banking | ukwatch.net

Big bankings' military activities

Simon Birritteri — Thu, 30 Oct 2008 15:24:01 +0000

The Government’s decision to take a controlling stake in some of the largest British financial institutions comes as a new War on Want report reveals how high street banks are complicit in the global arms trade. Our damning report exposes how Britain’s top five high street banks – Barclays, Halifax Bank of Scotland, HSBC, Lloyds TSB and the Royal Bank of Scotland – invest in, provide banking services for and make loans to arms companies. The Government must use its new say in lending behaviour to guarantee standards are put in place to ensure banks end their links with the arms sector.

Faith in the banking sector is already at an all-time low. The revelation that these banks are investing in weapons companies will add to this public mistrust. They are financing an industry that sells arms to countries committing human rights abuses, such as Israel, Colombia and Saudi Arabia. Money from our savings and current accounts is being used to fund companies that produce pernicious weapons such as depleted uranium and cluster bombs.

The arms industry profits from producing the machines that kill, maim and destroy. Britain has exported more than £30 billion in arms in the past five years. It last year had the dubious honour of topping the list of global exporters. With a record £19 billion in orders, Britain is the third largest exporter of arms to developing countries. The United Nations Development Programme has named military expenditure by developing countries as a major barrier to achieving the Millennium Development Goals.

War on Want launches its new report as UN Disarmament Week starts. Using databases which have not been seen before outside financial circles, the report exposes the fact that all five big banks have shareholdings in Britain’s largest arms companies. Four hold shares in all of this country’s leading arms companies. The Royal Bank of Scotland has a stake worth £36.4 million. Halifax Bank of Scotland and HSBC have vast holdings, worth £409.5 million and £483.4 million, respectively. With £717.5 million in shares, Lloyds TSB ranks as the British banking industry’s second largest shareholder. Barclays’ investments in the arms sector total £1.39 billion, the highest total among Britain’s banks. Barclays holds, by far, the largest amount of shares in the global arms sector, with £7.3 billion invested in total.

Both HSBC and Barclays invest in companies that produce cluster munitions and depleted uranium. With the exception of HBOS, all the banks have given loans to at least one cluster munitions producer in the past decade.

Most high street banks are violating their own corporate social responsibility statements. For instance, there is an irreconcilable contradiction between the Royal Bank of Scotland’s stated commitment to human rights and sustainable development and its support for the arms industry.

One bank, HSBC, has gone much further than just producing a corporate social responsibility (CSR) report. Since 2000, it has since stated publicly its commitment to “avoid certain types of business, such as financing weapons manufacture and sales” and to have had that policy “fully in place” for two years.

However, since 2000, there has been no significant downward trend in HSBC lending to the arms sector.

In 2005, there was a major rise in HSBC’s lending.

As a voluntary approach to good practice, CSR cannot make companies accountable for their actions. Government control of banks has given us a perfect opportunity to make them responsible for their behaviour. And we urge account holders to write to their bank, demanding that they stop financing the arms trade and call for transparency on all their investments.

Brown government caves in to banks’ demands

Ellie Keen — Sun, 19 Oct 2008 17:57:19 +0000

Within days of announcing an unprecedented £37 billion bailout of three high street lenders—the Royal Bank of Scotland (RBS), Lloyds TSB and HBOS—that will involve the British government taking shares in the banks, Chancellor of the Exchequer Alistair Darling has caved in to the City’s demands for the banks to make dividend payouts.

He did a U-turn and relaxed the terms of the agreement, part of a £500 billion rescue plan made at the expense of working people. Although the banks will receive billions of pounds from the Treasury to stave off a banking and credit collapse that is the result of their own reckless practices, the super-rich have refused to accept the slightest constraints on their right to be paid dividends. Headlines in the Financial Times were screaming, “Brown’s £37 billion rescue: did it go too far?”

The Treasury denied that there was ever a “blanket ban on dividends for five years.” The Chancellor indicated he would be flexible on paying dividends after one year, saying, “If someone comes up with a better way of running the scheme, of course we will listen.” A Guardian source confirmed that a compromise was possible.

Darling’s aides denied any U-turn and sought to justify this humiliating climb-down in the face of the City’s demands with the pathetic claim that the bankers had not understood the terms of the deal or explained it properly to their shareholders.

In reality, Darling himself had previously told the BBC’s current affairs Newsnight programme, “All the banks knew what was on offer. They knew the terms and conditions and they had signed up to them.”

The chancellor was a pushover because the government had never wanted to impose any conditions on the banks in the first place. It only banned the banks from paying dividends for five years in order not to fall foul of European Union rules on state aid and competition. The EU believed this would ensure that the banks were returned to private ownership, since it would force the banks to repay the government as soon as possible. It was one of 10 conditions imposed by the EU on the government’s £500 billion capital injection, debt guarantees and liquidity-funding scheme announced last week.

The City of London and financial commentators are up in arms over the terms of the agreement, which they denounce as punitive. Under the agreement, negotiated with teams of top legal advisors, the government will buy £9 billion of preference shares in the banks. This will entail a 12 percent annual payout to the government, with no dividend payouts to other shareholders, including ordinary shares to be bought by the government, until the government’s preference stake is repaid in five years’ time.

The banks are demanding the right to pay dividends to other shareholders and repay the government for its preference stake earlier by selling off assets or raising additional capital from other investors.

The financial institutions are also outraged that the British government is demanding a 12 percent dividend, when the US government, in a similar deal, is requiring only a 5 percent dividend. They want the British government’s dividend also cut to 5 percent. The insurance and pension funds that hold many of the banks’ shares backed up the banks’ demands for a government retreat.

The banks are holding the government to ransom. They are threatening that without dividend payouts to shareholders, they will be unable to raise new money from shareholders to shore up their capital reserves as the government has demanded. This in turn will mean that the government will have to dig even deeper to bail out the banks. It is, of course, far from clear that with or without dividends they will be able to either sell their assets or raise additional capital in the prevailing economic conditions.

Labour MPs fell in behind the government. John McFall, the Labour chairman of the treasury select committee, said dividends should be paid because otherwise the banks would not attract private investors. “The government wants the first cut for the taxpayers, but if we are to have confidence in financial companies we have to ensure that dividends are paid to make it attractive for investors to come in.”

The banks also protested at the government’s requirement that they lend at 2007 levels, particularly to small businesses and homebuyers. On this, they were immediately reassured. Baroness Shriti Vadera, the minister for business, was at pains to stress that the reference to 2007 meant simply “the availability of lending” and did not mean that the banks had to match last year’s total lending.

The bailout means that the government will hold 60 percent of RBS’s shares and 43.5 percent of Lloyds TSB and HBOS, which are to merge early next year under a rescue deal, personally brokered by Gordon Brown, the prime minister. Banks’ share prices have fallen sharply since the weekend bailout was announced. While the government has agreed to buy shares in Lloyds TSB at 173.7 pence, its price has fallen to 150 pence. HBOS’s shares have fallen from the agreed price of 113.6 pence to 84.1 pence and RBS’s shares fell from 65.5 pence to 65 pence.

The banks have also protested against any attempts to limit top management’s pay and bonuses. The Financial Times’s Lombard column threatened the government with the headline, “It will be bloody if regulators take an axe to bonuses.” The government and the regulatory authorities have all but admitted that such limits would be unworkable.

While the financial journalists called the bailout a humiliating defeat for the banks, the financial elite have simply seen it as a down payment. The super-rich will brook no curb on their prerogatives. Far from dividends being the reward for taking risks, with the possibility of no payouts in lean years, as every first year finance student is taught, the financial elite now see it as their right however the banks perform.

As far as the financial institutions are concerned, now that they have access to taxpayers’ funds, there can be no reason for dividend payouts not to continue. Furthermore, such payouts come first—before the requirement to provide credit to business and homebuyers, supposedly the essential business of banks.

In turn, Labour will do “whatever it takes” to defend the wealth and privileges of the ruling class. It will plunder the assets of the state built up by generations of taxpayers, pledge the future earnings of taxpayers and launch a ruthless assault on working people, resorting to illegal and dictatorial measures as it sees fit. And it has the support of all the main political parties in doing so.

What went wrong in the capitalist casino?

Ellie Keen — Thu, 16 Oct 2008 22:48:32 +0000

The great inter-war slumps were not acts of God or of blind forces. They were the sure and certain result of the concentration of too much economic power in the hands of too few men. These men had only learned how to act in the interest of their own bureaucratically-run private monopolies which may be likened to totalitarian oligarchies within our democratic state, They had and they felt no responsibility to the nation.

These words are from the 1945 Labour manifesto Let Us Face The Future which brilliantly identified the very same crisis which is now described as a “credit crunch” as if it were a mere hiccup in an otherwise wonderful neo-liberal globalised world which could be corrected with a vast subsidy from the taxpayers to put the Wall Street casino and its partners worldwide back into profit. It reminded me of the fact that when slavery was abolished it was the slave owners, and not the slaves, who received compensation from the government of the day.

Perhaps more important – and never mentioned in the media – is that all the news we get every day and every hour is all about the bankers while presidents, prime ministers and other elected leaders of the world have been reduced to the role of mere commentators who are expected to supply taxpayers’ money whenever it is needed to bail out the wealthy.

Indeed, what we are watching is nothing less than the steady transfer of real political power from the polling station to the market and from the ballot to the wallet – reversing the democratic gains we have made over the last century when we were able, increasingly, to use our votes to shape our economic future.

Our 1945 manifesto made that clear in the very next passage following the quote above. This is what it said: “The nation wants food, work and homes. It wants more than that. It wants good food in plenty, useful work for all and comfortable labour-saving homes that take full advantage of the resources of modern science and productive industry.”

That was the policy that swept Labour MPs into power in 1945 and gave this country the National Health Service, the welfare state and a massive house building programme, made possible by elected local authorities who had the resources made available to them by the Treasury.

Now, 63 years later, we are back facing a similar situation and we need to understand why it has happened if we are to see our way forward.

We have been told every day by the media that we should put our faith in the market and that elected governments are the problem and not the answer and, for that reason, should not interfere.

These ideas began to emerge in the political mainstream when Margaret Thatcher came to power and in 1994 “new” Labour adopted them as the basis of its own approach which explains why she once described “new” Labour as her “greatest achievement”.

Trade union rights are now more restricted than they were in 1906, wages have been held down and people have been advised to borrow and spend as an alternative – which explains why the stock market has fallen and locked more and more people into debt, which is a subtle form of slavery itself.

This is why so many people are frightened and frightened people can sometimes be persuaded to seek an answer by identifying an enemy who can be made a scapegoat for failure – as Hitler did when he blamed the Jews, the Communists and the trade unions for the mass unemployment in Germany and set up a fascist dictatorship which led to the Holocaust and war.

Hitler dealt with the unemployed by giving them jobs in the arms factories and the armed forces which led to the Second World War and the massive human cost it caused.

Whatever the left does it must never respond by splintering into a mass of tiny ideological sects forever fighting each other – for that way leads to failure, frustration and defeat.

This is the time for co-operation across the left to tackle the problems that face us on a non-sectarian basis as we have seen in the Stop the War Coalition, the campaigns for trade union rights, civil liberties, pensions, nuclear disarmament, council house building and a fair tax system – all of which require full trade union backing if they are to succeed.

If the economic situation gets worse, as it very well may, we have also to be on the look out for the “coalition” solution which could well be presented to us as the only way that these problems can be tackled, an argument that is being put forward now in America when George Bush, John McCain and Barack Obama rallied round to back the $700 billion bail-out that Wall Street demanded.

That same argument was used by Ramsay MacDonald in 1931 when he formed a National Government which nearly destroyed the Labour Party in the general election when only 51 Labour MPs survived and, without the courage of Ernie Bevin and the TUC, it might never have recovered, as it did in 1945.

I hope that the re-appointment of Peter Mandelson to the Cabinet in the latest reshuffle does not lead to that idea being re-floated as the best way to see us through the crisis for that could be the end of democracy – allowing the European Commission to prevent the re-emergence of public ownership and control of the banks which many will now see as the best way forward.

For the first time in my life, the public are to the left of a Labour government and common sense points us in a direction quite different from the one we have been following since 1979 when Thatcher set out to destroy the trade unions, cripple local authorities and privatise our public assets which we need now more than ever.

In 1945, the nation realised that the problems of peace required the same intensity of commitment as the problems of war.

And with the disastrous experience of Iraq and Afghanistan that argument, too, is beginning to register again and people are asking why we waste so much money on those illegal, brutal and unwinnable wars and on new nuclear weapons when people are losing their jobs and facing repossession of their homes.

The case for peace and socialism is intensely practical and, put like that, will command wide public and electoral support as it did then, in 1945, and could again do now.

Turning a crisis into an opportunity

Ellie Keen — Tue, 14 Oct 2008 23:09:49 +0000

The government has been consistently behind the curve on the banking crisis and the chancellor’s statement this morning demonstrates that it is missing the chance of turning this crisis into the opportunity of a generation to lay the foundations for transforming our economy.

In his interviews so far today the chancellor has insisted on an arms-length role for government and on returning the banks to private control as soon as possible. At a time when many British taxpayers will be losing their jobs and homes they are being asked to subsidise the banks in the bad times, simply to allow them to return to the profiteering role which caused this crisis.

Taxpayers will want to know what they have got for their money. Under public pressure, the government has been forced into placing some limited and temporary constraints on executive pay and bonuses – and may appoint some non-executive directors. Not a lot for £500bn of public money. The government has drifted into majority or sizeable ownership of individual banks without any coherent strategy about how to use its shareholding.

Let us be clear, the banks which the government has taken into part-nationalisation would have collapsed entirely where it not for government intervention. The billions invested today surpass even the most generous estimates of the banks’ worth.

The chancellor seems oblivious to the unprecedented potential the government now has to lay the foundations for transforming our economy. To give the taxpayers a return for their investment, the government should insist on an entirely restructured banking system and a new set of economic priorities for our financial institutions.

The taxpayer, through the government, should now be forcing through an agenda with control of the board: offering full transparency and stakeholder democracy for customers and the workforce. There should also be a no-redundancies guarantee for bank workers to match the no-loss guarantee to depositors.

A new lending strategy of these nationalised banks must prioritise tackling the worst effects of the recession. We need to promote employment through investment in major public works schemes to meet the UK’s needs. We urgently need a major programme of investment in renewable energy generation to tackle climate change. Likewise we need a national programme of council house building to tackle existing housing need, and to provide a safety net for those struggling to pay rent and mortgage costs as the recession deepens.

Such infrastructure investment would also mean large-scale job creation to arrest the rising unemployment levels. This would be a rights-based bank system, guaranteeing:

• bank workers and customers the right to a say in how their bank is run;
• a right for the taxpayer to see investment that benefits their community;
• a right to a secure home.

These are the opportunities the government is missing on behalf of the British public.

The public will also not look kindly if the government continues to refuse to assist local councils affected by the Icelandic banking collapse. The damage to essential local services by a forced round of cuts would be immense.

As taxpayers are paying for this bail-out, it should be their interests that now become the focus of a programme of major structural reform in the banking sector.

The storm is just starting to blow

Ellie Keen — Tue, 14 Oct 2008 22:46:18 +0000

Gordon Brown is being feted as the “master of the universe”. Stock markets yesterday were delirious with joy, making record-breaking, stratospheric leaps as governments around the world bailed out the banks. Right-wing Tory newspapers joined in unalloyed praise for the bankers’ government.

Is the financial storm over then? Er, no actually.

So far, sums approaching £2,000 billion (= £2 trillion) of taxpayers’ money have been committed by the governments of America, the UK and Europe to the bankers’ bail-out. Central banks are pouring “unlimited” amounts of US dollars into the global financial system in what will prove yet another failed attempt to prevent the mother of all meltdowns.

How can we be so sure?

Yes, £2 trillion sounds a lot, but the collecting bucket is effectively bottomless. This unimaginably large sum of money is dwarfed by a series of other giant hot-air balloons of fantasy finance queuing to burst in the background whilst Brown’s Punch to the bankers’ Judy struts temporarily in the foreground.

Among the balloons is the market in credit default swaps (CDS), a way of trading in risk. It began life in the mid-1990s and, largely because it has always been unregulated, and appeared to offer the possibility of reducing, or at least sharing risk, it attracted a great deal of interest.

The simple version of the story goes that a swap enables an organisation making a loan to a customer to insure against the customer defaulting on payments by establishing a private contract with a third party, paying a kind of insurance premium. It can’t be called “insurance” because that would make it liable to regulation. You wouldn’t want to call it “protection” either. People might think you’re a gangster.

The market grew very fast. Most major organisations are now caught up with each other in a lacework of interconnected contracts. Ok, so how much are we talking about? It’s difficult to be precise, because all the trading is in unregulated contracts hidden from public view. Nobody really knows. Data from the International Swaps and Derivatives Association (!) show that at the end of June, the CDS market had a notional value of $54 trillion. That’s the same as the planet’s 2007 GDP and nearly four times the value of all shares traded on the New York Stock Exchange. Other estimates puts the figure nearer $65 trillion. So what is the chance of this particular balloon bursting? It already did. On Friday, Moneyweek put it like this:
When one side of a trade defaults, it starts a chain reaction that raises the risk of others losing money. That’s called ‘counterparty risk’, and is partly what has spooked investors into selling off assets and lenders into curbing credit. The collapse of Lehman Brothers has had a particularly big impact. Lehman wrote more than $700bn-worth of CDS. Now it’s gone bust, investors who had taken out these CDS have been left without the insurance, so they’re having to buy more, even though prices are now rising because of the general turmoil.

Initial results of the auction to determine the value of CDS on Lehman Brothers showed banks, hedge funds and other sellers of protection facing losses in the area of 90.25% of the insurance they sold.

The CDS market is only 10% of the global derivatives market, which covers all contracts taken out to minimise risk. This is the mysterious, unregulated world of futures, forwards, options and swaps. According to the Bank for International Settlements, the notional amounts outstanding at the end of 2007 totalled about $550 trillion on contracts privately traded between parties. As the global recession deepens, the number of parties unable to fulfil contracts will grow rapidly.

Is the storm over? It’s only just beginning to blow!

This Is What Denial Does

Ellie Keen — Tue, 14 Oct 2008 22:23:22 +0000

This is nothing. Well, nothing by comparison to what’s coming. The financial crisis for which we must now pay so heavily prefigures the real collapse, when humanity bumps against its ecological limits.

As we goggle at the fluttering financial figures, a different set of numbers passes us by. On Friday, Pavan Sukhdev, the Deutsche Bank economist leading a European study on ecosystems, reported that we are losing natural capital worth between $2 trillion and $5 trillion every year, as a result of deforestation alone(1). The losses incurred so far by the financial sector amount to between $1 trillion and $1.5 trillion. Sukhdev arrived at his figure by estimating the value of the services – such as locking up carbon and providing freshwater – that forests perform, and calculating the cost of either replacing them or living without them. The credit crunch is petty when compared to the nature crunch.

The two crises have the same cause. In both cases, those who exploit the resource have demanded impossible rates of return and invoked debts that can never be repaid. In both cases we denied the likely consequences. I used to believe that collective denial was peculiar to climate change. Now I know that it’s the first response to every impending dislocation.

Gordon Brown, for example, was as much in denial about financial realities as any toxic debt trader. In June last year, during his Mansion House speech, he boasted that 40 per cent of the world’s foreign equities are now traded here. “I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.”(2) The financial sector’s success had come about, he said, partly because the government had taken “a risk-based regulatory approach”. In the same hall three years before, he pledged that “in budget after budget I want us to do even more to encourage the risk takers”(3). Can anyone, surveying this mess, now doubt the value of the precautionary principle?

Ecology and economy are both derived from the Greek word oikos – a house or dwelling. Our survival depends upon the rational management of this home: the space in which life can be sustained. The rules are the same in both cases. If you extract resources at a rate beyond the level of replenishment, your stock will collapse. That’s another noun which reminds us of the connection. The OED gives 69 definitions of stock. When it means a fund or store, the word evokes the trunk – or stock – of a tree, “from which the gains are an outgrowth”(4). Collapse occurs when you prune the tree so heavily that it dies. Ecology is the stock from which all wealth grows.

The two crises feed each other. As a result of Iceland’s financial collapse, it is now contemplating joining the European Union, which means surrendering its fishing grounds to the Common Fisheries Policy. Already the prime minister Geir Haarde has suggested that his countrymen concentrate on exploiting the ocean(5). The economic disaster will cause an ecological disaster.

Normally it’s the other way around. In his book Collapse, Jared Diamond shows how ecological crisis is often the prelude to social catatrosphe(6). The obvious example is Easter Island, where society disintegrated soon after the population reached its highest historical numbers, the last trees were cut down and the construction of stone monuments peaked. The island chiefs had competed to erect ever bigger statues. These required wood and rope (made from bark) for transport and extra food for the labourers. As the trees and soils on which the islanders depended disappeared, the population crashed and the survivors turned to cannibalism. (Let’s hope Iceland doesn’t go the same way.) Diamond wonders what the Easter islander who cut down the last palm tree might have thought. “Like modern loggers, did he shout ‘Jobs, not trees!’? Or: ‘Technology will solve our problems, never fear, we’ll find a substitute for wood.’? Or: ‘We don’t have proof that there aren’t palms somewhere else on Easter … your proposed ban on logging is premature and driven by fear-mongering’?”(7).

Ecological collapse, Diamond shows, is as likely to be the result of economic success as of economic failure. The Maya of Central America, for example, were among the most advanced and successful people of their time. But a combination of population growth, extravagant construction projects and poor land management wiped out between 90 and 99% of the population. The Mayan collapse was accelerated by “the competition among kings and nobles that led to a chronic emphasis on war and erecting monuments rather than on solving underlying problems”(8). Does any of this sound familiar?

Again, the largest monuments were erected just before the ecosystem crashed. Again, this extravagance was partly responsible for the collapse: trees were used for making plaster with which to decorate their temples. The plaster became thicker and thicker as the kings sought to outdo each other’s conspicuous consumption.

Here are some of the reasons why people fail to prevent ecological collapse. Their resources appear at first to be inexhaustible; a long-term trend of depletion is concealed by short-term fluctuations; small numbers of powerful people advance their interests by damaging those of everyone else; short-term profits trump long-term survival. The same, in all cases, can be said of the collapse of financial systems. Is this how human beings are destined to behave? If we cannot act until stocks – of either kind – start sliding towards oblivion, we’re knackered.

But one of the benefits of modernity is our ability to spot trends and predict results. If fish in a depleted ecosystem grow by 5% a year and the catch expands by 10% a year, the fishery will collapse. If the global economy keeps growing at 3% a year (or 1700% a century) it too will hit the wall.

I’m not going to suggest, as some scoundrel who shares a name with me did on these pages last year(9), that we should welcome a recession. But the financial crisis provides us with an opportunity to rethink this trajectory; an opportunity which is not available during periods of economic success. Governments restructuring their economies should read Herman Daly’s book Steady-State Economics(10).

As usual I haven’t left enough space to discuss this, so the details will have to wait for another column. Or you can read the summary published by the Sustainable Development Commission(11). But what Daly suggests is that nations which are already rich should replace growth (”more of the same stuff”) with development (”the same amount of better stuff”). A steady state economy has a constant stock of capital maintained by a rate of throughput no higher than the ecosystem can absorb. The use of resources is capped and the right to exploit them is auctioned. Poverty is addressed through the redistribution of wealth. The banks can lend only as much money as they possess.

Alternatively, we can persist in the magical thinking whose results have just come crashing home. The financial crisis shows what happens when we try to make the facts fit our desires. Now we must learn to live in the real world.

www.monbiot.com

References:

1. Richard Black, 10th October 2008. Nature loss ‘dwarfs bank crisis’. BBC Online. http://news.bbc.co.uk/1/hi/sci/tech/7662565.stm

2. Gordon Brown, 20th June 2007. Speech to Mansion House. http://www.hm-treasury.gov.uk/2014.htm

3. Gordon Brown, 16th June 2004. Speech to Mansion House. http://www.hm-treasury.gov.uk/1534.htm

4. Oxford English Dictionary, 1989. Second Edition.

5. Niklas Magnusson, 10th October 2008. Iceland Premier Tells Nation to Go Fishing After Banks Implode.

http://www.bloomberg.com/apps/news?pid=20601087&sid=azZ189JG.1S8&refer=h…

6. Jared Diamond, 2005. Collapse: how societies choose to survive or fail. Allen Lane, London.

7. Page 114.

8. Page 160.

9. George Monbiot, 9th October 2007. Bring on the Recession. The Guardian.

http://www.monbiot.com/archives/2007/10/09/bring-on-the-recession/

10. Herman E. Daly, 1991. Steady-State Economics – 2nd Edition. Island Press, Washington DC.

11. Herman E. Daly, 24th April 2008. A Steady-State Economy. Sustainable Development Commission. http://www.sd-commission.org.uk/publications/downloads/Herman_Daly_think…

Solutions for a Sustainable World

Ellie Keen — Sun, 12 Oct 2008 13:49:38 +0000

The Schumacher lecture

The Schumacher lectures are traditionally held in Bristol but have now branched out so that Schumacher North, based in Leeds, also organises the series. They occupy a day, with three people delivering lectures and a final panel. My companions for this day were Anne Pettifor, well known for her leadership of the Jubilee 2000 Debt campaign and Andrew Simms of the New Economics Foundation. My contribution was written in mid-September 2008; the continuation of the financial crisis makes it, I think, all the more pertinent.

Please first let me congratulate the organisers of Schumacher North for their initiative in bringing this lecture series and other activities of the Schumacher Society to Leeds. It’s an honour to be here and especially to share the platform with two brilliant people whom I greatly admire. I also want to thank the organisers for the privilege of honouring the memory of Dr Schumacher, a man far ahead of his time who bequeathed to us a lasting legacy. It’s a challenge to be worthy of that heritage in a lecture bearing his name.

But I intend to try. My talk today will concern the stage I’ve arrived at in a kind of reflexion in progress—I don’t mean a book, although it may well become that as well—but an effort to make sense of the fast moving events in our battered world and an attempt to think about them in a more unified way.

Philosophically speaking, the thing-in-itself, the isolated object whether it’s an electron, a human cell, an organism, a single word —even a human being—makes sense only in the context of its relationships, its place in its physical, linguistic or social environment . Margaret Thatcher once famously said, “There is no such thing as society”. She thus perfectly embodied the foundations of the neo-liberal ideological programme which should, ideally, prevent us from even thinking about ourselves and others in our natural and social context. We must be taught to believe that we are not citizens or members of a social body but discrete, individual consumers. We are entirely responsible for our own destinies and if we fall by the wayside for whatever reason—illness, job loss, accident, failure, whatever—it’s our own fault. We should have foreseen the case and planned for it. We have no responsibility for other people either. Solidarity is a banished word. Nor are we accountable for the state of the planet—homo sapiens is the only important species and humans are isolated if not immune from natural, physical laws. That’s the essence of the neo-liberal spirit: “You’re on your own” as Barack Obama has been saying to Americans to encapsulate the philosophy of his opponents.

If you are well-schooled in neo-liberalism, you will never join a social movement, never engage in a struggle against an unjust action of the government, never contribute to an effort to protect the natural world because not only will you make a fool of yourself, not only will your effort fail, but even if successful it will lead eventually to oppression, even totalitarianism, as Thatcher’s mentor Professor Friedrich von Hayek argued. And, as he also taught, economic freedom is superior to every other kind of freedom, whether political, religious or intellectual.

I believe to the contrary that our only hope lies in understanding everything we confront today as a link in an ever-more-complex chain, as an element in a system. The danger with this approach of course is to become lost and frustrated in the syndrome of “Everything is connected to everything”. That’s true, everything is connected to everything, but we still have an enormous task ahead in trying to identify the priority connections, to understand how they work together and what we can do to change them, because they definitely do need changing. I will argue that the present connections are dysfunctional, they have become perverse: they form a system that worsens the human condition and irrevocably damages the planet. But there is hope, because what has been constructed by humans can also be dismantled by them.

All this may sound rather vague so let’s get down to specifics. To make matters more concrete, I’d like to talk now about the most obvious crises we face collectively today, why they are all linked and why the solutions to them must be linked as well.

The first of these crises is social—the crisis of mass poverty and growing inequality within individual countries and between the rich and poor countries. The second is the financial crisis that Wall Street, the City and the public authorities refused to see coming because they were living in bubble-land. It began with the subprime affair in the United States but has spread inexorably like a lava flow in the US and elsewhere, threatening to plunge the global economy into a prolonged period of stagnation as severe as the Great Depression. Every day while I was writing this lecture at home, a new financial institution went down the drain or on the block and the end is not yet in sight. The third crisis, most ominous of all, is that of climate change and species destruction. It is accelerating faster than most scientists, much less governments, thought possible, causing many to ask if we have not already entered the era of the runaway greenhouse effect.

Each of these crises—social, financial, environmental—is negatively linked to the others, they intensify each other with negative feedback; they lead to worst-case scenarios. Let us take just a few examples of these perverse interactions.

The poverty-inequality crisis is a good place to start. This crisis is well documented; no one seriously denies the numbers. The World Bank recently recognised that it had grossly underestimated—by about 400 million—the numbers of the very poor, and even then its figures stop at the year 2005 and don’t include recent upheavals in food and energy costs that have swelled the ranks of the impoverished. Even more important, however, is the fact that for the first time in human history, there is no excuse for mass poverty and deprivation. Taking this assertion seriously already helps to point us towards a solution.

Most scholars and institutions concerned with such issues focus on poverty per se but I think it’s more useful and enlightening to focus on wealth. It may not be obvious to everyone that the world is actually awash in money. Most of it is still in North America and Europe but the numbers of the seriously rich on other continents are catching up fast. Those who have the money know very well how to keep it and, with their hired help, the battalions of lawyers, accountants and lobbyists, they are busy salting away their profits in tax havens, finding loopholes and protected investments, lobbying fiercely in parliaments and ministries against regulations on banks and financial markets. As you can see, I began by talking about poverty but I am already touching on the links with the financial crisis.

How many of you knew that ten million people, according to the latest Merrill-Lynch World Wealth Report, together boast investable, liquid funds of more than $40 trillion? That’s 40.000 billion or 40 followed by 12 zeroes. This wealth is above and beyond the value of their houses, cars, yachts, wine or art collections and so on and it is equivalent to about three times the GDP of either the United States or Europe. You might like another simple calculation. Assume that you have one billion dollars, which is the cut-off point for the latest Forbes magazine list of 1125 truly rich individuals in the world. If despite your billion you are such a dim-witted investor that you get only a five percent return on your fortune, you will still have to spend $137.000 every day of the year in sheer consumption or you will automatically become richer. My point is that cash is abundant and there’s no shortage of available wealth.

We also know a great deal about inequality. The UN World Institute for Development Economic Research, WIDER, estimates total world household assets at about $125 trillion. This is about three times world GDP and unsurprisingly, the top two percent of the world captures more than half of that wealth. The top 10 percent, which certainly includes many of us here, hold 85 percent, while the bottom half of humanity is obliged to stumble along with barely 1 percent. All you need to be classed in the top half of humanity is a meagre $2200 in total assets—that includes your house, your land or items like your car or your refrigerator—hardly a princely sum. If all household assets were divided equally—impossible and probably not even desirable to achieve—everyone on earth could have a share of $26.000. So again, money as such isn’t the problem.

In all the countries where 90 percent of the world’s population lives, inequalities have increased especially since the 1980s. At this point in the argument, the neo-liberals usually jump in to remind us that rising tides lifting all boats. They admit that inequalities have grown, but still argue that the poor are better off than they were. It seems almost rude to remind them in turn that falling tides have the opposite effect, they swamp and strand the more fragile boats and that is where the tide of the financial crisis is now taking us.

The real point, however, is not the absolute numbers but the fact that inequality makes the economy and also the natural environment worse for everyone, rich or poor. Two experienced academics, Tony Addison and Giovanni Andrea Cornia, put it this way: “Inequality has risen in many countries over the last two decades [and] little progress can be made in poverty reduction when inequality is high and rising….Contrary to earlier theories of development, high inequality tends to reduce economic growth and therefore poverty reduction through growth.”

Although it’s true that economic growth has reduced poverty, particularly in China, one must also ask “At what cost?” China has now overtaken the United States in greenhouse gas emissions and frighteningly has hardly even begun its transition to the automobile society. China also requires at least 10 times as much energy as the more mature industrial societies to produce a unit of GDP.

Growth certainly isn’t the answer ecologically, but even economically it fails the test because the benefits accrue almost entirely to the top of society. That is Cornia and Addison’s main point.

We have also learned in the past few months that it is entirely possible to push tens of millions of poor people off the ledge where they had just gained a foothold and send them back into the depths of poverty. Food riots, most of them urban, in at least thirty different countries have revealed another scary new phenomenon: the worldwide food crisis. Until now, food shortages and famines tended to be local, but so many societies have accepted neo-liberal trade mantras and become dependent on world markets for their basic daily staples that today a sudden spurt in prices is felt from Haiti to Egypt to Bangladesh.

The neo-liberal institutions like the World Bank, the WTO and the European Commission continue to pretend that poverty reduction will result from more growth and more trade. They fail to mention that both growth and trade will reinforce the environmental crisis. The food and energy crises have in turn strong links to the financial crisis, since speculation has been an important factor in both. Food and energy are also intimately linked to the climate crisis as one can see instantly when one thinks of carbon-loaded fossil fuels or of agro-fuels taking vast amounts of land away from food production.

At this point in the discussion, especially when one is speaking to concerned, engaged, decent people like those likely to be found at a Schumacher lecture, someone will raise two highly pertinent questions. The first is this: “ Isn’t there a point where people with huge fortunes say ‘enough is enough’ and start sharing?” Some do—Bill Gates and Warren Buffet are oft- cited examples. But as a class, I’m sorry to say that the answer is no. We know a lot about poverty lines but there is no such thing as a wealth line and the word “ enough “ is not part of the vocabulary of this class. You needn’t believe me. Listen to the expert who said “All for ourselves and nothing for other people seems in every age of the world to have been the vile maxim of the masters of mankind.” That was not Karl Marx but Adam Smith, in his classic 1776 treatise on capitalism, the Wealth of Nations. Little has changed since then.

The second question is “But why don’t the neo-liberal institutions, like the World Bank, the International Monetary Fund, the World Trade Organisation, the European Commission and the US government recognise that their policies have failed? Why do they keep on pushing them wherever and whenever they can?” The answer is not just that institutions are always loath to admit their mistakes, especially when these have killed and ruined so many millions. It is also that these policies have not failed.

To the contrary, they have produced exactly the results they were intended to produce. They have made a tiny fraction of international society rich beyond imagining, they have kept many dependent countries dependent in a new, less visible sort of colonial relationship and they have made so-called free trade, privatisation and unfettered capitalism the rule in countries that previously wanted little or nothing to do with them. Furthermore, they have imposed their policies with relatively little organised protest because their ideology has been expertly produced, packaged and delivered. Ideology can alas have a far stronger influence than facts. This is why we must fight on the practical front, of course, but also — I happen to believe primarily — fight the battle of ideas.

In any event, the massive funds belonging to rich people who already have most of the material goods they need or want are generally devoted to more or less speculative investments. Hedge funds, for example, are estimated to be sitting on about three trillion dollars, even today when so many investments have suffered melt-down. The financial institutions have been frantically innovating, particularly over the last decade. The entire incentive structure of the banking and finance industry has become perverse: the large institutions know perfectly well that they are “too big to fail”, consequently they also know that no matter how risky their actions, they will be bailed out by the public purse and has become all too plain. Beforehand, top management takes the money and runs.

Between the years 2000 and 2006, average annual profits of the financial sector in Great Britain averaged 20 percent—that is, two or three times the profit rate of other sectors of the economy. Huge bonuses, especially in the US and the UK, went to a handful of people, intensifying inequalities, whereas millions further down the ladder have lost their jobs and often their homes. Such profits were themselves clearly not sustainable because at some point, financial gain must be based not just on speculation but on the real economy.

Now that the bailouts are coming thick and fast, we have before us a singular example of socialism for the rich, the well-connected and Wall Street, in which the profits are grabbed by the usual suspects and the losses, tremendous losses, are billed to taxpayers. The United States has in effect nationalised these institutions and their debts—without getting anything from the financial industry in exchange.

As the sub-prime crisis has continued to ooze like a giant oil spill over the whole economy, speculators have searched for alternative profitable areas and created the food-price bubble trouble in which we now find ourselves. What happens then? The resource-poor, the world’s hungry, grab whatever they can, they chop down trees, kill animals and overexploit what little land they may have. Poverty is bad news for nature. But so is wealth. Even though there are far fewer of them, the rich cause much greater environmental damage with their dinosaurian ecological footprints. People who use the population argument to explain the multiple crises and who see in population control the solution are missing a crucial point—it’s not so much the number of people, although numbers are important, as their relative weight.

Furthermore, as we have repeatedly witnessed, the frequency and the fury of storms provoked by global warming hit the poor and the poorer regions of the globe hardest. There is worse to come. We have not even begun to comprehend the perils of climate change, including vastly increased numbers of environmental refugees who will crowd the planet due to droughts, flooding and crop failures. The Pentagon is already working on how to stem this tide by countering by whatever means necessary the refugees frantic efforts to reach more favourable lands. Government planning for this perfectly predictable phenomenon is limited to increased surveillance and security responses, not attempts to make outmigration less necessary. And yet the UN Intergovernmental Panel on Climate Change [IPCC] which is probably the most respected scientific body in the world, has already warned us that in Africa, the yields of rain-fed agriculture are likely to be reduced by 50 percent, deserts will gain ground, species destruction has already reached such proportions that we are in the midst of the sixth geological extinction of the planet’s four and a half billion-year history. The fifth extinction was the one that put paid to the dinosaurs.

I could go on drawing out relationships between the poverty, financial and ecological crises but I’m sure you need no more. The question is what we can do about all this and by “we” , I mean people everywhere who understand that the triple crisis is real and urgent.

Knowing that I will doubtless offend a great many people here, let me say straight away that there is an exit strategy, a genuine solution exists, but it is not in my view the one that many well-meaning environmentalists have long advocated. I’m sorry, but the time has passed for telling people to change their behaviour and their lightbulbs; that if enough people do this, then together “we” can save the planet. I’m sorry, but “we” can’t. Obviously I’m not suggesting that people shouldn’t change their behaviour and their lightbulbs—but even if the entire population of Europe does so—a most unlikely scenario—it’s not going to be enough. I agree as well with proposals for localisation and scaling down, but we have also got to scale up.

We need large-scale solutions, sophisticated, industrial solutions and huge involvement of governments in order to cut greenhouse gas emissions drastically enough to save our future. In other words, we must have the courage to challenge not just our political leadership but the entire neo-liberal, unregulated, privatised, capitalist economic system in place in order to provoke and promote a quantitative and qualitative leap in the scale of environmental action. Dare I say it here? Sometimes big can be beautiful and right now is one of those times.

Since I believe that individual and local solutions are necessary but tragically insufficient to address the seriousness and the urgency of the ecological crisis, I will use the rest of my time to discuss the twin problems of how to deal with governments and with the capitalist corporate production and financial system. The dilemma I wrestle with is this: Can we save the planet while international capitalism remains the dominant system, with its focus on profit, share-holder value, predatory resource capture and with no-holds-barred finance capital making more and more decisions? Can we rescue our natural home when confronted with a powerful caste that does not know the meaning of “enough” and is allergic to the kind of fundamental change a New Ecological Economic Order requires? Can we move forward when governments basically work for the interests of that class?

On bad days I reply No: We can’t save the planet. It’s impossible to reverse the climate crisis under capitalism. But that is a despairing answer and if true, it means there is virtually no hope. No hope, because I do not see how even the most convinced, most determined people could replace, much less overthrow capitalism fast enough to carry out the necessary systemic change before a runaway climate effect takes hold—always assuming it hasn’t done so already. First of all, there are not that many convinced and determined people prepared to act against the dominant economic system and there is nothing that resembles in the smallest degree an avant-garde revolutionary party that might lead them even if they existed. There is no one-size-fits-all replacement solution for capitalism. Considering the historical record and role of such parties and such solutions, I consider this an unmistakably good thing.

But there are other obstacles to once-for-all revolutionary change. Nobody knows, figuratively speaking, who the Tsar is that we would have to overthrow today and nobody has a clue where to find the Winter Palace we would have to storm. We know the Winter Palace isn’t on Wall Street which was up and running again a few days after 11 September and is now taking full advantage of the bailouts. The US is only one of many world capitalist centres. Even if we were to win in one place, the nomadic money-moguls would simply mount their camels and head for another. The worlds of 1917 and of 2007 are utterly different, so we must try to move beyond this revolutionary impasse, this dead-end and find a new synthesis.

The question we face is not so much what to do — I think that is reasonably clear and I’m about to spell it out—but whether we will have the intelligence and the strength to seize the great opportunity with which we are now presented. Perhaps the words “great opportunity” strike you as wildly optimistic considering the long and dire preamble you’ve just listened to. However, I am now going to argue that not only are individual solutions insufficient but that the remedies offered by Kyoto, Bali, Bonn or whatever timid future agreements may be negotiated are tragically inadequate, Once more—I cannot stress this enough—the scale is crucial. And the great opportunity is to be found in the financial crisis itself. Properly targeted and used, it could open the door to the quantitative and qualitative leap we must make.

Some progressive people will reject the solution I propose, but I would then ask them what alternative they offer. The ecological crisis is of a different nature from the financial and poverty crises in the sense that once climate change is underway, as it is now, it is irreversible and we haven’t time for theoretically perfect solutions. With politics you can sometimes turn back and start over, but not where nature is concerned. So you can accuse me if you like of suggesting a way to give capitalism a new lease on life and I will plead guilty.

Let’s take first the slightly easier question “How can we deal with governments?” at least in the more or less democratic countries. China is another matter. People are generally way ahead of their governments in recognising the emergency. The political issue is not simply to “throw the rascals out” because they would be replaced by other rascals just as bad, just as beholden to the corporations, their lobbies and the financial markets. The trick is to convince politicians that ecological transformation and environmental practices can pay off politically.

This means that citizens, activists and experts, whether they like it or not, have got to work with local, regional and national politicians and governments; help them to find like-minded partners and formulate ambitious projects they can undertake on the broadest possible scale. Citizens, activists and experts must furthermore help these politicians and governments to become shining ecological examples with the electorate by publicising their efforts and their successes. Could the Schumacher Society become a kind of nexus for an ongoing forum of best-standards/best practice, bringing together political decision makers at every level with citizens groups and experts to discuss and carry out the best public-sector initiatives? Politicians must be convinced that these policies will not just work but also be highly popular with their constituencies.

Now let’s take the more difficult question of confronting the economic system as a whole. In his book Collapse, Jared Diamond examines several historical cases of social extinction due to over-exploitation of the environment. He identifies several common characteristics. One of these is the isolation of the elites, giving them the capacity to keep on consuming way above ecologically sustainable limits long after the crisis has already struck the poorer, more vulnerable members of society. That is where we are now globally, not just in isolated places like Easter Island or Greenland.

So how can we realistically combat the ecological footprints of our dinosaur elites, recognising that we don’t have the option of shouting “Off with their heads” in some imagined, world-wide revolution. Nor can we force them to change both themselves and the system that serves them so well, whereas we know that we must change that system because it is raping the planet and its inherent logic is to keep on doing so.

I can see only one way out: the coming together of people, business and government in a new incarnation of the Keynesian war economy strategy. I was born in the United States in 1934 and I remember well when the US switched massively to a war economy, converting all the rubber plants in my native city [Akron, Ohio] to production not for private cars and trucks but for the military. There was huge citizen involvement and support. Thousands of factories, research labs, housing projects, military bases, day care centres, and schools were built or expanded during the war. Public transport was improved and worked overtime to move millions of men and women to Army bases or new defence jobs.

Yes, there were still worker-management conflicts and yes, big corporations rather than small business got most of the government contracts but on the whole the workers were well paid, African-Americans and women began making a few modest gains and the whole war effort finally pulled the United States out of the Depression—it was Keynesianism on a huge scale. There was also an elite group of businessmen called “Dollar-a-Year Men” on loan from their companies to the government, who were charged with making sure that military production and quality targets were met. They had enormous prestige—my godfather was one and I was doubtless insufferable bragging to my little school friends about him.

Why am I going back over this ancient history? Because I think we have a similar opportunity today. The US and the world economy are heading downhill fast and the fallout for ordinary people in terms of jobs, housing, consumption and future welfare is going to be grave. If this diagnosis is right, then some new economic tools will have to be used to combat recession and stagnation, simply because the old ones have already been pushed to their limits and have little or nothing left to give.

The way Central Banks and Treasuries usually try to solve financial recession or depression is through standard remedies like interest rate cuts, currency devaluations or incurring new debt—but the United States has reached the end of its leash on that score. Interest rates are already extremely low—although not in Europe, where the European Central Bank and its hidebound president are ideologically committed to the same sorts of monetary policies that prolonged the Great Depression in the 1930s. The dollar is already weak, which makes US exports cheaper, but it can’t be devalued much further without risk. Deficit spending is already beyond belief. With the bailout of Fannie Mae and Freddie Mac, the Federal Reserve in effect took on their bad debt and added hugely to the liabilities of the United States Treasury. It risks doing so again. Households too are over-indebted and are losing more equity every day as the value of their dwellings deteriorates.

Since the traditional tools are worn out, the only new tool I can think of to pull the world out economic ruin and social chaos is a new Keynesianism, not military this time, but environmental; a push for massive investment in energy conversion, eco-friendly industry, new materials, efficient public transport; the green construction industry and so on.

Stringent standards for new buildings must become the norm; older ones can be “retro-fitted” on easy financial terms; families and commercial property-owners can receive financial incentives for installing green roofs and solar panels and sell excess energy to the grid. Research and development can be oriented towards alternative energies and strong, ultra-light materials for airplanes and vehicles. Technically speaking, we already know how to do such things, although some clean solutions are still more costly than dirty ones. Mass-produced, they would become less so.

All these new, eco-friendly industries, products and processes would have huge export value and could quickly become the world standard. I am trying to describe a scenario that can be sold to the elites because I don’t think they will embrace genuine environmental values and conversion if there’s nothing in it for them. But this approach is not merely a cynical attempt to get the elites to move in their own interests. There are also plenty of advantages in such an economy for working people. A huge ecological conversion is a job for a high-tech, high-skills, high-productivity, high-employment society. It would be supported, I believe, by the entire population because it would mean not just a better, cleaner, healthier, more climate-friendly environment, but also full employment, better wages, and new skills, as well as a humanitarian purpose and an ethical justification—just like World War II.

How could one finance such a huge effort? It would have to involve targeted government spending in the traditional Keynesian sense and governments are bound to complain that they haven’t the means to carry out such a policy.

The financial crisis provides the ideal opportunity both to finance the conversion and to get the runaway global financial system under control.

At present, taxes almost always stop at national borders. The secret is to take taxes up to the European level and to the international one through currency and other financial transaction taxes. People who oppose such schemes pretend they are not feasible because one would need to obtain the consent of every national jurisdiction in the world, but that is not correct. In fact, currency and other transaction taxes would require nothing more than political determination, the cooperation of the Central Bank and a few lines of software. For the currency transaction tax first proposed by James Tobin in the 1970s and now considerably refined, the tax base is the currency itself, not the place it’s traded. Thus the European Central Bank could easily collect the taxes on any transactions involving euros, the Bank of England the same for the pound, the Fed for the dollar and so on. Since currency trades now amount to $3.2 trillion dollars every day, a tax of one basis point, that is, a levy of one per thousand could raise a tidy sum for ecological conversion and poverty reduction. Britain already imposes a tax on stock market transactions but other European countries do not and should imitate Britain.

Carbon taxes are another much mooted and equally feasible idea. So is a unitary profits tax on transnational corporations, which would require knowing the total sales of the company, the total taxes paid, the sales realised in each jurisdiction and the tax paid in each jurisdiction. If, for example, a TNC reported that in country X, a particularly low-tax jurisdiction, it made 5 percent of its sales yet paid 50 percent of its taxes, the authorities would find it a bit fishy. I’m presenting an extremely crude summary here but believe me, there are experts—bankers, corporate lawyers, fiscal experts and accountants—who know exactly how to do such things. Perhaps to encourage more local consumption, one could also think about taxing the miles travelled by the food we eat and the clothes we wear.

We would not forget the poor countries of the South which are the major terrain of the poverty crisis. Debt cancellation for poor countries that the G-8 has been promising for a decade must finally happen but against the requirement that these countries also contribute to the planetary environmental effort through re-forestation, soil conservation, species protection and the like. They would also be required to involve their own people in democratic decision-making and the funds would be carefully monitored by independent auditors.

Tax havens that allow affluent individuals and corporations to avoid paying their fair share of the conversion should be shut down: it would be cheaper to pay the inhabitants of the Cayman Islands, Liechtenstein and the rest a living wage for twenty years. Plenty of cash would remain for eco-investments, job-creation and poverty relief.

In exchange for their bailouts, the banks and investment houses have to accept regulation—not just regulations to insure transparency and eliminate the incentives for stupid behaviour but also more stringent ones forcing them to participate in the ecological offensive. They should be obliged to devote X percent of their loan portfolios to eco-projects at below market interest rates—which they could make up by charging much higher rates on loans to dirty or otherwise anti-ecological projects. Low or no-cost financing for home conversion projects should be another compulsory priority for banks. This could give a huge spurt to the construction industry.

Nobody is asking for the moon here. Banks would still make loans, finance investments and earn a fair return for their services. Taxes on currency transactions at one basis point are not going to ruin anyone. Unitary profits taxes on large corporations would simply return us to the era when the companies paid their taxes because they couldn’t avoid them. The point is that a Keynesian taxation and redistribution system would be invested, nationally and internationally, both ecologically and socially, in education, health care, clean, green energy, efficient water distribution, communications technology, public transport, and various other things the world needs and that we already know how to do. These measures would, in turn go a very long way to creating opportunities for far more people to participate in the new green economy through jobs, life-long education, more social protection and reduced inequality. Getting the present financial crisis-producing, free-flowing, unregulated financial system under public and citizen control is the prerequisite for solving both the environmental and the poverty crises.

In other words, it’s a Public Relations dream. Whichever political parties understand this can win on such a programme without anyone having to bring down the entire capitalist system as a prior condition for saving the planet.

A Keynesian ecological programme would furthermore bring many constituencies together in a common cause. As matters now stand, politically speaking, no single interest group can solve the problem that concerns it most. By this I mean that, by themselves, ecologists can’t save the environment; farmers alone can’t save family farms; trade unions alone can’t save well-paid jobs in industry and so on. Broad alliances are the only way to go, the only strategy that pays. The Global Justice Movement, as international social activists call it, has begun to have some success in working democratically and making alliances with partners who come from different constituencies but are basically on the same wavelength.

Now we must go beyond this stage and attempt something more difficult: to forge alliances also with people we don’t necessarily agree with on quite major questions—for example, with business. This can only be accomplished by recognising that disagreements, even conflicts, can be fruitful and positive so long as the areas where it is possible to agree are sought out, identified and built upon. We must find where the circles of our concerns overlap. At least one of those overlaps ought to be saving our common home. I don’t see any other way of generating citizen enthusiasm, involvement and the qualitative and quantitative leap in scale that is now required.

I haven’t time to elaborate on all the technical details concerning the content and the financing of necessary environmental investments. What I can do is guarantee you that the conversion to a green economy is technically feasible. The schemes for new taxes have been thought through; the industrial prototypes already exist; the machinery is ready to hum into action the moment people can make their politicians accept the challenge. Getting the financial system under control and taxing international capital at quite ridiculously low rates in order to redistribute it institutionally and internationally would be enormously popular. We could seriously attack climate change and eliminate the worst of world poverty within a decade. We are talking politics, not technical aspects here and trying to figure out a way to tame the raging beast, the crisis-producing, free-flowing, unregulated financial system and putting it under public and citizen control.

Capitalism is not sane in the sense that most people understand sanity. We humans normally think about our future, that of our children and the future of our countries and the world. The market, on the contrary, operates in the eternal present which, by definition, cannot even entertain the notion of the future and therefore excludes safeguards against future, looming destruction unless these safeguards are imposed upon it by law.

We need law, for sure, and political forces with the backbone to propose and to vote the law into existence, but we also need to think about human motivation. Remember the prestigious Dollar-a-Year Men of the 1940s and imagine what might happen if we could transpose them into the world of 21st century capitalism. A significant number of contemporary captains of capitalism, all of them with bloated, unimaginable salaries, might be brought to believe that money is all very well, but is there nothing more? Why not found an extremely exclusive Order of the Earth Defenders, or the Environmental Knights or the Carbon Conquerors who alone, in recognition of their special contributions to the national and international environmental conversion effort. They would have the right to display a highly visible emblem on a banner in front of their homes; a fanion on their cars, a green and gold rosette in their buttonholes like the French Legion d’Honneur or a Congressional Medal of Ecological Honour. They would belong to the small assembly of the anointed; those who provide the means and have the honour of saving the earth. Becoming a member ought to appeal to their competitive spirit.

In conclusion, let me say that myth has always been the driving force of every great human achievement, from Greek democracy to the Renaissance to the Enlightenment and the American and French Revolutions. So must it be in the coming age of Ecological Stewardship. To save the planet, we must change, quickly and profoundly, the way the majority thinks and feels and acts, and we must start with the social forces we have right here and right now, and no others. It’s no use wishing they were different ones or stronger, or wiser. We must play the hand history deals us.

For such a change, we will need six “Ms”, starting with Money, Management and Media. But even more important than these three “Ms”, we must try to create a new sense of Mission and Motivation and Myth at the noblest level. “Myth” in this sense has nothing to do with story-telling or lies. It is the grand narrative that empowers us to believe that we can accomplish what we must accomplish. It speaks to the deepest motivations of human consciousness and inspires the desire for honour and for a life’s work which transcends death. The elites already have Money, Management, Media. On our side, we have Mission, Motivation and Myth. If we can bring together all these, the future will take care of itself.

And wouldn’t that be nicer than having another war?

Global crisis and an international fightback

Alex Doherty — Wed, 08 Oct 2008 09:59:25 +0000

THE global economic crisis threatens to hit poor people hardest amid the challenge to defend millions of jobs. But next Tuesday (October 7) campaigners will launch a fightback with the biggest gathering of international development and labour-related organisations in Britain.

War on Want will play a leading part in this TUC event at Congress House in London which marks the World Day for Decent Work, co-ordinated by the Brussels-based International Trade Union Confederation.

Almost a decade ago, the International Labour Organisation developed the concept of decent work. It defined the concept as “productive work for women and men in conditions of freedom, equity, security and human dignity. Decent work involves opportunities for work that is productive and delivers a fair income; provides security in the workplace and social protection for workers and their families; offers better prospects for personal development and encourages social integration; gives people the freedom to express their concerns, to organise and participate in decisions that affects their lives; and guarantees equal opportunities and equal treatment for all.”

Yet besides the grim statistic that almost 200 million people remain unemployed around the globe, far greater numbers are underemployed or not paid for their work.

In addition, half of the world’s workforce earns less than two dollars a day; more than 12 million women and men work in slavery; 200 million children aged under 15 work, rather than go to school; more than two million people die from work-related accidents and diseases every year.

Moreover, people in developed and developing countries work harder for less money. Companies use the threat of outsourcing to drive down wages and hard-won freedoms, such as the right to collective bargaining and to strike. And trade unionists who fight these trends are dismissed, threatened, jailed and even killed.

The Congress House event will feature more than 50 workshops, films, exhibitions and stalls from unions and development charities, as well as fair and ethical trade groups and academic institutions.

War on Want will lead a session on how free trade rules have destroyed millions of jobs through cheap imports and the new threat to livelihoods posed by the “Global Europe” policy of European Union trade commissioner Peter Mandelson. This will take place from 11.15 am-12.30pm, with speakers including War on Want trade campaigns officer Dave Tucker and Wendy Willems, the charity’s international programmes research officer.

As developing countries resist wealthy nations’ pressure in the World Trade Organisation, the EU aims to bully them one by one into accepting terms that will increase poverty.

Another disturbing trend concerns the growing numbers of people – overwhelmingly women – forced to make their living in the so-called informal economy, without social protection or rights and in precarious jobs.

Zambia, once among the richest African countries, slumped in the 1970s when copper prices collapsed. In return for loans from the World Bank and the International Monetary Fund, the government slashed health and education spending, privatised industries and opened the economy to foreign business.

Now seven in 10 Zambians face life on less than $1 a day, with many struggling to survive through small-scale trading in street markets.

Global Europe defines the EU’s interests in terms of an aggressive market access agenda on behalf of European business. This identifies three key areas in which the EU will press to secure new market access opportunities for its corporations in external markets by renewing commitment to reducing tariffs in developing countries and opposing or preventing other so-called barriers to trade; removing controls which impede access for European business to developing countries’ natural resources, especially in energy; enforcing intellectual property rights, liberalising services and opening public procurement markets to transport, construction and utilities companies.

The Global Europe strategy also seeks to favour corporate interests by lowering social and environmental protection to match US deregulation.

The ILO’s reference to a “fair income” in its decent work definition contrasts with the poverty pay for up to 90-hour weeks toiled by millions of garment workers making clothes for British retailers. In Asian countries such as Bangladesh, India, China and Sri Lanka, employees in sweatshops earn far less than needed to meet bills for food, housing and healthcare.

In June, new research launched by War on Want and the campaign group Labour Behind the Label showed Indian workers making Tesco clothes toiling long hours for as little as 16p an hour – only half a living wage. In January this year, War on Want revealed new evidence from the Garment and Textile Workers’ Union in India that employees producing clothes for Matalan and H&M earned only £38 a month, well under a living wage. And a month later the charity found workers in Kenya and Colombia facing poor wages, health problems and job insecurity, supplying flowers as Valentine’s Day gifts in British supermarkets.

In another workshop organised by War on Want, from 1.30-2.45pm, the speakers will include Simon McRae, its senior campaigns officer, who will describe the charity’s support for garment workers battling for a living wage.

The world financial crisis has sparked widespread debate about its effect on the plight of millions of poor people. The TUC event offers a timely opportunity for activists to join forces in the battle to save jobs and step the campaign to ensure that all employment meets the criteria to justify the term decent work.

Paul Collins is media officer at War on Want

EU paralysed in face of market turmoil

Alex Doherty — Wed, 08 Oct 2008 09:55:19 +0000

The European Union’s finance ministers agreed Tuesday to raise the guarantee on bank deposits to a minimum of €50,000 ($68,160) and “to take all necessary measures to enhance the soundness and stability of our banking system and to protect the deposits of individual savers.”

They would “ensure a comprehensive and coordinated response to the current situation,” a joint statement declared. The finance ministers ruled out a US-style bailout, but said they would defend “systemic” institutions from collapse.

The declaration was an attempt to present a united front after days of indecision and fractious wrangling. It came in the aftermath of “Meltdown Monday,” in which nervousness over the state of Europe’s banking system contributed to massive falls in share prices on the major stock exchanges.

In just 24 hours, governments in Belgium, Luxemburg and Germany were forced to mount emergency bank rescue operations, while in Iceland trading was suspended and the government warned of the potential collapse of the country’s economy. Russia suspended trading twice on Monday and Tuesday and share values fell by over 20 percent.

The market turmoil exploded claims that Europe was relatively free from the financial crisis gripping Wall Street. Whatever the precise degree of direct involvement by the various European banks in the speculative activities most closely associated with the US and Britain, the world’s financial institutions are tightly integrated. Moreover, what began as a liquidity crisis has now spilled over into the rest of the economy.

It was evident that European leaders, like their US counterparts, had underestimated the depth and rapidity of the crisis gripping the world economy. Peter Peston of the BBC said, “One thing, and one thing alone is crystal clear: European governments are as dazed and confused by the mayhem in the global banking system as most of the rest of us.”

Even as the finance ministers began their meeting on Monday, Peer Steinbrueck had to excuse himself to work on what was described as a “system-wide rescue plan for Germany.” This came just hours after the second bailout in a week for the German mortgage lender Hypo Real Estate had been put into place.

In addition to the ongoing uncertainty, what frightened international markets was the prospect of beggar-thy-neighbour measures further destabilising Europe. Germany, Sweden, Austria and Denmark had followed Ireland and Greece in making unilateral pledges to support all savings, raising fears of a massive flight of capital across national borders. In particular, Sunday’s “political commitment” by German Chancellor Angela Merkel to protect savings in German banks opened up the prospect of cut-throat inter-bank competition throughout the continent.

Merkel’s announcement came less than 24 hours after the Paris summit of France, Germany, Britain and Italy had denounced such unilateral guarantees. There was immediate speculation that Britain would have to follow suit—exposing the Brown government to liabilities in excess of £950 billion in retail deposits, double the figure involved in Germany.

Despite the protestations levelled against Berlin, Dublin and Athens, the Paris summit had in fact paved the way for go-it-alone measures when it vetoed proposals for a coordinated bailout plan floated by France and Italy.

The proposal was opposed by both Germany and the UK, which would not countenance bailing out their European rivals. French President Nicolas Sarkozy was later forced to deny having mooted the plan and the summit instead issued a vague commitment that each European government would act to safeguard its own national institutions. This prompted Forbes to comment that “Europe’s most powerful heads of state” had “managed to quietly figure out that it was going to be every man for himself.”

The Guardian’s financial correspondent David Gow’s verdict on the Paris summit was even more damning. It represented “the flight of the EU’s seven leading figures from reality,” he wrote. “Outside, on a chilly but sunny evening, the creeping Balkanisation of Europe’s integrated banking system is moving up a gear; inside, they’re talking up a coordinated, collective response to combat the risk of a 1930s-style depression. But they… know full well that the EU’s financial system is going down the Seine and they are preparing emergency ‘national measures’.”

The fracturing of political relations was made more apparent by the fact that the four acted without any consultation with the rest of the EU’s 27 member states, including the 12 others within the euro zone. Spain protested bitterly at its exclusion.

With the markets in free-fall, there were strident demands for Europe to present some semblance of a common position. International Monetary Fund head Dominique Strauss-Kahn insisted, “Europe must prepare to put in place a collective line of defence. The stability of the world economy is at stake.”

To this end, on Monday night Sarkozy—acting on behalf of the EU—pledged that “No depositor in the banks of our countries has suffered losses and we will continue to take the necessary measures to protect the system as well as depositors… In taking these measures, European leaders confirm the necessity of a close coordination and cooperation.” Even at the eleventh hour, discord continued. Italian Premier Silvio Berlusconi had reportedly read out the same statement earlier as if it were his own, while claiming that a European-wide bailout might still be possible and that Germany had objected only because Merkel “didn’t have the power.”

Later, at a joint press conference in Berlin with Berlusconi, Merkel again rejected proposals for a pan-European bailout, insisting that “every country has to live up to its own responsibilities.”

Meanwhile, Iceland’s prime minister, Geir Haarde, attacked his country’s “friends” for failing to offer financial assistance to the ailing economy, forcing him to go cap in hand to Russia for a €4 billion ($5.4 billion) loan.

Tuesday’s package was an attempt by EU leaders to claw their way back from the precipice and make a show of unity. But it was far from convincing. The financial publication Bloomberg concluded that the ministers had “failed to find a solution to the frozen credit markets that created the biggest financial crisis since the Great Depression, settling for an increase on consumers’ deposit insurance.”

Even this limited measure was a compromise, after some countries urged a guarantee on deposits up to €100,000. The minimum level of support that was specified still leaves differing levels of guarantee across the continent. Whatever action is taken remains to be organised on a national rather than European-wide basis.

What does Merkel’s demand that every country must “live up to its own responsibilities” mean other than a further descent of the continent into economic conflict? An hour after the statement was issued, Spain announced that it was raising its guarantee of savings from €20,000 to €100,000.

The Paris summit had already agreed to temporarily relax euro zone rules against state subsidies and limits on national budgets—bringing an effective end to a coordinated monetary policy. There is even some speculation that the euro zone could fracture under the weight of increasingly divergent national interests.

Noting that recent years had seen “extreme movements in competitiveness, unit labour costs and trade balances across the euro zone,” the Guardian cited Charles Goodhart of the London School of Economics estimating the risk that the monetary union will break up at between 10 to 20 percent.

Leaving aside such doomsday scenarios, the economic and social implications of what has currently been proposed are vast. The banks and major corporations are demanding that billions be made available to them, under conditions in which France is officially in recession, Britain’s Chamber of Commerce insists that the UK is in recession and the rest of Europe looks set to follow.

For the last decade, Europe’s leaders have slashed welfare and public spending on essential services, claiming that the money was not available and the private sector was more efficient. Now, without any democratic consultation, let alone a vote, they have agreed to direct vast tranches of public funds into unstable financial institutions to pay for rampant speculation by the super rich.

So far this process has gone furthest in the UK, which is one of the world’s leading financial centres. Already this year some £200 billion has been made available to just two banks. As Brown held urgent talks with the Bank of England on Tuesday night, there were calls for the government to recapitalise major banks whose shares in some instances fell by around 40 percent.

This is just the tip of the iceberg—and there is no guarantee that it will work. Working people thus face wage cuts and tax hikes to preserve the grotesque wealth accrued by the financial oligarchy under conditions in which tens of thousands have already been thrown out of work across Europe. Unemployment stood at 7.5 percent in August and there are predictions that millions more could lose their jobs by the end of the year.

Debts the way to do it

Ellie Keen — Sat, 04 Oct 2008 14:44:13 +0000

AS SCHNEWS RASHLY TAKES ON THE CREDIT CRUNCH AND THE FUTURE OF GLOBAL CAPITALISM

“Whoever is to blame for this week’s scenes on world stockmarkets, only the most churlish anarchist would welcome them.” – the Guardian, 1st October 2008

Blimey… you spend 15 years struggling against global capitalism and then the bloody thing collapses of its own accord. Building societies, banks and all manner of financial institutions are going to the wall.. City wide-boys, hands bloody from their ruthless assault on the world’s poor, are flinging themselves in front of trains – and nobody’s had to lift a finger – let alone throw a Molotov.

Since our report on the welfare state for business (SchNEWS 647) western governments have continued throwing infeasibly large amounts of money at the free-falling financial markets.

‘Meltdown Monday’ was only the start (Traumatic Tuesday, Woeful Wednesday etc) as here in the UK, Bradford and Bungly went belly up and had to be nationalised – well it’s massive debts did anyway with Spanish bank Santender, already owners of Abbey, encouraged to pick up the best bits of B&B for a song. Halifax nearly collapsed and had to be sold to Lloyd’s bank – forget the monopoly issues just keep the sinking ships afloat!

Over in the States, Bush and his cronies are desperately trying to get through a whopping $700 billion bail out bill to shore up confidence in a financial system teetering on the edge. They failed initially, leading to further market plummets before persuading Congress to approve a revised deal this week (being voted on by the House of Representatives today).

The nattily named credit crunch appears to be getting more and more bite, so what’s it really all about?

The explanation tossed around by most mainstream media tells us that it’s due a rash ‘sub-prime’ mortgage lending – OK, but if you want to understood why it’s knock on effects are so threatening to the system it’s actually a little more complicated.

The comparative economic boom (ridden with such self-congratulation by the ‘golden’ chancellor at the time…er, a Mr G. Brown) since the last recession in the early 90’s has been based on massively increasing levels of debt. Not just individual consumers spending their way to prosperity on credit cards, but banks, all the other types of financial institutions, corporations and governments.

Household debt has increased from 50% of GDP in 1980 to 100% in 2007. Financial sector borrowing has gone from 21% to 116% of assets in the same period. In fact, a chief cheerleader of the brave new financial world was the former boss of now bust Goldman Sachs – one Henry Paulson. He took them from $20 billion in debts in 1999 to $100 billion when he left. Having helped cause the crisis, and getting rich off it, he’s now the man putting forward the bail out plan as US Treasury Secretary. Despite self-imposed limits, Governments have also ramped up their debt levels – achieved by privatising everything in sight and putting all the deals ‘off balance sheet’ (thanks, Gordon!)

So lenders now routinely now lend out more than the total assets of the company. It was all made possible by massive deregulation, the completion of the project started in the Thatcher / Reagan free market era, as big business and their lobbies finally succeeding in getting politicians completely in their pocket, and indeed direct pay. Light touch regulation gave way to feather light.

The confidence of banks to throw ever more cash around was underpinned by the invention of the Credit Default Swap (CDS) market. This allows organisations exposing themselves by loaning out money to buy a kind of insurance against a default on that loan. In return for paying small regular premiums, priced depending on the perceived risk of default, that organisation could think of itself as no longer exposed to any risk, able to reduce any provisions put aside in case of default (so called ‘bad debt’) – and therefore free to lend out even more cash.

A culture of risky, unsound lending was thus created. To make things worse, all these debt contracts are traded, and indeed speculated on. They change hands multiple times as different people estimate their current value and risk differently. A tasty profit opportunity for canny get-rich-quick investors, but difficult for buyers removed from the original business to assess what they’d really bought.

In effect this all meant that many billions of debt could be considered assumed by people only having to put up in hard cash a tiny percentage of that figure. No problem as long as house prices, shares, bond prices etc all kept rising and more debt could be given out cheaply and easily to anyone who might otherwise be close to default. A debt mountain was gradually accumulated. In 2008, the amount of debt in the CDS market is estimated to be more than $50 trillion. That’s over twice the value of the entire US stock market.

Confidence started to collapse as the risks of sub-prime default got reassessed and foreclosure and bankruptcy rates started to climb. Banks panicked and realised they were caught in a kind of pyramid scheme. If people started defaulting in numbers nobody would have enough cash to pay out. The availability of cheap CDS contracts dried up and banks refused to lend to each other, wary that anyone of them could go under at any time. The cost of servicing the CDS exposures lept up, to the point where banks like Goldman Sachs and Bradford & Bingly couldn’t afford them and, unable to just borrow more to cover it, went swiftly bust. As credit availability goes down, the levels of debt exposure now threaten to bring down all types of companies, wrecking the economy from all sides at once.

Facing meltdown, governments have been forced to step in to avert complete collapse of the system. But it won’t work in the long term as they’re effectively giving a blood transfusion to a badly haemorrhaging patient. The bail outs may buy some more time – gambling taxpayers money for years to come on a high risk strategy financed through yet more debt (China and India have been helping by buying up US govt bonds, leading some to wonder whether this will see a further shift in the balance of economic power, but it’s all interconnected baby!) – but the fundamental flaws of capitalism will remain and bleed everyone dry in the end. In fact, the hand outs will just ensure that it’s the same old elite who will get richer as the system creaks on to it’s inevitable demise – it’s just a question of how long (end of the world in 2012 anyone?).

BACK IN THE REAL WORLD

In the meantime, what will it all mean for the average SchNEWS reader in the street? What’s gonna happen next?! If you’re poor, lacking large debts, a mortgage, share portfolio and high paying job, you might even enjoy the ride.

If the credit crunch triggers a full-blown recession we’re going to see a surge in repossessions of houses. Squatters paradise! The number of endless yuppie flat developments and ego-driven showpiece towers will plummet. Less 4×4s, less sports cars. The consumer slowdown will be good for the environment – economic collapse is the only realistic way of reaching those carbon emission targets! On the down side there’ll be less food available for looting from skips as bargain hunting shoppers clear out the aisles, but local food production will have to increase.

As the job queues swell, access to social services will become less punitive. When you’re one of three million as opposed to one of 300,000, there’s only so much hassle at the dole office to go round.

The wave of depression should throw up new political opportunities. For a long time in the developed west, the majority of the opposition to capitalism was essentially moral. Fair trade and charity was thought good enough to stave off the guilt of being disproportionately wealthy. But as the spoils of globalisation become increasingly only available to a smaller and smaller elite, interest in alternative ways of doing things should also increase.

Recent events have shown capitalism is a hothouse flower – it has to exist swaddled in a life-support system of regulations and laws protecting private property, allowing corporations to exist . Most importantly it requires the state to be a lender of last resort.

Despite the endless free market rhetoric we’ve been forced to swallow since the Thatcher era – the government has always functioned as a welfare state for the rich. This life support system has been filtering the real wealth upwards in society for years but now it’s all out on the open as the bankers stretch out their begging bowls.

It’s now been demonstrated to all and sundry (who’d previously not been reading SchNEWS) that the ‘free’ market is no such thing. Pundits might spew about ‘irresponsible’ lending and try to pin the blame on a few bad apples but in fact all the markets were doing is what markets are supposed to do – chase after the largest amount of profit in a single-minded ruthless way – and human beings are just a minor obstacle in that pursuit.

Perhaps as times get tougher, people might finally get it together to demand more fundamental changes – and not leave the super rich in charge of it.