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Finance: the Aristocracy of "Globalisation".
by Ann Pettifor, director Jubilee Research at the New Economics Foundation, London.

The Jubilee 2000 campaign was extraordinarily successful in placing the issue of sovereign debts on the political agendas of the G8 countries. Our work has led to the cancellation of $34 billion of debts, and the promise of more cancellation. The achievement of campaigners and activists worldwide is particularly significant when measured against the dramatic transformation of the global economy from the 1970s onwards.

This transformation was characterised by an explosion of credit, overseen by the IMF and World Bank; and by respected central bankers like Alan Greenspan and “Steady Eddie” George. It is this explosion of credit, and the associated debts, that are fundamental to the economic transformation we call “globalisation”. The coming, inevitable “correction” to the credit cycle, presents, in our view, a grave and imminent threat to the stability of the global economy, and to the livelihoods of billions of people.  Today the world’s outstanding debts are estimated by one economist at $100 trillion (including a debt mountain of $34 trillion in bonds). These debts represent 3 times global income/gdp [1] - and are therefore unlikely to ever be repaid. Non repayment will nevertheless wreak havoc on the lives of billions of people.

The transformation of the global economy into one of unsustainable debts; in which the finance sector has a dominant role is, we contend, the conscious result of government action.

Today, as a result of an effective license granted by governments, the finance sector acts as the French aristocracy did before the Revolution. Its members remain largely hidden and unaccountable behind the invisible walls of the “capital markets” –  walls that protect privilege and wealth. This does not prevent the players in these markets from attempting e.g. to dictate the outcome of democratic elections in Brazil. (The election of President Lula must be interpreted as a major victory by the Brazilian people over the arrogant pretensions of invisible, reckless and unaccountable international bankers, creditors and investors. It is this group after all, who helped raise Brazil’s debt to 63% of GDP by 2002 – from 29% in 1994 when President Cardosa took office).

Unfortunately, because the finance sector is on the whole, invisible, it does not attract the opprobrium associated with the activities of a much smaller, and more productive sector of the global economy; the activities of corporations. While big TNCs harm the environment; flout human rights and intensify exploitation of the land and labour – they are a relatively small part of a global economy now dominated by a sector which, in our view, poses a much greater threat to humanity and the environment.  Furthermore while they may do harm, big corporations are at least producing goods and services. The finance sector, on the whole, is about the unproductive business of making money from money. In other words, from gambling, speculation or interest. Making money from interest by-passes the unpredictable and messy engagement with land, labour and profits. While profits, wages and the value of land may go up or down, interest has, on the whole, only one dynamic: it rises upward in a straight line. Compound interest has the most magical powers of all – rising inexorably (except if there’s a credit crash) to “celestial heights”.

So credit and debt is at the centre of the transformation of the global economy that has been widely defined as “globalisation”. And “globalisation” and its associated prosperity in the west, has been a useful term with which to mask the actions of governments over which civil society has power and influence.  The CEO of Citigroup, Walter Wriston, defined globalisation in the following, misleading, way: 

"……..a galloping new system of international finance (which) …differs radically from its precursors in that it was not built by politicians, economists, central  bankers or finance ministers, nor did high-level international conferences produce a master plan. It was built by technology….by men and women who interconnected the planet with telecommunications and computers." [2]

  We beg to differ.  On the contrary, we argue, western governments, their elected leaders, and by implication, civil society, have been and are still, the real driving force behind financial liberalisation. Anglo-American leaders were motivated to embark on the "globalisation" project, as Eric Helleiner has cogently argued [3], because of the steady expansion of the US trade deficit in the 1960's and 70's. This led to deliberate decisions by the US and UK governments to remove controls over the movements of capital. 

The US trade deficit had to be financed, and the US was determined to finance it without lowering living standards, or without giving up its policy autonomy to foreign creditors.  That is, without the necessary “structural adjustment” imposed on much poorer nations. To do so, capital controls had to be lifted, so the US could access foreign capital markets. The City of London, backed by the UK government, was only too happy to broker financing for the US deficit – through, first, the "stateless" Eurodollar market based in London - a market carefully created by elected representatives of two of the world's most powerful states.

Today, the US’s accumulated external debt, is equal to $2.2 trillion and can only be sustained by mobilising a staggering $4bn of foreign savings each day of the year. 

The US deficit is a powerful symbol of what is wrong with “globalisation”; of the imbalances caused by a credit binge, excessive consumption and associated debts. These debts are already wreaking havoc with poor country governments, big corporations (like Enron and WorldCom) and millions of households and individuals.  It is vital that western civil society should grasp this reality, acknowledge and accept responsibility for the governmental decisions that have led to the credit binge and unpayable debts – i.e. “globalisation”. Above all we should be prepared for the economic, environmental and social degradation associated with destruction of the “credit bubble”, in particular the onset of a period of widespread depression and deflation. We cannot do so if our analysis of the forces at play in the global economy is wrong; and if we play into the hands of the finance sector, by ignoring it.

Above all we should be prepared to shape the alternative: a world in which the finance sector and markets in general, are once again subordinated to environmental, social and political priorities, determined locally and democratically. A world in which governments, and their people, regain the right to policy autonomy – and to sustainable self-determination.

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