيدين منه.
إذا كان أركان هذا النظام الطائفي الذي يندّدون به كلّ يوم يأتي عن صدق، وهم القيّمون عليه، وإنْ كانوا فعلاً جادّين في تجنيب لبنان الآن ومستقبلاً الويلات، وإبعاده عن الأزمات المتلاحقة من وقت إلى آخر، فإنها الفرصة الذهبية أمامهم اليوم للبحث عن صيغة تخرج لبنان من هذا ـ النظام الطائفي ـ الذي يبث الوباء القاتل من حين الى آخر، يموت به الشعب، وينجو منه صانعوه.
لا يعوّل اللبنانيون على أيّ تغيير أو إصلاح أو استقرار أو تنمية، ولا على أيّ رئيس جمهورية، أو حكومة، أو أيّ مجلس نيابي سيأتي بعد عشرة أشهر، طالما أنّ الوباء الطائفي متفشّ في جسد الوطن ومؤسّساته، وفي عقول شريحة واسعة من القابضين على الحكم والسلطة، ومن المحظوظين والمستفيدين، والمنتفعين، والمنضوين داخل الهيكل الطائفي.
لذلك، إنّ الخروج من أزماتنا ومشاكلنا وخلافاتنا، لن يتحقق قبل أن نقتلع الوباء الطائفي من النظام، وقبل أن يقتلعنا الوباء!
إنّ صيغة 1943 الطائفية سقطت، واتفاق الطائف الطائفي ايضاً، لم يعد يلبّي طموحات شعب ووطن، حيث اغتيل على أيدي صانعيه ومنفذيه، ومن أوصل البلد الى الهاوية.
هل يعي المواطنون الأحرار هذه الحقيقة، أم أنهم مصرّون على الاستماتة من أجل زعيمهم، والدفاع الأعمى عنه، ليخرج كلّ يوم قطاع الطرق واللصوص، والعابثون بالأمن وحياة المواطنين لاقفال الطرقات، وإحراق الإطارات، والاعتداء على أفراد قوى الأمن والجيش والمواطنين، وتكسير الممتلكات العامة والخاصة واحتجاز المواطنين لساعات طويلة داخل سياراتهم وسط الحر الشديد الذي يلسع أجسادهم، في الوقت الذي يستحمّ زعيمهم في حوض ماء بارد!
أفيقوا، أفيقوا أيها المغفلون، ولا تبحثوا عن قهركم وجوعكم وتفجّروا غضبكم في الشوارع والساحات، ليصادره الأزعر وقاطع الطريق، بل ابحثوا عن كلّ مَن ألقى بكم في مستنقع القهر، وساهم وتسبّب في انهيار وطن من قريب أو بعيد لتقتصوا منه.
لا قيامة للشعب، ولا قيامة للبنان، في ظلّ هذا النظام الطائفي، وفي ظلّ المنظومة العميقة الممسكة به بكلّ قوة والمستميتة للدفاع عنه. فما تقوله نظرياً وعلناً حياله، يتعارض ويتناقض بالكامل مع سياساتها وأفعالها المدمّرة.
فلا الاعتذار، لا الحصحصة، ولا الخصخصة، لا «حنان» الخارج و«مشاعره» «وغيرته»، ووعوده، ومساعداته، ولا وساطاته، وإخراجاته، سينقذونكم وينقذون وطنكم طالما بقيتم تحت رحمة النظام الطائفي، وأصابع الأخطبوط الممسكة به…
لا يمكن للبنانيبن أن ينقذوا أنفسهم وينتشلوا وطنهم من الحضيض إلا في حالة واحدة لا غيرها، عندما يشيّعون هذا النظام الطائفي الذي دمّرهم الى مثواه الأخير، ويشيّعون معه عرّابيه وحماته!
لكن متى! عندما يتحرّر العقل اللبناني وينتقل من الحالة الطائفيّة الضيقة المتزمتة، الى الواقع القوميّ الرحب، وعندما لا يكون المواطن مطية، يحمل ويلوح بقميص الزعيم الطائفي، الذي يمتطيه متى شاء، وكيفما أراد!
I think it was Sir Ian Gilmour (now deceased) who, as one time member of Mrs Thatcher’s first Cabinet in 1979, referred to her economic policy as ‘Clause 4 dogmatism in reverse.’ (1) This was an apt description from a thinking Tory. The notion that there existed a magic panacea which would banish all the problems associated with Britain’s (and the world’s) economic ills, formed the basis of Thatcherism, Reaganism, and the Third-wayism of Clinton and Blair. The so-called ‘supply-side’ revolution consisted of removing all the controls from capitalism which had been painstakingly put in place over the centuries, and simply letting the system rip – and rip it did. The 1970s was the beginning of the interregnum to the new order of the 1980s and beyond, which had ushered in policies of privatisation, deregulation, liberalisation which were the key components of this policy paradigm.
In international terms free-trade and free-markets were of course at the heart of the system – a system which was to become known as ‘globalization’ and/or neoliberalism packaged and sold as an irresistible force of nature. It was considered, by all the people that mattered, that free-trade was always and everywhere the best policy. This view was codified in what was to become known as the ‘Washington Consensus.’ The new conventional wisdom was conceived of and given a legitimating cachet by political, business, MSM and academic elites around the world.
However, many of the elements – if not all – of the Washington Consensus were hardly new, and indeed many date back to the 18th and 19th centuries and perhaps beyond. It could be said that the newly emergent mainstream orthodoxy represented a caricature of an outdated and somewhat dubious political economy.
The theory that free trade between nations would maximise output and welfare was first mooted by Adam Smith, but its final elaboration was conducted by David Ricardo in his famous work The Principles of Political Economy and Taxation first published in 1817. Briefly, he argued that nations should specialise in what they do best and in that way world output would be maximised. This policy was called ‘comparative advantage’. The hypothetical example he used was England and Portugal and the production of wine and cloth, where he calculated that England should produce cloth and Portugal should produce wine. It was asserted, though no evidence was ever presented, that all would gain from this international division of labour. The theory is in fact full of unsubstantiated and seductive notions, but its practical application is limited. Because it is based upon so many rigid and static assumptions, it is especially appealing to those of a status quo disposition, including most present- day globalist thinkers.
However, even a cursory glance at economic history, and particularly the transition from agrarian to industrial societies, demonstrates the weaknesses, and indeed, serves to falsify the whole Ricardian trade paradigm. The brute historical fact is that every nation which has successfully embarked on this transition – including the UK – has done so adopting policies which were the exact opposite of those advocated by the free-trade school. In the world of actually existing capitalism, free-trade is the exception rather than the rule. Contemporary world trade is mainly a matter of intra-firm trading, that is, global companies trading with their own affiliates and subsidiaries in different countries, mainly for tax avoidance purposes (see below). Next there are regional trading blocs like the EU or US which erect tariff barriers to non-members. Thirdly there is barter trade where goods and services are exchanged for other goods and services rather than money. Finally, only about 20% at most, can be considered to be free trade, and even here there are exceptions involving bilateral specifications and agreements.
Modernisation and industrialisation, wherever it took place, involved tariffs, infant industry protection, export subsidies, import quotas, grants for R&D, patents, currency manipulation, mass education and so forth … a smorgasboard of interventionist policies whereby the economy was directed from above by the state. For example during its period of industrialisation the United States erected tariff walls to keep out foreign (mainly British) goods with the intention of nurturing nascent US industries. US tariffs (in percentages of value) ranged from 35 to almost 50% during the period 1820-1931, and the US itself only became in any sense a free-trading nation after World War II, that is once its financial and industrial hegemony had been established. In Europe laissez-faire was also eschewed. In Germany in particular tariffs were lower in the US, but the involvement of the German state in the development of the economy was decidedly hands-on. Again there was the by now standard policy of infant industry protection, and this was supplemented by an array of grants from the central government including scholarships to promising innovators, subsidies to competent entrepreneurs, and the organisation of exhibitions of new machinery and industrial processes. In addition, ‘’during this period Germany pioneered modern social policy, which was important in maintaining social peace – and thus promoting investment – in a newly unified country … ‘’(2)
It has been the same everywhere, yet the Ricardian legacy still prevails. But this legacy takes on the form of a free-floating ideology with little connexion to either practical policy prescriptions or the real world. It has been said in this respect that ‘’ … practical results have little to do with the persuasiveness of ideology.’’(3) This much is true, but it rather misses the point: the function of ideology is not to supply answers to problems in the real world, but simply to give a Panglossian justification to the prevalent order of things.
Turning to the real world it will be seen that ‘’ … history shows that symmetric free-trade, between nations of approximately the same level of development, benefits both parties.’’ However, ‘’asymmetric trade will lead to the poor nation specialising in being poor, while the rich nation will specialise in being rich. To benefit from free trade, the poor nation must rid itself of its international specialisation of being poor. For 500 years this has not happened anywhere without any market intervention.’’ (4)
This asymmetry in the global system is both cause and consequence of globalization. It should be borne in mind that the Least Developed Countries (LDCs) are suppliers of cheap raw material inputs to the industrialised countries of North America, Western Europe, and East Asia. In technological terms the LDCs find themselves locked into low value-added, low-productivity, low-research intensive dead-end production, where no discernible development or technology transfer takes place. Thus under-development is a structural characteristic of globalization, not some unfortunate accident. Put another way:
‘’ … if rich nations (the North) as the result of historical forces, are relatively well endowed with the vital resources of capital, entrepreneurial ability, and skilled labour, their continued specialisation in products and processes that use the resources intensively can create the necessary conditions for their further growth. By contrast LDCs (the global-South) endowed with abundant supplies of cheap, unskilled labour, by intentionally specialising in products that use cheap, unskilled labour … will often find themselves locked into a stagnant situation that perpetuates their comparative advantage in unskilled, unproductive activities. This in turn inhibits the domestic growth of needed capital, entrepreneurship, and technical skills. Static efficiency becomes dynamic inefficiency, and a cumulative process is set in motion in which trade exacerbates already unequal trading relationships, distributes benefits largely to the people who are already well-off, and perpetuates the physical and human resource under-development that characterises most poor nations.’’ (5)
The cocoa-chocolate industry (hereafter CCI) of the West African nations, Cameroon, Ghana, Ivory Coast and Nigeria are a case in point. These countries produce the majority of the world’s raw cocoa beans. But of course the industry as a whole is controlled by western multinationals such as Hershey, Nestlé and Cadbury-Schweppes (now Kraft). The structure of this industry – vertically integrated – is very typical of the relationship between the LDCs and the developed world. The low value-added part of the industry – growing and harvesting the beans – is left to individual farmers in West Africa. Buying agencies, either very close to, or in fact subsidiaries of multinational companies (MNCs), then buy the raw material at prices usually dictated by the MNCs. This asymmetrical relationship between supplier and sole buyers (the African farmers) is termed ‘monopsony’ in the economics jargon. It should be understood that large companies not only over-price their products to the final consumer, but also under-price their purchases from their captive suppliers. From then on, the various stages of the processing supply chain are in the hands of the parent company. From raw beans, to roasting, milling, refining, manufacturing of chocolate or cocoa, shipping, and packaging, branding and advertising – all of these stages add value to the product, value which is garnered by the MNC. The exporting African nations are left with the low or no value-added end of the operation, a technological cul-de-sac.
Nor does it end there. MNCs can avoid much local taxation by shifting profits to subsidiaries in low-tax venues by artificially inflating the price which it pays for intermediate products purchased from these same subsidiaries so as to lower its stated profits. This phenomenon is known as transfer pricing and is a common practice of MNCs – one over which host governments can exert little control as long as corporate tax rates differ from one country to the next. Hypothetically it works as follows:
Take a company called World Inc. which produces a type of food in Africa; it then processes it and sells the finished product in the United States. World Inc. does this via three subsidiaries: Africa Inc. (in Africa Malawi ), Haven Inc. (in a tax haven, British Virgin Islands with zero taxes) and America Inc. (in the United States).
1. Now Africa Inc. sells the produce to Haven Inc. at an artificially low price, resulting in Africa Inc. having artificially low profits – and consequently an artificially low tax bill in Africa. 2. Then Haven Inc. sells the product to America Inc. at a very high price – almost as high as the final retail price at which 3. America Inc. sells the processed product. As a result, America Inc. also has artificially low profitability, and an artificially low tax bill in America. By contrast, however, Haven Inc. has bought at a very low price, and sold at a very high price, artificially creating very high profits. However, Haven Inc is located in a tax haven – so it pays no taxes on those profits. Easy Peasy, no?
Bear in mind also that although the IMF and World Bank enjoin LDCs to adopt market liberalisation policies, they apparently see – or conveniently ignore – the past and current mercantilist practices of developed nations. Agriculture for example is massively subsidised in both the US and the EU. But it really is a question of don’t do what I do – do as I say. This hypocrisy at the heart of the problem represents the elephant in the room. We know that countries which attempt to open their markets when they are not ready to do so usually pay a heavy price (in the 1990s with Russia and the free-market shock-therapy for example). The countries which protect their growing industries until they are ready to trade on world markets have been the successes – even in capitalist terms. The wave of development in the 19th century and the development of East Asian economies during the 20th century bears witness to this.
But the object of the free-trade rhetoric and finger wagging posture of the developed world is precisely to maintain the status quo. We should be aware that: ‘’… multinational corporations are not in the development business; their objective is to maximise their return on capital. MNCs seek out the best profit opportunities and are largely unconcerned with issues such as poverty, inequality, employment conditions, and environmental problems.’’ (6)
Given the regulatory capture of the political structures in the developed world by powerful business interests, it seems that this situation is likely to endure for the foreseeable future. Development will only come about when the LDCs take their fate into their own hands and emulate the nation-building strategies of East Asia and in the 19th century by Germany and the United States. These leaders and leading nations were not to sit back and let the British rule the roost. They acted and they overcame.
Germany: Georg Friedrich List (1789-1846). He was a forefather of the German historical school of economics and ‘National System of Political Economy’. He argued for the German Customs Union from a Nationalist standpoint. He advocated imposing tariffs on imported goods while supporting free trade of domestic goods and stated the cost of a tariff should be seen as an investment in a nation’s future productivity.
The USA – Alexander Hamilton In the aftermath of ratification, Hamilton continued to expand on his interpretations of the Constitution to defend his proposed economic policies as Secretary of the Treasury. Credited today with creating the foundation for the U.S. financial system, Hamilton wrote three reports addressing public credit, banking, and raising revenue. In addition to the National Bank, Alexander Hamilton founded the U.S. Mint, created a system to levy taxes on luxury products (such as whiskey), and outlined an aggressive plan for the development of internal manufacturing.
The USA – President – Ulysses S Grant
“For centuries England has relied on protection, has carried it to extremes and has obtained satisfactory results from it. There is no doubt that it is to this system that it owes its present strength. After two centuries, England has found it convenient to adopt free trade because it thinks that protection can no longer offer it anything. Very well then, gentlemen, my knowledge of our country leads me to believe that within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade.” (7)
Markets have a strong tendency to reinforce the status quo. The free market dictates that countries stick to what they are good at. Stated bluntly, this means that poor countries are supposed to continue with their current engagement in low productivity activities. But engagement in those activities is exactly what makes them poor. If they want to leave poverty behind, they have to defy the market and do the more difficult things that bring them higher incomes – it is as simple as that, and there are no two ways about it.
NOTES
(1) Clause 4 was part of the British Labour Party’s early Constitution. But is no longer in any real sense part of the constitution of the contemporary UK Labour Party, setting out the aims and values of the party (New Labour) as it is now called. The original clause, adopted in 1918, called for common ownership of heavy industry, and proved controversial in later years; the then leader, Hugh Gaitskell, attempted to remove the clause after Labour’s loss in the 1959 general election.
In 1995, under the leadership of Tony Blair, a new (revisionist) Clause IV was adopted. This was seen as a significant moment in Blair’s redefinition of the party as New Labour, but has survived and become a centrist party along with sister parties in Europe and the Democratic party in the US beyond the New Labour branding.
(2) Kicking Away the Ladder – Ha-Joon Chang
(3) The Trillion Dollar Meltdown – Charles Morris
(4) How Rich Countries Got Rich and Why Poor Countries Stay Poor – Erik Reinert.
People want to know where the economy is headed. What they should be asking is does the US still have an economy? My answer is no, it doesn’t. I will explain why.
For a quarter century I have pointed out the destructive effect of moving American investment and jobs to China and other points abroad. Offshoring served the interests of corporate executives and shareholders. The lower labor costs raised profits and, thereby, executive bonuses and the prices of the stocks, resulting in capital gains for shareholders.
These benefits accrued to a small percentage of the population. For everyone else these closely held benefits imposed huge external costs many times greater than the rise in profits. The American manufacturing workforce was devastated, as was the tax base of cities, states, and the federal government. The middle class shrunk and the populations of St Louis, Detroit, Cleveland, Pittsburgh, South Bend and Gary Indiana, Flint Michigan and other cities declined as much as 20%. The hopes and aspirations of millions of Americans were crushed. Once thriving American cities became blighted. Supply chains and real estate values collapsed. (See Paul Craig Roberts, The Failure of Laissez Faire Capitalism, Clarity Press, 2013. https://www.claritypress.com/book-author/paul-craig-roberts/ )
As incomes fell for the bulk of the American population, incomes rose for the One Percent. Income and wealth gains have been concentrated at the top resulting in the United States today having one of the most unequal distributions of income and wealth in the world.
As the offshoring of high productivity, high value-added manufacturing jobs reduced American incomes, US aggregate domestic demand was impacted and economic growth fell. The Federal Reserve expanded credit and substituted an increase in consumer debt for the missing growth in consumer income. This aggravated the indebtedness that economist Michael Hudson correctly emphasizes is exhausting consumer income to pay debt service—mortgages, car payments, credit card and student loan debts—which leaves little or no discretionary income to drive economic growth.
Hudson, who has been on the job of analyzing America’s eroding economy for a long time, emphasizes that the US economy is no longer a productive or industrial economy but a financialized economy in which bank lending is not used for new plant and equipment but for the financing of takeovers of existing assets in pursuit of interest, fees, and capital gains– what the classical economists called unearned income or “economic rent.” In short, Hudson demonstrates that the American economy is no longer a productive economy. It is a rent-seeking economy.
Hudson points out that as the economy is increasingly financialized, looting shifts to the privatization of public assets. The examples are endless. In the UK the post office was privatized at a fraction of its value, along with public housing, transportation and British Telephone, resulting in huge private gains. The French also privatized public holdings. In Greece the municipal ports and water companies were privatized along with Greek protected islands. In the US, segments of the armed forces are privatized, along with prisons. Chicago sold 75 years of its parking meter fees to a private entity for one lump sum payment. Everywhere public assets, including services, are being sold to private interests. In Florida, for example, the issuance of the annual vehicle license tag is privately provided. When there is nothing left to privatize, what will banks finance?
Hudson notes that the real economists, the classical ones, focused on taxing unearned economic rent, not labor income and productive activity. Today’s neoliberal economists are unable to differentiate between economic rent and productive activity. Consequently, GDP analysis fails to reveal the economy’s transformation from a productive to a rentier economy. Hudson terms neoliberal economists “junk economists,” and I concur. Essentially, they are shills for the financial sector and for the offshoring corporations who paid them to conflate job and investment offshoring with free trade.
I am convinced that if the entirety of neoliberal economics were erased nothing of value would be lost. Economists, particularly academic economists, are in the way of truth. They live in a make-believe world that they created with assumptions and models that do not bear on reality.
I am familiar with universities and academic economics. I graduated from an engineering and scientific institution—Georgia Tech—and then was a graduate student in economics at the University of Virginia, University of California, Berkeley, and Oxford University. I had four Nobel prize-winners as professors. I have a Ph.D. in Economics. I have made contributions to major journals of economics and to others outside the field, 30 published articles altogether before I left academia. I served for years as a reviewer for the Journal of Political Economy with the power to decide publication of submitted research. I have peer-reviewed books from Harvard University Press and Oxford University Press. I have debated Nobel prize winners before professional audiences. I served as a Wall Street Journal editor and as Assistant Secretary of the US Treasury, and have had many university appointments. Michael Hudson also has real world experience in major financial institutions, international organizations, and governments, as well as US and overseas professorships and contributions to academic publications in many languages.
In other words, we know what we are talking about. We have no interest to serve except truth. No one pays us to serve an agenda.
But we are only two voices.
Two decades ago I was presented with the prospect of a large increase in amplification of my voice about the deleterious effects of offshoring. In December 2003 I received a telephone call from US Senator Charles Schumer, Democrat, New York. Senator Schumer had been reading my columns in which I made the case that under the guise of free trade, jobs and investment were being moved offshore at the expense of US economic success. Senator Schumer shared my concern and asked if a Reagan Treasury official would agree to coauthor with a Democrat Senator an article for the New York Times raising the issue whether job offshoring was in America’s interest.
Our article appeared on January 6, 2004. Here it is:
Second Thoughts on Free Trade
By CHARLES SCHUMER and PAUL CRAIG ROBERTS
New York Times, January 6, 2004
“I was brought up, like most Englishmen, to respect free trade not only as an economic doctrine which a rational and instructed person could not doubt but almost as a part of the moral law,” wrote John Maynard Keynes in 1933. And indeed, to this day, nothing gets an economist’s blood boiling more quickly than a challenge to the doctrine of free trade.
“Yet in that essay of 70 years ago, Keynes himself was beginning to question some of the assumptions supporting free trade. The question today is whether the case for free trade made two centuries ago is undermined by the changes now evident in the modern global economy.
“Two recent examples illustrate this concern. Over the next three years, a major New York securities firm plans to replace its team of 800 American software engineers, who each earns about $150,000 per year, with an equally competent team in India earning an average of only $20,000. Second, within five years the number of radiologists in this country is expected to decline significantly because M.R.I. data can be sent over the Internet to Asian radiologists capable of diagnosing the problem at a small fraction of the cost.
“These anecdotes suggest a seismic shift in the world economy brought on by three major developments. First, new political stability is allowing capital and technology to flow far more freely around the world. Second, strong educational systems are producing tens of millions of intelligent, motivated workers in the developing world, particularly in India and China, who are as capable as the most highly educated workers in the developed world but available to work at a tiny fraction of the cost. Last, inexpensive, high-bandwidth communications make it feasible for large work forces to be located and effectively managed anywhere.
“We are concerned that the United States may be entering a new economic era in which American workers will face direct global competition at almost every job level — from the machinist to the software engineer to the Wall Street analyst. Any worker whose job does not require daily face-to-face interaction is now in jeopardy of being replaced by a lower-paid, equally skilled worker thousands of miles away. American jobs are being lost not to competition from foreign companies, but to multinational corporations, often with American roots, that are cutting costs by shifting operations to low-wage countries.
“Most economists want to view these changes through the classic prism of “free trade,” and they label any challenge as protectionism. But these new developments call into question some of the key assumptions supporting the doctrine of free trade.
“The case for free trade is based on the British economist David Ricardo’s principle of “comparative advantage” — the idea that each nation should specialize in what it does best and trade with others for other needs. If each country focused on its comparative advantage, productivity would be highest and every nation would share part of a bigger global economic pie.
“However, when Ricardo said that free trade would produce shared gains for all nations, he assumed that the resources used to produce goods — what he called the “factors of production” — would not be easily moved over international borders. Comparative advantage is undermined if the factors of production can relocate to wherever they are most productive: in today’s case, to a relatively few countries with abundant cheap labor. In this situation, there are no longer shared gains — some countries win and others lose.
“When Ricardo proposed his theory in the early 1800’s, major factors of production — soil, climate, geography and even most workers — could not be moved to other countries. But today’s vital factors of production — capital, technology and ideas — can be moved around the world at the push of a button. They are as easy to export as cars.
“This is a very different world than Ricardo envisioned. When American companies replace domestic employees with lower-cost foreign workers in order to sell more cheaply in home markets, it seems hard to argue that this is the way free trade is supposed to work.
“To call this a “jobless recovery” is inaccurate: lots of new jobs are being created, just not here in the United States.
“In the past, we have supported free trade policies. But if the case for free trade is undermined by changes in the global economy, our policies should reflect the new realities. While some economists and elected officials suggest that all we need is a robust retraining effort for laid-off workers, we do not believe retraining alone is an answer, because almost the entire range of “knowledge jobs” can be done overseas. Likewise, we do not believe that offering tax incentives to companies that keep American jobs at home can compensate for the enormous wage differentials driving jobs offshore.
“America’s trade agreements need to to reflect the new reality. The first step is to begin an honest debate about where our economy really is and where we are headed as a nation. Old-fashioned protectionist measures are not the answer, but the new era will demand new thinking and new solutions. And one thing is certain: real and effective solutions will emerge only when economists and policymakers end the confusion between the free flow of goods and the free flow of factors of production.
“Charles Schumer is the senior senator from New York. Paul Craig Roberts was assistant secretary of the Treasury for economic policy in the Reagan administration.”
Senator Schumer’s staff seemed to think that free trade was the problem because real world conditions had changed. My position was that jobs offshoring was not free trade. But I realized that any opening of the question was promising.
Our article in the New York Times had an extraordinary impact. The Brookings Institution, at that time an important liberal economic policy think tank that was home to former economic policy makers, called a Washington conference to hear us and examine our position. There was a panel with myself, Schumer, a former policymaker and the head of the US manufacturing lobby who could not figure out which side to be on. C-Span gave the conference live coverage and rebroadcast it a number of times.
Schumer and I carried the day. Members of the audience came up afterwards, including World Bank economist Herman Daly, in support of my position that the destruction of the American manufacturing economy could not be reasoned away as a free trade result.
Senator Schumer had a sincere interest in what job offshoring was doing to his constituents. He proposed that we continue our collaboration and write a second article for the New York Times. In those days the Times was still, partly, a newspaper rather than a total propaganda voice for the Establishment, and the Times assumed nevertheless that a Democrat Senator from New York and an Treasury Official who had been confirmed in office by the US Senate were part of the establishment.
The second column began and then suddenly went dead. No response. A telephone call revealed that the staffer with whom I was working was no longer there. After discussing this with old Washington hands, I concluded that Schumer had not realized that he was threatening Wall Street’s interest in higher profits by opening the question of jobs offshoring and had received a good talking to.
Wall Street Killed the Schumer/Roberts truth squad and protected the profits from job and investment offshoring.
This is what happens to elected officials when they attempt to represent the general interest rather than the special interests that finance political campaigns. The public interest is blocked off by a brick wall posted with a sign that says get compliant with the Establishment or get out of politics. Unless money is taken completely out of electoral politics, there will be no democracy.
Globalism serves to destroy sovereign and accountable government. In the US globalism destroyed the manufacturing middle class. Now Covid lockdowns are destroying the remainder of the middle class—family businesses. Businesses have fixed costs. When they cannot operate red ink mounts and the businesses fail. The lockdowns together with jobs offshoring monopolize the economy in few hands. This is not a theory. It is what we are experiencing. Feudalism is being resurrected. A few lords and many serfs. The serfs will be dependent on the lords and will have no independence.
Within a few months, Lebanon, often misrepresented as “the only Arab democratic state” or even as the “Switzerland of the Middle East,” has collapsed. Successively, popular demonstrations against the political class (October 2019), a banking crisis (November 2019), a health crisis (July 2020), an explosion at the port of Beirut (August 2020) caused a sudden disappearance of the middle classes and a general decline in living standards of around 200%.
From the Lebanese point of view, this horror would be due to the catastrophic management of the country by the political class, whose leaders would be corrupted except for the leader of the religious community to which the person being questioned belongs. This absurd prejudice reveals an intolerant population and masks the reality.
Since the Ottoman occupation [1], especially since independence in 1942, and even more so since the civil war (1975-90), the Lebanese population has not formed a nation [2], but an aggregate of confessional communities. The Constitution and the Taif Accords allocate all political functions and henceforth all public jobs, not according to the capacities of citizens, but according to community quotas. Each community has chosen its leaders, usually former civil warlords, who have been recognized by the international community. They managed in their own name the subsidies that the former colonial powers offered for their community. They have taken a huge amount of royalties, which they have long since transferred abroad, but they have also distributed very large sums of money to maintain their “clientele” in the image of the ancient Roman senators. It is therefore perfectly stupid to accuse them today of corruption when they have been celebrated for decades for the same work.
This system was maintained by the United States and the European Union. Thus the President of the Bank of Lebanon, Riad Salame, was celebrated as the best money manager in the Western world before being accused of hiding a hundred million dollars in personal accounts in the United Kingdom. Or, the European Union’s High Representative, Federica Mogherini, claimed to be helping Lebanon solve its waste crisis while helping the two former prime ministers, Saad Hariri and Najib Mikati, to embezzle a hundred million dollars of this sum. [3]
Only the Lebanese, who have been kept in a state of political unconsciousness for eighty years and still have not understood what they experienced during the civil war, do not realize this.
How can we fail to notice that the collapse of Lebanon follows those of Yemen, Syria, Libya, Iraq and Afghanistan? How can we fail to notice that in 2001, US Defense Secretary Donald Rumsfeld and his advisor, Admiral Arthur Cebrowski, advocated adapting the mission of the US armed forces to emerging financial capitalism? According to them, it was necessary to destroy all the state structures of all the states of the “Broader Middle East” so that no one – enemy or friend – could prevent the exploitation of the region by US multinationals.
If we admit that this “Endless War” (sic), proclaimed by President George W. Bush, is indeed going on, we must note that the destruction of the state structures of Lebanon was achieved at a lower cost.
However, given the effectiveness of the Lebanese resistance, it was necessary to achieve this objective by non-military means that escaped the vigilance of Hezbollah. Everything had already been decided in April 2019, as attested by the US response to the Lebanese delegation visiting the US State Department [4].
Four coalition powers, the United States, the United Kingdom, Israel and France, played a decisive role in this plan.
The Pentagon set the objective: to destroy Lebanon and exploit the gas and oil fields (plan of Ambassador Frederic C. Hof).
Whitehall set out the method [5]: manipulate the post-Civil War generation in order to liberate the current system without replacing it. Its propaganda specialists thus organized the so-called “October Revolution” which, contrary to what was sometimes believed, was not at all spontaneous. [6]
Israel destroyed the economy thanks to its control of all telephone communications (except Hezbollah’s private network) and its presence in the world banking system. It provoked the banking rout by convincing South American drug cartels that had placed their assets in Lebanon to brutally withdraw them. It deprived the country of its economic lung, the port, by bombarding it with a new weapon. [7]
France, for its part, proposed to privatize everything that could be privatized and put Saad Hariri back on stage to carry it out. It has applied itself to pouring out fine words while marginalizing Hezbollah [8].
Ultimately, the next twenty years should be devoted to plundering the country, especially its hydrocarbons, while the Lebanese will continue to blame scapegoats and ignore their real enemies. Already, the Israeli port of Haifa has partially replaced that of Beirut. Eventually, the country itself should be divided and the part south of the Litani River attached to Israel. [9]
It should be kept in mind, however, that the USA-UK-Israel-France coalition is not composed of equal states, but is commanded exclusively by the United States. In Libya, the USA alone pocketed the oil pact. Despite the promises made to them, their allies got only crumbs. The same scenario can be repeated in Lebanon. None of their allies could profit from their common crime.
Notes:
[1] Les Libanais ne reconnaissent pas l’Empire ottoman comme une puissance coloniale, ce qu’elle était pourtant. NdA.
[2] Par définition, le Liban n’étant pas une nation ne peut être ni une démocratie, ni une république. NdA.
[5] Une fuite de documents officiels britannique atteste de ce rôle. Lire Complete infiltrating Lebanon (65,11 Mo). Les résultats ambitionnés ont manifestement été tenus : les Libanais souffrent tellement qu’ils ne voient plus ni l’origine de leurs problèmes, ni les solutions à portée de main, cf. “Taking Lebanon’s Pulse after the Beirut Explosion”, Michael Robbins, Arab barometer, December 15, 2020.
While this press conference contains a shorter Belarus update, it has a wider context and is posted to illustrate Foreign Minister Lavrov’s clear expression of irritation with the west, which he now covers in each of his routine press conferences. In this one, he handles among other topics, protests across the world, Heiko Maas, Committee of Ministers of the Council of Europe (CMCE), International agencies, including the Office of the UN Human Rights Commissioner being silent and not doing their jobs, as well as strategic stability.
We have held a joint session of the collegiums of the Russian Foreign Ministry and the Belarusian Foreign Ministry. By tradition, it took place in a confidential and truly friendly atmosphere.
Using this opportunity, I would like to thank again our Belarusian friends for their traditional hospitality and excellent organisation of work. We highly value these annual meetings in the format of members of the collegiums and other representatives of the two ministries’ top management. They allow us to discuss in detail the most urgent international issues that involve the interests of our countries and need to be addressed.
Despite the complicated epidemiological situation, we managed to meet offline and talk face to face. We had four items on our agenda: relations of our countries with the European Union, participation in UN peacekeeping missions (in part, in the context of the prospects of the CSTO’s involvement in the UN peacekeeping activities), cooperation in the EAEU on forming the Greater Eurasian Partnership and ways of ensuring international information security.
We achieved specific agreements on all of these issues. They are reflected in a resolution that we signed in addition to the plan of consultations between our foreign ministries in 2021. We also spoke about broader cooperation in international organisations, including the CIS, CSTO, EAEU, UN and OSCE.
We and our Belarusian colleagues had to state that unfortunately our US-led Western partners continue persistently promoting their narrow selfish interests in a bid to preserve their hegemony in the world arena. They are using the concept of the “rules-based” world order, setting it directly against universal, commonly recognised standards of international law, including the UN Charter.
We are concerned about the attempts by the Western countries to establish control over international organisations, up to and including privatisation of their secretariats. When this fails, they try to replace collective work in universal formats with private get-togethers where all those who agree with the Western policy make decisions that are later presented as multilateral and binding. It is hardly possible to make us follow these rules. The overwhelming majority of countries are firmly committed to the old, tried-and-tested principle – respect for international law, primarily the UN Charter.
We noted numerous facts of crude interference by the US and those who follow in its wake (I am referring to some European capitals) in the internal affairs of sovereign states. The dirty methods of colour revolutions continue to be used. These include manipulation of public opinion, instigation and support of overtly anti-government forces and contribution to their radicalisation. We are seeing how these methods are being applied to the Republic of Belarus. We spoke about this in detail today both with Foreign Minister Vladimir Makei and President of Belarus Alexander Lukashenko, who received us before this meeting.
We were informed in great detail about the current developments in Belarus. We are not indifferent to them. The Republic of Belarus is our ally and strategic partner and also a fraternal nation. We are interested in a calm and stable situation in that country. This will be facilitated by the Constitutional reform that was launched by the Belarusian leadership as a major transformation of the political, economic and legal systems.
We believe the Belarusian people are wise and always act in a balanced manner. They are capable of resolving their problems without any outside prompting or obtrusive proposals on unwanted mediation. It is obvious that attempts to jeopardise normalisation are being made. There are many examples of this: a desire to radicalise the protesters, encouraging people to engage in subversion and high treason, which are made, in part, from abroad.
Today we again reviewed in detail the entire range of our ties and ways of protecting the interests of each of our countries, as well as the interests of the Union State of the Republic of Belarus and the Russian Federation.
I would like to emphasise again that we are content with our joint discussion. We will carry out everything we have agreed on today.
Question (addressed to both ministers): On November 18, 2020, your German counterpart Heiko Maas accused the authorities of Belarus of violently suppressing peaceful protests. Having said this, he urged the Council of Europe to use its instruments for monitoring the situation even in those European countries that do not want to join the organisation. Could you comment on this, please?
Sergey Lavrov (speaking after Vladimir Makei): We took note of how Germany took over the Presidency of the Committee of Ministers of the Council of Europe (CMCE). German Foreign Minister Heiko Maas first made a speech at a closed CMCE meeting and then held a news conference. His speech was unconventional for the presidency of this pan-European body because the main goal of the Council of Europe, which is recorded in its statute, is to promote greater unity of all European countries. By definition, the President, all the more so in the Council of Europe, must focus on enhancing unity in his future work rather than stir up confrontation.
It is no secret that at the CMCE meeting prior to that news conference, Heiko Maas presented his programme for the next sixth months in a politicised vein and unacceptable tone, in a crude, undiplomatic manner. He made a number of Russophobic statements. He had grievances not only as regards the Republic of Belarus but also made groundless Russophobic accusations in respect of Crimea, Abkhazia, South Ossetia, Transnistria and southeastern Ukraine. His opinion on the Nagorno-Karabakh agreement also sounded rather strange.
At the news conference Mr Maas urged everyone “to respect the rules-based order.” Our Western colleagues are not going to respect international law as a matter of principle. He did say that the principles of the Council of Europe must be imposed by using relevant instruments, including on those countries that are not members of the Council of Europe. I consider this absolutely unacceptable.
It is indeed strange that of all countries it is Germany that has recently decided to act as a driver of aggressive approaches to the countries that are not NATO or EU members.
Those who are objective and pay attention to double standards will note that neither Mr Maas, nor other Western representatives or UN human rights agencies have said a word about rather serious incidents in France and Germany. There were protests by yellow vests in France, demonstrations against COVID restrictions in Germany and some other countries, and protests against a ban on abortions in Poland. They were dispersed in a very tough manner.
International agencies, including the Office of the UN Human Rights Commissioner, stayed silent. Human rights champions in France covered the yellow vests protests in a completely different manner than they cover events in Russia and Belarus. Only in the beginning did they cautiously urge the sides to overcome their differences. But later the yellow vests began to encounter a tough police response. In the estimate of French human rights activists, almost 15,000 rubber bullets were shot at the protesters; 2,500 people were wounded and 12,000 detained, including 2,000 who were sentenced, in part, to real prison terms. But nobody speaks about this. This is considered normal because these are their compatriots. It is necessary to get rid of this attitude, especially for those who head the Council of Europe.
About a month ago, Council of Europe Secretary General Marija Pejcinovic Buric asked us in Moscow about our assessments of the events in the Republic of Belarus. She received our answers and inquired whether the Council of Europe can contribute to normalisation there in some way. We promised do convey her wish to those concerned. She emphasised that this will be possible only if the Republic of Belarus makes this request itself. But as you can see, the German Presidency has different plans in this respect. This is regrettable.
We will try to compel the Council of Europe, all the more so under the German Presidency, not to forget about the issues that the West is trying to hush up in many different ways. This applies to discrimination against Russian speakers in the Baltic states, the disgraceful lack of citizenship, and the so-called reforms in the field of education and language in Ukraine that are aimed only against the Russian language, as distinct from the languages of other national minorities because they are EU languages. We will not accept the efforts of the Council of Europe (or some of its members) to hush up the facts of the purposeful harassment of the Russian media, not to mention the glorification of Nazism. The German Presidency must remember all this and must not divert the Council of Europe to the discussion of issues that are more comfortable for the West and justify its positions, while ignoring the problems that have become chronic for our Western colleagues.
Question: What are the prospects for concluding new strategic stability treaties with the United States once the new administration is in office? Last year, President Trump mentioned a new trilateral document involving Russia, the United States and China. What will happen now?
Sergey Lavrov: This is a long-standing matter. True, the Trump administration was consumed (I can’t come up with any other word) by a desire to involve the People’s Republic of China in disarmament talks. Initially, they talked about the need to include the PRC in the START Treaty which is still in force, although this is impossible by definition. Then, they proposed creating a new treaty and not renewing the current one, because it’s outdated and bilateral, whereas they would like to take a step towards multilateral disarmament and arms control. Their position was erratic. As a result, they came up with a proposal to extend the treaty for another year, but on the condition that we recount each other’s warheads and put in overseers at the defence plants’ checkpoints. Counting warheads and ignoring carriers and innovative technologies that directly affect strategic stability is a frivolous and unprofessional approach.
Earlier this year, we made proposals to our US colleagues about structuring our future dialogue on arms control and non-proliferation. They stood their ground and insisted on warheads alone. They have long been interested in Russian tactical nuclear weapons, hence their interest in warheads at the expense of everything else. We say we will be ready to discuss non-strategic nuclear weapons, including warheads, when the Americans withdraw their tactical weapons from other countries. In Europe, these weapons are deployed in five NATO countries. Also, NATO structures conduct training in handling nuclear weapons for military personnel from non-nuclear countries in flagrant violation of the Treaty on the Non-Proliferation of Nuclear Weapons (NPT).
With regard to the People’s Republic of China, President Putin has repeatedly stated that we have nothing against it, but the decision is up to the PRC. China has officially and publicly stated on several occasions that it is not going to join the talks with Russia and the United States, since its nuclear arsenal is an order of magnitude smaller than the corresponding arsenals of Moscow and Washington. We respect this position. If and when the Americans persuade China to join multilateral talks, we will have no objection to that. We will be willing to participate in them if the PRC agrees to this of its own accord. But we are not going to persuade Beijing to do so just at the whim of the Americans. But if and when a multilateral format in disarmament and arms control talks is created, we will push for France and the United Kingdom to join it as well.
When we told the Americans about this, they told us that these counties are their allies and they vouch for them. Precisely because they are allies of the United States, we would like to see them at the negotiating table, if the talks become multilateral. Washington’s absolutely hostile doctrine towards Russia cannot but raise questions about the motives of the US allies, whether in Europe or Asia. When they enter into a military alliance with a country that declares us a hostile state, we must draw our own conclusions regarding these allies.
I don’t see how we can seriously discuss anything related to the continuation of the arms control process with the Trump administration. We do not know yet what kind of administration will move into the White House or what kind of policy it will conduct. The voting results have not yet been announced officially, but there’s already an understanding that the change-of-command process is underway. Let’s wait and see what kind of assessments will eventually form in the minds of those who will shape the US strategic stability policy after January 21, 2021.
Question (addressed to both ministers): Popular protests have been growing around the world for various reasons, including political ones. The law enforcement reaction is the same everywhere, going as far as the use of force and special equipment. At the same time, such events in Belarus are receiving heightened attention from foreign politicians. What do you think is the reason?
Sergey Lavrov: I have already cited examples of protests being suppressed in France. Those drastic figures are rarely revealed to the general public. Human rights agencies in the UN system, as well as numerous human rights rapporteurs are trying their best to avoid any topics that are uncomfortable for Western representatives.
Speaking of the protests in Paris, there is a huge wave of protest against the global security bill, which includes a ban on photographing, filming or otherwise identifying law enforcement officers. I can imagine the kind of racket a bill like that would have sparked if it were proposed in Russia or Belarus. The French public and human rights groups are concerned, yet we can see no reaction from international bodies. The police used water cannons and noise grenades during rallies against the bill. The protesters, too, provoked the police, using stones and sticks. One police officer was injured. And yet, I repeat, this does not prevent the West from lecturing anyone who is not their ally.
Voting processes in Russia and Belarus have been scrutinised through a magnifying glass. When a similar story happens in the United States, it is declared “normal, it’s democracy, and everything is just fine.” Though, even respected and influential think tanks in the United States openly write about “the problems with the US electoral system.” To put it mildly, that system does not fully comply with the principles of democracy or the rule of law. They write these things themselves, but our international partners prefer to ignore them and concentrate on the countries whose “regimes” they find undesirable.
When UN rapporteurs, the Office of the High Commissioner for Human Rights, describe violent clashes in Western capitals, they urge everyone to find a solution through dialogue. When they criticise us or Belarus, they demand a change of the system. This difference is visible to the naked eye. We have long lost any illusions about what kind of standards the West is promoting and how they use double standards. We will fight, and will defend our position at the UN bodies, where these issues should be considered. We will not allow the vices that the Western community is demonstrating to be forgotten.
Question (addressedto both ministers): How can you comment on Pavel Latushko’s last interview, where he spoke about the possibility of unofficial contacts with Moscow?
Sergey Lavrov: Foreign Ministry Spokeswoman Maria Zakharova has just shown me part of that interview. Not only did he mention the possibility of unofficial contacts with Moscow – he said such contacts were underway and were coordinated. He shamelessly declared he could not cite any names, but mentioned “contacts at a sufficiently high level.” He speculated whether I will be allowed to tell my Belarusian friends about it. I will answer briefly: this is a blatant lie, and it once again says something about those trying to make some kind of career with foreign handouts.
The 1990s was a time of immense suffering for the Russian people. As the impending collapse of the USSR became discernable, insiders such as Nikolai Kruchina, Viktor Geraschenko, and Leonid Veselovsky created a planning group to ensure the continued influence of Soviet-era officials by transferring Russian state assets to offshore shell companies and thus stripping the country’s wealth. One such offshore company, FIMACO, was used to pilfer an estimated $50 billion from the nation. Viktor Gerashchenko, the head of the central bank of Russia, sent a memorandum demanding transfers from FIMACO be covered up. It was through this looting that liquid capital was generated and used by future oligarchs to build their fortunes. An early beneficiary of this arrangement was Mikhail Khodorkovsky, who had started his career as a minor Soviet official and whose Yukos oil conglomerate was tied to FIMACO. In return for his help Viktor Gerashchenko was later given a position as the chairman of Yukos by Khodorkovsky.
In 1991 the Soviet Union finally collapsed. That August, state treasurer Nikolai Kruchina, responsible for Russia’s gold reserves, died by falling from his window. He had been a member of the planning group which originated the plot to steal state assets. His successor Georgy Pavlov fell to his death from a window two months later: the oligarchs were cleaning house.
In September, the Russian central bank announced the Kremlin’s gold reserves had inexplicably dropped from the estimated 1000-1500 tons to a mere 240 tons. Two months later, Victor Gerashchenko announced Russia’s gold reserves had actually entirely vanished. While the Russian public was horrified at the revelation, European bankers were less surprised. It was whispered frequently among those circles that Soviet transport planes had been flying to and from Switzerland for months and selling off large amounts of gold. Boris Yeltsin announced his plans to privatize the nation’s assets and the real looting began.
During the privatization period, international capital wasted no time in opportunistically swooping in to take over Russian industries. The Clinton administration sought to redesign the economic policies of the nascent Russian Federation according to the Washington Consensus: privatization, deregulation, austerity, and the opening up of Russia’s companies to purchase by ultra-wealthy Americans. They gave the role of economic planning in Russia to the Harvard Institute for International Development, which sent Harvard economists to meet with Anatoly Chubais, Boris Yeltsin’s head of privatization. The close relationship with Anatoly Chubais allowed a select group of American investors to be on an inside track of financial dealings in the new Russia. One Harvard grad involved in this scheme was Jonathan Hay, convicted inside trader. He became senior advisor to the GKI, Russia’s new state privatization committee.
Certain members of this network, which included Harvard graduates Hay, Jeffrey Sachs, Andrei Shleifer, Robert Rubin, Larry Summers, David Lipton, and others, misused funds from USAID that were intended for Russian economic development and rigged deals for privatization to gain control of key Russian industries in backroom negotiations. In one 1995 off market deal, Anatoly Chubais created a closed bidding process for prime national properties in which the only approved bidders were Harvard Management Company and George Soros. This resulted in the acquisition of major stakes in Sidanko Oil, Novolipetsk Steel, and Sviazinvest.
Foreign investors flocked in and the level of greed among this fifth column of new Muscovites was truly astonishing. The 1999 RICO suit Avisma Titano Magnes v. Dart Management is particularly enlightening. RICO allows victims of a racketeering conspiracy to sue conspirators for damages caused by their illegal conduct, and the following defendants were named in the action:
Kenneth Dart; Dart Management Inc, address unknown Jonathan Hay; Dart Management Inc, address unknown Michael Haywood; Dart Management Inc, address unknown Michael Hunter; Dart Management Inc Francis E. Baker; Andersen Group Inc William Browder, Hermitage Fund Barclays Bank, PLC
The complaint document alleges the following: the defendants and a cooperating bank called Bank Menatep, owned by Mikhail Khodorkovsky, had a controlling interest in titanium producer Avisma. They forced Avisma to sell its titanium below market price to offshore companies which they secretly controlled. Next, these offshore companies sold the titanium at a correct price on international markets for profit, which was then funneled back from the offshore companies to the defendants and Bank Menatep. Money that should have been booked as profits for Avisma was siphoned away, and the majority shareholders who were in on the scam benefitted at the expense of minority shareholders, the company, and Russian tax authorities.
Defendant Francis E. Baker described the actions in a private letter as, “An immense Russian bank money laundering scheme, clearly a criminal matter.” According to the complaint, the actions were discovered when defendants attempted to swap Avisma shares for shares of mining company VSMPO and replicate the same scam at VSMPO. Baker and other defendants later excused their actions by claiming the suit was Russian targeting. Sound familiar?
The criminality was not limited to foreign speculators. During the early period of privatization in the 90s a secret society of seven Russian oligarchs entirely controlled Boris Yeltsin’s administration. This group called itself Semibankirschina, named after the Seven Boyars who controlled Russia during the 17th century. The secret society included the following oligarchs: Boris Berezovsky, Mikhail Khodorkovsky, Mikhail Fridman, Petr Aven, Vladimir Gusinsky, Vladimir Potanin, and Alexander Smolensky.
A Russian journalist named Andrey Fadin described their overwhelming power in an article, “they control the access to budget money and basically all investment opportunities inside the country. They own the gigantic information resource of the major TV channels. They form the President’s opinion. Those who didn’t want to walk along them were either strangled or left the circle.” Less than one year after publishing the article Andrey Fadin was killed. Through their front man Anatoly Chubais, Semibankirschina used control of television networks to prop up Boris Yeltsin’s low approval ratings. From the mid-90s to 1999 this clique had total authority over Russian policies and industries, judiciously using violence to enforce its monopoly. In one case Mikhail Khodorkovsky and his underling Leonid Nevzlin carried out the murder of the mayor Vladimir Petukhov, who was pursuing Yukos Oil Company’s evasion of taxes.
In late 1999, Vladimir Putin became president of Russia and the fortunes of these self-appointed rulers rapidly turned for the worse. A new group of Putin insiders such as Gennady Timchenko, Vladimir Yakunin, and Sergey Chemezov formed and began supplanting the previous access that the Semibankirschina had to the president. In 2001, a state takeover of media seized the television networks previously owned by oligarchs Boris Berezovsky, Vladimir Gusinsky, and Badri Patarkatsishvili, prompting Patarkatsishvili to denounce Russia to the New York Times and flee the country. While exiled in the UK, Patarkatsishvili died suspiciously at the age of 48. The Georgian government has called his death an assassination. Boris Berezovsky also died suspiciously in the UK after having sold his Russian assets and denounced Putin. After his television networks were seized, Vladimir Gusinsky was criminally charged with money laundering and forced to flee the country as well.
The sweep continued as three other allies of the Semibankirschina were killed: Nikolai Glushkov, Alexander Litvinenko, and Boris Nemtsov. Bill Browder was deported in 2005, and later convicted in absentia for fraud. Fraudster Konstantin Ponomarev was also convicted, sentenced to 8 years in prison for crimes relating to his extortion of $1 billion from IKEA. Jamison Firestone, an associate of Ponomarev and Browder, was forced to flee Russia due to his involvement in the Magnitsky case, and his associate Alexander Peripilichny mysteriously died while jogging near London. George Soros was banned from Russia, Belarus, and Kazakhstan.
Once the richest man in the country, Mikhail Khodorkovsky’s fortunes turned for the worse as well. In the early 2000s, Putin pushed through a number of populist reforms for criminal, tax, and land law, which the oligarchs of the 90s had strongly opposed. As the most blatantly criminal member of the original Semibankirschina, Khodorkovsky’s Bank Menatep had been founded with funds stolen as part of the looting of state assets. The bank operated as a hub of money laundering and engaged in countless financial scams, even delaying government funds to Chernobyl victims while using their money to financially speculate. It was Bank Menatep through which American fraudsters had allegedly ripped off Avisma shareholders with the titanium dumping scam.
In 2003, Khodorkovsky was criminally prosecuted by Putin for tax evasion and fraud for which he ended up serving 10 years in prison. His protege Leonid Nevzlin was convicted of ordering multiple contract murders on Khodorkovsky’s behalf, and sentenced to life imprisonment in absentia. Associate Platon Lebedev was also convicted and imprisoned. This wave of prosecution sent a message and gave Putin a strong position, which was used to negotiate a “grand bargain” with the remaining oligarchs: they retained most of their existing assets in return for alignment with Putin’s vertical rule of Russia. The era of financial gangsterism from the 1990s was over.
Stolen Russian gold reserves have now been restored and are at the highest levels in history. Because of the lack of collaboration with other central banks it is certain that Russian gold is present in Moscow’s vaults: there are none of the surreptitious leasing or swap agreements which call into question the claimed size of Western bank holdings. So instead of buying US treasuries or dollars for its reserves, the Bank of Russia can demand physical gold delivery into Moscow vaults. This will continually strain the fraudulent COMEX and London Bullion Market systems with the pressure of physical shipments and threaten the dollar. Unlike China, Russia is in the position to attack the dollar as a net commodity exporter, meaning when its gold purchases bid up the price of metals it is simply increasing the receipts of its own domestic commodity producing companies like Norilsk Nickel and VSMPO-AVISMA.
The economic crisis of 1998 has heavily influenced the Kremlin’s financial policy, and the last twenty years have been spent creating a resilient system. One of Putin’s first agenda items was to pay off all debt to the IMF and holdover loans from the Soviet era. Russia is now positioned to attack the dollar, as the only powerful state not operating on a debt-based system. A decade of economic warfare in the form of sanctions has cut off access to international capital: the result is one of the lowest levels of external debt of any country in the world, with cash reserves large enough to pay off all debt at once. These low debt levels have tangible benefits, primarily that Russia is now able to withstand large economic fluctuations without crumbling as a result of internal defaults. By comparison, the financial system of America would disintegrate if it attempted to sustain the decline in GDP Russia incurred from 2013-2016.
The Bank of Russia actively enforces stringent lending standards in order to prevent the emergence of consumer credit bubbles, and forces banks to hold extra cash on their balance sheets (as a result, most applications for personal credit are declined). So sanctions have actually made the country stronger, as hubris of the McCain class of American politicians has created a competitor state with no stake in the survival of the existing debt-based financial order. Russia’s mission to create resiliency and restore sovereignty foreshadows a tumultuous future, while America bets everything that the world will remain the same. The concerted plot to loot Russia has been foiled.
In December of 1999, Edmond Safra was murdered at his fabulous mansion, the Villa Leopolda in Monaco. The Safras are one of the oldest and most secretive of the banking families, with a fortune dating back to the gold trading caravans of the Ottoman Empire. Coincidentally, Safra means yellow, or gold, in Arabic. It was Edmond Safra who served as Bill Browder’s mentor in Russia, providing him with an initial seed funding of $25 million to start his Hermitage Fund. When Browder needed protection during a business dispute with an oligarch, Safra sent his emissary four armored vehicles and fifteen bodyguards led by a former Mossad agent. While Edmond Safra spent much of his later life defending himself from drug trafficking and money laundering allegations, he was accomplished, nonetheless. He founded his first bank at 23 years old and had dreamed of creating a banking dynasty that would last 10,000 years.
Just after Putin’s takeover as president, Villa Leopolda was broken into. Safra’s nurse, a former Green Beret named Ted Maher, was stabbed by two masked intruders who entered the premises, after which Safra was killed. Under pressure from Monacan authorities, Ted Maher was forced to sign a nonsensical confession in which he claimed that he stabbed himself and admitted to setting the fire in order to attempt to gain his employer’s adoration. He has since recanted this confession, saying that his defense attorneys coerced him into signing and threatened he would never see his family again otherwise. Jean-Christophe Hullin, the chief judge in the case, revealed in 2007 that the guilty conviction was a predetermined outcome which had been planned in a secret meeting with himself, Maher’s attorneys, and the chief prosecutor of Monaco: in short, Ted Maher was a fall guy for the real murderers of Edmond Safra. Now free, he believes Safra was ordered killed by Putin, “in retaliation for a plot orchestrated by Safra and Russian oligarchs to take control of all of Russia’s assets.”
It was during the purge of oligarchs and vulture capitalists that the true power behind Mikhail Khodorkovsky emerged. When it became likely he would be arrested, he arranged to have all his shares from the Yukos Oil Company transferred to the ownership of Jacob Rothschild. The transfer took place in November of 2003, giving Lord Rothschild control of shares estimated by the Sunday Times to be worth $13.5 billion. Putin subsequently liquidated and nationalized Yukos by seizing and selling off its shares to state oil companies at much below market value.
So Putin has declared war on the most powerful people on the planet.
The Ister is a researcher of financial markets and geopolitics. Author of The Ister: Escape America
Historically speaking “left” ‘’right,” and ‘centre” has been the political configuration dating from the French Revolution. In the 1789 French National Assembly, the nobility and high clergy sat to the right of the chair, while the third estate and lower-status clergy sat on the left. The benches in the middle became associated with political moderation.
Over the next century-plus, most European polities allowed for a “centrist” presence. Even the design of the European parliaments where the seating arrangements were horseshoe shaped and still are, except that is for the British parliament where the contending parties sit directly facing each other; initially Tories and Whigs but from the 20th century onwards Labour and Conservative. There were the cross-benches where the minor and generally ineffective parties sat. But Centrism will likely be distressed to learn that the first recorded appearance of the word “centrist,” according to the Oxford English Dictionary, was an 1872 insult from London’s Daily News correspondent in France, who assailed “that weak-kneed congregation who sit in the middle of the House, and call themselves centrists.’’
In the UK the centre was traditionally moderate, providing a seating space for a small Liberal party, until that is, the late Celtic arrivals of Irish, Welsh and Scottish militant nationalists – Sinn Fein, Plaid Cymru and the Scottish National Party who began to make their presence felt.
But it was the European party structures and their Parliamentary expression that led invariably to coalition governments; this was the case even in Nazi Germany where Hitler had to form an alliance with the Zentrum Liberal party to get an absolute majority in the Reichstag. This was quite different from the Anglo-American two party systems where the Government could de facto be elected on a one-party vote.
Nonetheless, centrism had its more forthright defenders. In the US at the dawn of the Cold War, liberal historian Arthur Schlesinger celebrated political moderation as a vigorous “Third Force” in his 1949 book The Vital Centre. Rather than left or right, he wrote, the real conflict was “freedom vs. totalitarianism.” The United States’ goal presidential election — which saw the resounding defeat of George McGovern in 1972 — occasioned a rightward shift in centre-left parties. Smarting from defeat and the Nixon triumph Democratic elites moved to retake control for a new direction for the party. And it was this that set the tone, not merely for the United States but also in Europe. In 1992 the man of the moment William Jefferson Clinton had arrived. But there was much work to be done. The sabotage of the tools that had underpinned the prosperity of the Golden Age of Capitalism (1945-75) also created unprecedented challenges for the political parties of the ‘soft’ left. Infused with what were thought to be new ideas they now began to look for new paths forward less hostile to finance and big business.
‘’We have moved past the sterile debates between those who say that government is the enemy, and those who say that government is the answer, said Clinton who, along with his wife Hilary had studied at Yale school during the 1970s, and Bill had an unfinished stint at Oxford as a Rhodes scholar in the late 60s (1) ‘My fellow Americans we have found a ‘Third Way’
THE INSTITUTIONALIZATION OF THE THIRD WAY
The ‘Third Way’ was a rather slippery and nebulous concept. In purely policy terms, however, the Clinton reforms were a mixed bag and differed from the postulates laid down by the former Reagan administration. In his 1992 presidential campaign Clinton promised that, if elected, he would bring about the “end of welfare as we know it.” This catchy election pledge aimed to address middle class concerns about so–called welfare dependency while also arguing that the government had an important role to play in fighting poverty and unemployment. Clinton’s Third Way position, at best, offered a way out of the liberal/conservative impasse on how to effectively reform America’s welfare system. At worst, Clinton’s position undermined the concept of welfare entitlements that the Democratic Party had established in America at an earlier period. In 1996 during the lead up to that year’s presidential election, President Clinton signed into law the most significant federal welfare Act since the 1960s. However, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) that Clinton signed had largely been drafted by congressional Republicans. Then came NAFTA, the bitterly contested policy which still rankles.
But possibly the most politically significant piece of legislation authorised by the Clinton administration was the repeal of the Glass-Steagall Act of 1933. This Act had prevented ordinary commercial banks owning excess of certain types of dubious and dangerous financial companies, which had been considered so useful that it had survived until it was repealed in 1999 under Clinton and his Treasury Secretary Robert Rubin, the former Goldman Sachs banker.
Of course this was manna from Heaven for the banking and financial fraternity, and it indicated the President’s choice of policies which had little in common with his professed ‘Third Way’ beliefs. In conclusion the failure of Clinton’s Third Way welfare agenda opened the way for more conservative reforms. This experience is illustrative of the pitfalls of Third Way politics with its mix of post–entitlement welfare policies and hard–nosed electoral positioning.
That being said the US economy began to move into high-gear during the 1990s and even managed a budgetary surplus. Alas, however, as with all upturns comes the downturns and the long-run, dot.com blow-out of 1999/2000, the US boom of the roaring 90s turned into a secular decline, and this was followed by even deeper economic crises in 2008 and now in 2020.
It could be argued in terms of cyclical political movements that there exists a rough correspondence between political and economic phases. In political terms this is usually a cyclical period between progress and reaction, movement, and order, conservative or radical, revolution and restoration. The great German social and political theorist, Max Weber, (1864-1920) would have argued that the Clinton restoration being based upon the Reagan/Thatcher ascendency was an example of charismatic authority that was superseded by legal-rational authority. In broad illustrative terms the MaoZedong period in China was followed by Chou En Lai, Trotsky was followed by Stalin, Napoleon by Louis XVIII, Cromwell was followed by the reinstallation of Charles II. As day follows night Revolution is followed by Restoration. But the restoration is never complete, and there can be no turning back to the status quo ante. But the strange thing was that during the second half of the 20th century a reactionary right-wing movement, best illustrated by Reagan and Thatcher was replaced by a milder ‘Third Way’ version of the same theory. The ‘Third-Way’ was beginning to take on rather familiar social and political forms, although its proponents would argue otherwise.
THE THIRD WAY CROSSES THE BIG POND
By 1997 the Clinton ascendancy – the Third-Way – had come to the attention of an ambitious young man who was trying to find an occupational niche for himself in the London milieu. Anthony Charles Lynton Blair, who preferred to be called ‘Tony’ (of course) and described himself as a ‘regular kind of guy’ (goes without saying) was the son of a barrister, Blair attended Fettes College in Edinburgh (a school often viewed as ‘‘Scotland’s Eton’’) and Saint John’s College of the University of Oxford, where he combined the study of law with interest in religious ideas and popular music. But he displayed little enthusiasm for politics until he met his future wife, Cherie Booth. He graduated from Oxford in 1975 and was called to the bar* the following year. While specializing in employment and commercial law, he became increasingly involved in Labour Party politics and in 1983 was elected to the House of Commons to the safe Labour parliamentary seat of Sedgefield, a tight-knit former mining district in north-eastern England. His entry into politics coincided with a long political ascendancy of the Conservative Party (from 1979) and Labour’s loss of four consecutive general elections (from 1979 through 1992). He stood as leader of the Labour party and won an overwhelming victory (1997) over a divided, dispirited and out-of-ideas, Conservative party.
Blair was one of those archetypal politicians – unfortunately one of many – who didn’t have a political notion in their heads; and as a complete opportunist he was, as was the case with Clinton, able to latch on to some of the fashionable threadbare and dubious political and economic ideas current at that time. One of those fashionable notions was the ‘Third Way’ in politics.
In fact the ‘Third Way’ was a pretty simple idea.
‘’It was an attempt by the parties of the left to stake out a new middle-ground in politics. Fuddy-duddy socialist ideas were considered distinctly de trop. Globalization as its proponents would argue, was considered inevitable, so countries should embrace it and adapt to it, hitching a ride on the growth of global financial markets, then shaving off globalizations rough edges with progressive social policies and dollops of good old-fashioned redistribution. As Blair and Germany’s Gerhard Schröder summarised it in a joint declaration in 1998, the Third Way stands out not only for social justice but also for economic dynamism and the unleashing of creativity and innovation.
But this third way was always an offshore model, a recipe for countries effectively to turn themselves into tax havens in order to prosper in rough, globalizing seas. The model was, in turn, driven by the competitiveness agenda, the notion or ideology, that states must be ‘open for business’ constantly dangling enticements to large multinationals and banks and to rootless global money – for fear that they will decamp to more hospitable or ‘competitive’ places like Dubai, Singapore or Geneva. (2)
THE IDEOLOGICAL ASSIMILATION OF THE OLD LEFT
But behind the rhetoric of a new golden age which awaited the electorates on both sides of the pond was the familiar sound of disappointment among the loyal supporters and believers who were somewhat sceptical about the new order – with good reason. The newly entrenched and consolidated Third-Way involved strict de-regulation of labour markets and only light-touch regulation – if at all – of financial markets. In the meantime financiers, were still relatively untouched by the pseudo-rhetoric of globalization. The whole dreary neo-classical credo was trotted out namely that that if left alone, financial markets would reward efficient firms and punish inefficient ones which would go out of business. Meanwhile financiers could help with mergers and transfers of ownership of the more efficient. This reasoning also bolstered demand for the privatisation of state enterprises, which was soon embraced with almost as much enthusiasm by social democratic parties as by their right-wing opponents – witness the French socialist government of Lionel Jospin and the renamed ‘New Labour’ government of Tony Blair.
The period of debt-financed growth got into gear in the early 80s during which it was sustained up until the start of the 21st century. That time bore witness not only to economic issues but also to political and ideological questions and concepts; a reactionary milieu established itself where decadence had become de rigueur. The presence of rampant individualism, obsession with self, contempt for failure was contained in Ayn Rand’s view of life. Doyenne of the new age Ms Rand’s rise in popularity coincided with the widest gap between rich and poor in the history of the US. Her books are today actually more popular than when she lived, and attempts are being made by very wealthy parties to sell her ideology as the philosophy of our era.
Ms Rand has been accused of Vulcanism, that is of exhibiting an attitude of pure logic unbalanced by empathy and humanity like the character Spock from Star Trek, who is from planet Vulcan. When people of high intelligence lack human empathy, they can be intellectually arrogant, even narcissistic.
One of the major criticisms of Ayn Rand is that all her heroes are self-centred sociopaths, as she is: they are concerned only with themselves, with their own purpose and ambition, and they are entirely unconcerned with others.
Rand also ignores context in her assessment of reality: the persistence of her logic leads to places where philosophy gets utterly divorced from common sense and reality. Philosophical materialists must contend with the facticity that we are woven into in its entirety, even with those aspects of our facticity that are what she would view as not heroic, like the hunger of the masses.
Okay it can be generally agreed that the idiosyncratic Ms Rand is a little bit over the top, but her generalisations roughly ring true with today’s ailing social and moral societal collapse.
But as Emile Durkheim (1858-1917) once noted:
‘If, in activities that almost completely fill all of our days, we follow no rule save that of our own self-interest, as we understand it, how then can we acquire a taste for altruism, for forgetfulness of self and sacrifice? Thus the lack of any economic discipline cannot fail to produce damaging social effects that spill over beyond the economic sphere, bringing with it a decline in morality.’’(3)
One wonders whether or not Ms Rand actually believes in her virulent anti-social messages, or, what I rather suspect, she is simply out to shock the more gullible by voicing what are in essence simply crackpot outpourings.
That being said she certainly has a following particularly among those well-heeled denizens who seem intoxicated with these rantings.
IT’S THE ECONOMY STUPID
Turning to economics the situation goes from bad to worse. This is hardly surprising since the attempt to abolish the trade cycle, a rather eccentric and fashionable notion since the early 1980s, was bound to result in an economic nemesis. It has been argued that:
‘’Whilst all capitalist systems are premised on the monopolisation on the gains of growth by the people who own the assets, under finance led growth these dynamics become more extreme. Rising private debt might conceal this fact during the upswing of the economic cycle, but when the downturn hits it becomes clear that finance-led growth is based upon trickle-up economics, in which the gains of the wealthy come directly at the expense of ordinary people. This is because financialization involves the extraction of economic rents from the production process – income derived from the ownership of existing assets that does not create any new value. (4)
Paper currency is not value, it is a claim on value, a promissory note. Value is produced in the production process, whereas economic rent – rent on land, titles of future ownership claims (stocks, shares, bonds) monopolistic pricing, patents – is produced in the extractive process. It is fictitious capital. The financial economy is essentially parasitic on the productive economy.
When corporations generate ‘growth’ it should be understood that the Central Bank enables this ‘growth’ when it showers the same corporations with QE monies who simply buy-back their own shares/stocks and become richer! In the same manner when large corporations buy other smaller businesses – through mergers and acquisitions M&A, they also become ‘richer’ but in fact no new wealth has been created, what has occurred is a shift of wealth from one sector of the economy to another, this is a zero-sum game where the central bank determines the winners and losers in this rigged fixture: the rich get richer and the poor get poorer. Another side of this process is the increasing market concentration with the growth of monopolies/oligopolies and the monopoly rents that go with it.
Having painted itself into a corner the economics institutions, both public and private, seem unable to extricate themselves from an ever-tightening process of slow economic and political strangulation.
In summation we may say without reservation that the ‘Third-Way’ was a rather transparent con-trick reminiscent of the second-rate magician in Thomas Mann’s allegorical novel Mario and the Magician. In this particular work the sorcerer, Cipolla, is analogous to the fascist dictators of the era with their fiery speeches and rhetoric designed to hoodwink his political audience into believing that what appears to be real is in fact not real. In our own time this simulacrum is the product of modern advertising techniques designed to mask the reality behind a stream of psychological manipulation and conditioning of the audience. How long this process and phenomenon will last is problematic. Western civilization seems standing at the crossroads without a plan B.
It’s rather like Gerald Celente always says: ‘‘When everything else fails, they take you to war.’’
NOTES
(1)As the 2016 presidential campaign closed in on the finish line, the Washington Post published an eleven-year-old tape of Republican nominee Donald Trump’s making controversial remarks about women. The inevitable partisan rancour that ensued largely targeted the behaviour Bill Clinton, husband of Democratic candidate Hillary Clinton, including the repetition of rumours that he had been expelled from Oxford University in 1969 for raping English classmate Eileen Wellstone.
The allegations weren’t new — Republican opposition research strategist Roger Stone had tweeted about them a year earlier:
The backdrop for these rumours was that just prior to his graduation from Georgetown University, Bill Clinton won a prestigious Rhodes Scholarship to study at University College, Oxford, for two years and headed off to England for the 1968-69 academic term — but he returned to the United States (under a pall?) before finishing out the full two-year course of study.
There was additionally the Lewinsky affair. Yes, Mr Clinton certainly had a penchant for the ladies.
(2) Nicholas Shaxson – The Finance Curse – Chapter 5 fn 10 – p.97) In the words of Peter Mandelson, Blair’s Svengali and his co-author Roger Liddle in their book – The Blair Revolution – the main aim of the Third Way project was to ‘… overcome Britain’s continued slide into international competitiveness … based upon partnership or private and public sectors and create a more equal and cohesive society.
(3) Emile Durkheim – The Division of Labour in Society – p.xxxiv.
(4) Grace Blakeley – Stolen – p.14.
* ‘Called to the Bar’ This has nothing to do with going for a drink in a licensed establishment! It is a term used by the legal profession signifiying the entrance of the candidate into the legal profession and practising of law thereof.
Hezbollah’s Deputy Secretary General His Eminence Sheikh Naim Qassem blamed the crises plaguing Lebanon on successive policies of previous governments.
“The current government is working to address files in various ways to reach the best result, so it must be given a chance,” he said.
In an interview with Al-Nour radio station, Sheikh Qassem explained that “Lebanon’s Central Bank governor bears responsibility for the crisis we are in now. But he is not the only one responsible.”
“Hezbollah’s position regarding the issue of the governor is clear. It is a necessity to discuss the issue of the Central Bank within the government and not in the media so that an appropriate decision is made in this context based on placing the country’s interest above anything else,” Sheikh Qassem stressed.
His Eminence pointed out that “the dollar reaching record levels means that there are accumulated errors and a negative performance from Lebanon’s Central Bank that led us to this result. The follow-up must be to diagnose the cause and try to correct it to put an end to this chaos, and this is what the government is working on.”
The Hezbollah official noted that “the government’s economic plan is both broad and detailed. If it is approved with additional integrated plans, we will witness the beginning of solutions to the current crises.”
“The problem lies within those who reject this,” Sheikh Qassem warned.
“We have seen the draft, and we have notes on some of its provisions. The cabinet will discuss it and make a decision on it. In principle, we are against privatization. However, there is a partnership that may be useful in some matters that we can discuss separately. We might reject or agree when the time comes,” he added.
“Hezbollah has an integrated socio-economic plan that it won’t be putting forward, so it does not become the focus of discussion. It will be a point of reference for us through which we show our viewpoint in the government.”
Sheikh Qassem also stressed that “there are parties who want to overthrow the government, but their capabilities and the objective conditions do not allow them to do so.”
“The government is strong, stable, and coherent. It made practical steps to put the country on the right course.”
The senior Hezbollah official urged people not to downplay the government’s progress in combating coronavirus pandemic.
“Hezbollah supports a strong and effective state in Lebanon. It supports drawing up comprehensive reform and salvation plans. And this is what the party is exercising in the parliament and government,” Sheikh Qassem said.
“Holding Hezbollah responsible for what is going on in Lebanon is unrealistic. Hezbollah will not respond to campaigns launched against it because it is interested in working for the country and not in political wrangling.”
“All attempts to bring about sedition at home have failed,” he added.
Regarding the fight against corruption, Sheikh Qassem asserted that “this battle has its tools, while reform has practical steps.”
“Hezbollah is not the only responsible side in this field, and it is doing the best it can within the Lebanese structure.”
Sheikh Qassem said he believes that “the 2000 liberation resulted in Lebanon regaining its freedom, independence, and well-being.”
He also underscored the readiness of the resistance “to defend Lebanon and respond to any aggression decided by any Zionist government.”
“The liberation’s great results also impacted those who refused to recognize them. We now feel that we are a country that is not under the guillotine of the ‘Israeli’ enemy.”
“‘Israel’ knows exactly what happened on the border and who was behind it. It is enough that the enemy understood the message behind what happened. That is sufficient.”
“The US and ‘Israel’ will utilize all weapons against their enemies and opponents, and I do not absolve them from tampering with the Lebanese home front,” Sheikh Qassem concluded.
“Hezbollah does not make concessions through economic pressure. It is in their [‘Israel’ and the US] interest that matters do not reach the abyss.”
There is a serious health crisis which must be duly resolved. And this is a number one priority.
But there is another important dimension which has to be addressed.
Millions of people have lost their jobs, and their lifelong savings. In developing countries, poverty and despair prevail.
While the lockdown is presented to public opinion as the sole means to resolving a global public health crisis, its devastating economic and social impacts are casually ignored.
The unspoken truth is that the novel coronavirus provides a pretext to powerful financial interests and corrupt politicians to precipitate the entire World into a spiral of mass unemployment, bankruptcy and extreme poverty.
This is the true picture of what is happening. Poverty is Worldwide. While famines are erupting in Third World countries, closer to home, in the richest country on earth,
“millions of desperate Americans wait in long crowded lines for handouts”
“Miles-long lines formed at food banks and unemployment offices across the US over the past week”
In India there have been 106 coronavirus deaths as of today, to put things in perspective 3,000 Indian children starve to death each day”
From Mumbai to New York City. It’s the “Globalization of Poverty”.
Production is at a standstill.
Starvation in Asia and Africa. Famine in the U.S.
All countries are now Third World countries. It’s the “Thirdworldisation” of the so-called high income “developed countries”.
And what is happening in Italy?
People are running out of food. Reports confirm that the Mafia rather than the government “is gaining local support by distributing free food to poor families in quarantine who have run out of cash”. (The Guardian)
This crisis combines fear and panic concerning the COVID-19 together with a sophisticated process of economic manipulation.
Let us first examine the impacts pertaining to the developing countries.
Developing Countries. The IMF’s “Economic Medicine” and the Globalization of Poverty
Is the coronavirus crisis part of a broader macro-economic agenda?
First some historical background.
I spent more than ten years undertaking field research on the impacts of IMF-World Bank economic reforms in Africa, Asia, Latin America, Eastern Europe and the Balkans.
Since the early 1980s, “strong economic medicine” was imposed on indebted developing countries under what was called the “structural adjustment program” (SAP).
From 1992 to 1995, I undertook field research in India, Bangladesh and Vietnam and returned to Latin America to complete my study on Brazil. In all the countries I visited, including Kenya, Nigeria, Egypt, Morocco and The Philippines, I observed the same pattern of economic manipulation and political interference by the Washington-based institutions. In India, directly resulting from the IMF reforms, millions of people had been driven into starvation. In Vietnam – which constitutes among the world’s most prosperous rice producing economies – local-level famines had erupted resulting directly from the lifting of price controls and the deregulation of the grain market. (Preface to the Second Edition of the Globalization of Poverty, 2003)
The hegemony of the dollar was imposed. With mounting dollar denominated debt, eventually in most developing countries the entire national monetary system was “dollarized”.
Massive austerity measures were conducive to the collapse in real wages. Sweeping privatization programs were imposed. These deadly economic reforms -applied on behalf the creditors- invariably triggered economic collapse, poverty and mass unemployment.
In Nigeria starting in the 1980s, the entire public health system had been dismantled. Public hospitals were driven into bankruptcy. The medical doctors with whom I spoke described the infamous structural adjustment program (SAP) with a touch of humor:
“we’ve been sapped by the SAP”, they said, our hospitals have literally been destroyed courtesy of the IMF-World Bank.
From Structural Adjustment to Global Adjustment
Today, the mechanism for triggering poverty and economic collapse is fundamentally different and increasingly sophisticated.
The ongoing 2020 Economic Crisis is tied into the logic of the COVID-19 pandemic: No need for the IMF-World Bank to negotiate a structural adjustment loan with national governments.
What has occurred under the COVID-19 crisis is a “Global Adjustment” in the structure of the World economy. In one fell swoop this Global Adjustment (GA) triggers a Worldwide process of bankruptcy, unemployment, poverty and total despair.
How is it implemented? The lockdown is presented to national governments as the sole solution to resolve the COVID-19 pandemic. It becomes a political consensus, irrespective of the devastating economic and social consequences.A Global People’s Bailout for the Coming Financial Crash
No need to reflect or analyze the likely impacts. Corrupt national governments are pressured to comply.
The partial or complete closing down of a national economy is triggered through the enforcement of so-called “WHO guidelines” pertaining to the lockdown, as well as to trade, immigration and transportation restrictions, etc.
The lockdown together with the curtailment of trade and air travel had set the stage. This closing down of national economies was undertaken Worldwide starting in the month of March, affecting simultaneously a large of number of countries in all major regions of the World. It is unprecedented in World history.
Why did leaders in high office let it happen? The consequences were obvious.
This closing down operation affects production and supply lines of goods and services, investment activities, exports and imports, wholesale and retail trade, consumer spending, the closing down of schools, colleges and universities, research institutions, etc.
In turn it leads almost immediately to mass unemployment, bankruptcies of small and medium sized enterprises, a collapse in purchasing power, widespread poverty and famine.
What is the underlying objective of this restructuring of the global economy? What are the consequences? Cui Bono?
A massive concentration of wealth,
the destabilization of small and middle sized enterprises in all major areas of economic activity including the services economy, agriculture and manufacturing.
It derogates the rights of workers. It destabilizes labor markets.
It compresses wages (and labor costs) in the so-called high income “developed countries” as well as in the impoverished developing countries.
Needless to say this Global Adjustment (GA) operation is far more detrimental than the country-level IMF-WB structural adjustment program (SAP).
It is neoliberalism to the nth degree.
In one fell swoop (in the course of the last months) the COVID-19 crisis has contributed to impoverishing a large sector of the World population.
And Guess who comes to the rescue? The IMF and the World Bank:
The IMF Managing Director Kristalina Georgieva has casually acknowledged that the World economy has come to a standstill, without addressing the causes of economic collapse.
“The WHO is there to protect the Health of the People, The IMF is there to protect the health of the World economy” says Georgieva.
How does she intend to “protect the World economy”?
At first sight this appears to be “generous”, a lot money. But ultimately it’s what we might call “fictitious money”, what it means is:
“We will lend you the money and with the money we lend you, you will pay us back”.(paraphrase).
The ultimate objective is to make the external (dollar denominated) debt go fly high.
The IMF is explicit. In one of its lending windows, the Catastrophe Containment and Relief Trust, which applies to pandemics, generously,
“provides grants for debt relief to our poorest and most vulnerable members.”
Nonsensical statement: it is there to replenish the coffers of the creditors, the money is allocated to debt servicing.
“For low-income countries and for emerging middle-income countries we have … up to $50 billion that does not require a full-fledged IMF program.”
No conditions on how you spend the money. But this money increases the debt stock and requires reimbursement.
The countries are already in a straight-jacket. And the objective is that they comply with the demands of the creditors.
That’s the neoliberal solution applied at a global level: No real economic recovery, more poverty and unemployment Worldwide. The “solution” becomes the “cause”. It initiates a new process of indebtedness. It contributes to an escalation of the debt.
The more you lend, the more you squeeze the developing countries into political compliance. And ultimately that is the objective of the failing American Empire.
The unspoken truth is that this one trillion dollars ++ of the Bretton Woods institutions is intended to drive up the external debt.
The cancellation of debt has not been envisaged. Quite the opposite. The strategy consists in building up the debt.
It is important that the governments of developing countries take a firm stance against the IMF-World Bank “rescue operation”.
The Global Debt Crisis in the Developed Countries
An unprecedented fiscal crisis is unfolding at all levels of government. With high levels of unemployment, incoming tax revenues in developed countries are almost at a standstill. In the course of the last 2 months, national governments have become increasingly indebted.
In turn, Western governments as well as political parties are increasingly under the control of the creditors, who ultimately call the shots.
In Western countries, a colossal expansion of the public debt has occurred. It is being used to finance the “bailouts”, the “handouts” to corporations as well as “the social safety nets” to the unemployed.
The logic of the bailouts is in some regards similar to that of the 2008 economic crisis, but on a much larger scale. Ironically, in 2008, US banks were both the creditors of the US federal government as well as the lucky recipients: the rescue operation was funded by the banks with a view to “bailing out the banks”. Sounds contradictory?
The Privatization of the State
This crisis will eventually precipitate the privatization of the state. Increasingly, national governments will be under the stranglehold of Big Money.
Crippled by mounting debts, what is at stake is the eventual de facto privatization of the entire state structure, in different countries, at all levels of government, under the surveillance of powerful financial interests. The fiction of “sovereign governments” serving the interests of the electors will nonetheless be maintained.
The first level of government up for privatization will be the municipalities (many of which are already partially or fully privatized, e.g. Detroit in 2013). America’s billionaires will be enticed to buy up an entire city.
Several major cities are already on the verge of bankruptcy. (This is nothing new).
Is the city of Vancouver up for privatization?: “the mayor of Vancouver has already indicated that he feared the bankruptcy of his city.” (Le Devoir, April 15, 2020)
“U.S. households collectively carry about $1 trillion in credit card debt”. No measures are being taken in the US to reduce the interest rates on credit card debt.
The New World Order?
The lockdown impoverishes both the developed and developing countries and literally destroys national economies.
It destabilizes the entire economic landscape. It undermines social institutions including schools and universities. It spearheads small and medium sized enterprises into bankruptcy.
“The Coronavirus Pandemic Will Forever Alter the World Order”
Recall Kissinger’s historic 1974 statement: “Depopulation should be the highest priority of US foreign policy towards the Third World.” (1974 National Security Council Memorandum)
The political implications are far-reaching.
What kind of government will we have in the wake of the crisis?
Concluding Remarks
There is a lot of misunderstanding regarding the nature of this crisis.
Several progressive intellectuals are now saying that this crisis constitutues a defeat of neoliberalism. “It opens up a new beginning”.
Some people see it as a “potential turning point”, which opens up an opportunity to “build socialism” or “restore social democracy” in the wake of the lockdown.
The evidence amply confirms that neoliberalism has not been defeated. Quite the opposite.
Global capitalism has consolidated its clutch. Fear and panic prevail. The State is being privatized. The tendency is towards authoritarian forms of government.
These are the issues which we must address.
That historical opportunity to confront the power structures of global capitalism, –including the US-NATO military apparatus– remains to be firmly established in wake of the lockdown.
In this expanded edition of Prof. Michel Chossudovsky’s international best-seller, the author outlines the contours of a New World Order which feeds on human poverty and the destruction of the environment, generates social apartheid, encourages racism and ethnic strife and undermines the rights of women. The result as his detailed examples from all parts of the world show so convincingly, is a globalization of poverty.
This book is a skillful combination of lucid explanation and cogently argued critique of the fundamental directions in which our world is moving financially and economically.
In this updated and enlarged edition – which includes ten additional chapters and a new introduction – the author reviews the causes and consequences of famine in Sub-Saharan Africa, the dramatic meltdown of financial markets, the demise of State social programs and the devastation resulting from corporate downsizing and trade liberalization.
“This concise, provocative book reveals the negative effects of imposed economic structural reform, privatization, deregulation and competition. It deserves to be read carefully and widely.” – Choice, American Library Association (ALA)
“The current system, Chossudovsky argues, is one of capital creation through destruction. The author confronts head on the links between civil violence, social and environmental stress, with the modalities of market expansion.” – Michele Stoddard, Covert Action Quarterly
But nobody is making a sound about it, and not even Macron.
Maybe they will now: The first union has selfishly broken ranks – French pilots and cabin crews. It’s a “universal” pension system, sure… except for the groups who Macron has to buy off to break the strike.
French President Emmanuel Macron has barely said two words about the general strike, even though it has lasted four weeks and will soon become the longest general strike ever in French history.
And many French don’t even mind. It’s a quirk of the French system I cannot yet explain: they view it as normal that Macron has not commented on the general strike because that is the domain of the prime minister.
French contradictions abound, and they think the mystery makes them appear deep: France’s president is well-known to be closest thing to a constitutional dictator the West has, and yet the PM is supposed to be given much latitude on domestic policy?
I have heard this often, but never seen it action: the idea that Macron’s PM is not beholden to the ideas and orders of his boss on the pension plan is absurd. To me it has always seen like a way for the president to have someone to blame his unpopular policies on.
But Macron has given one press conference in 2.5 years, and he didn’t say the words “Yellow Vest” in public until after 23 Saturdays, and no one seems up in arms about it (besides the Yellow Vests), so… c’est la France.
Macron will probably make a rote plea for unity at his annual New Year’s Eve wishes – the guy is speaking at 8pm, so if all you have going is watching Macron’s press conference then take heart: 2020 can only get better than 2019 for you.
The coverage of the general strike from non-French media reminds me of France’s recent coverage of the resolution (one step below a law) which equates anti-Zionism with anti-Semitism: there was a decent amount of coverage AFTER the resolution became a fact.
This was obvious to predict, but there is an omertà regarding France’s general strike from Anglophone media – it’s almost as if they don’t want to ruin a good thing. If there was any room for leftism in the West’s “free speech means corporate media own all speech” now would be the time to be up in arms with keyboards in hands. But people repeatedly tell me they can’t find anything about it in non-French sources.
Honestly: This can’t go on in France any longer
Without any exaggeration, the French (and certainly the “French model”, aka “Capitalism with French characteristics) simply cannot sustain more austerity attacks which “re(de)form” it into an Anglo-Saxon model and here’s why: If you take home €2,500 a month in France you have a really good job (especially in 2019). If you take home $2,500 per month in the US (making about $20 per hour) your job is desirable but not really good.
Yes, 42% of Americans don’t even make $15 hour but the point is: the French model is based on low wages. The Swiss, Germans, UK, etc. – they all make much more than rich France.
The reason France accepts lousy wages was their Nordic-level social safety net: so they had guaranteed work contracts (“CDIs”), 2-3 years of decent unemployment, 5 weeks paid vacation legal minimum, cheap schools from 3 months old to PhD, cheap medical care and a good pension. Make no mistake because I know you right wingers will: This is a system which is paid for by the French worker giving up 40% of their pay check every month, and then 10% annually in an income tax. I.e., low wages.
That concept is crucial to understand. A whopping 80% of the pension system is funded by taxes on individuals and bosses, and not the state. The French pension isn’t “unsustainable” at all: if it is “underfunded” it is only on the state side, and only because the state has purposely starved it of funds via funding cuts. With the stroke of a budget pen its minor deficit could be resolved. Baby Boomers will be dropping like flies by the 2030s reducing fiscal stress- the system works, and it can last.
This explains why all neoliberals can really come with to justify junking the ENTIRE system is that it is too “complex”. Why is complexity automatically a negative thing? I’m glad these guys didn’t take up physics. The other reason they deploy is that some people – like manual laborers, those who work in hard and/or dangerous conditions – retire early to avoid death/maiming on the job due to “you’re too old for this” syndrome. They have seized upon the “injustice” of these “special regimes”. All of a sudden neoliberals care about injustice….. Of course the one-size-fits-all, universal system is as regressive (not progressive) as a flat tax, and that’s why no nation does it.
But back to how this onslaught of “reforms” is just unsustainable: reduced services which used to be covered by the state, increased prices on everything, Housing Bubble II, new jobs are all one-month renewable contracts (CDDs), you have to work until 64 instead of 60 in 2009, your pension is going to leave you barely at poverty level – you cannot have this AND low wages in France.
It is just impossible, logically. Something has to give on one of the ends.
If they are going to make it so that all the state is provides is health care and education and then citizens are on their own – the glorious Apache-killing Arizona libertarian model (with a touch of European class) – then they have to vastly inflate wages.
But nobody is talking in France about raising wages to compensate for the worse pensions, nor for any of the austerity measures.
So this can’t go on.
And yet it will – Macron is tackling the unemployment system next, i.e. later this year. Is there going to be a General Strike Act 2?
If the US and UK are any example – no there won’t be. So this may be the end of “France”. Remember the US and UK prior to Reagan and Thatcher – sure was better back then, or at least far less unequal and unstable.
Can Macron get his wish? To be the youngest (despised) leader in Western capitalist history?
One can picture Macron just white-knuckling it right now – if he can just get break this strike… the dude will go down in right-wing history. Or is it “centrist” history for Macron?
When Thatcher died there was UK police brutality at the street parties celebrating her death. That sounded about right to me. The New York Times scolded us with superstition and expressed their fake shock in their pathetic Taboo on Speaking Ill of the Dead Widely Ignored Online After Thatcher’s Death.” This is a taboo in the West – since when? The West cares about taboos – since when? I know they don’t care about taboos because they need a loan word for this rather crucial social concept – the word itself is Tongan, and the English didn’t get to Polynesia until 1773.
As I led with, French pilots and cabin crews have called off a strike they had planned for January 3 – they got a sweetheart deal from Macron, and you can all go kick rocks for calling them “stewardesses”. The Macron administration has only negotiated en masse with unions for three days out of 26 consecutive strike days – they never wanted to make a broad deal but only a few small deals in order to “divide and conquer” and break the strike.
This has worked every time during the age of austerity. I have written this many times but I will say it again, cuz some of y’all think the Western system is the apex of everything political: This is what “independent” labor unions get you – sold out. The socialist model of “we’re all in one big union” means the workers are truly in the government, not against the government… and against the good of the People, and against their fellow workers, and against their fellow unions and against, against, against it’s called “capitalism” people.
But the West is “freer” than China, Iran, Cuba, etc. Sure, free to be unequal.
Back to France: it’s getting hard, having a commute 2-3 times longer for four weeks. I’m not breaking rocks all day, but it’s grating on people.
That’s really what the “general strike” has amounted to – public transport shutdowns. The burden of the national good is basically all on the backs of rail workers. The unions have only called 3 days of nationwide protest and strikes – this means that even politically-active people have probably only taken 3 strike days of lost wages, whereas “good” rail workers have lost a month. What a stupid system they have here? Plenty of protest marches and big talk but when it’s general strike time (finally!) it’s: “I can’t afford it – let the rail workers do it.”
Truly, before we had the Yellow Vests we only had the rail workers: in the age of austerity they were always the ones (along with some of us journalists) at the front lines getting gassed and beating back cops. They have led every major anti-austerity movement. Nobody really joined them when they tried to prevent the EU-forced privatisation of French rails (Same thing back then in the media: “The rail system is bankrupt!” No it’s not, it was purposely starved of state funding.) They led the huge 1995 strike as well.
Not the stewardesses and their Top Gun flyboys. They have left France in the lurch.
I guarantee that tonight many will have a few glasses of wine and say, “Zees solidarité ees all phony!”, just to appear smart and courageous (the French are always wishing each other “good courage”), and the strike will fall apart.
That’s the France I know – Windbag France, aka Faithless France.
But we have the Yellow Vests now. Maybe General Strike 2 is République Française VI? Tides turn, the moon waxes and wane, the meek inherit a decent pension.
General striking is hard, but just don’t be a stewardess. Excuse me, Airplane Cabin Executive. Gotta love that Western model….
Ramin Mazaheri is the chief correspondent in Paris for Press TV and has lived in France since 2009. He has been a daily newspaper reporter in the US, and has reported from Iran, Cuba, Egypt, Tunisia, South Korea and elsewhere. He is the author of the books ‘I’ll Ruin Everything You Are: Ending Western Propaganda on Red China’ and the upcoming ‘Socialism’s Ignored Success: Iranian Islamic Socialism.’
UPROOTED PALESTINIANS: SALAM ALQUDS ALAYKUM 