Monday, June 16, 2008

Lies - Part 3

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Farmers protest in Argentina, truckers block the roads of Spain, South Koreans flood the streets of Seoul, riots break out in more than 15 countries. What are they so angry about? While the reasons may vary from taxes to fuel costs to imported US beef or simply the cost of rice, they all have their roots in globalization. No, globalization itself isn't a bad thing. It makes perfect sense that lower trade barriers help make the flow of goods move smoother and thereby reduces costs for the benefit of people. What is a bad thing is the system that is in place today, ruled over by the financial powers through the World Bank, International Monetary Fund (IMF) and the World Trade Organization (WTO), formerly GATT (General Agreement on Trade and Tariffs). However, the past few months have seen some dramatic events in the world markets that may point to the end of the imperialist system that the rich need us all to believe in so badly.

As Jose Louis Jamarillo, the former Columbian Ambassador to GATT and President of the Group of 77, declared after the birth of the WTO, what we have created is "an institutional trinity which will dominate all economic relations across the world in the interests of the strongest". The World Bank lends money to poor nations to develop their resources, the IMF ensures they budget correctly to pay back the loans, and the WTO ensures they keep their markets open to imports. The rule of the market, cutting public expenditure for social services, deregulation, privatization are the mantras of neo-liberalism. Structural adjustment demanded by the IMF can best be summed up with the idea of earn more and spend less, thus ensuring that debtor nations will scramble to sell what resources they can, driving down the price, while paying workers the minimum, in wages and benefits. This combination of low wages, low commodity prices and debt is the perfect system to guarantee the world's resources flow to the rich nations.

Meanwhile, the wealthy world prescribes exactly the opposite medicine for their own economies. The European community agreed that West Germany had to put $1.5-trillion into the former East Germany to simultaneously build industry, social infrastructure, and buying power. When Greece, Portugal, and Spain, relatively poorer than the rest of Europe, wanted to join the Common Market, massive transfers of direct aid flowed into these "poorer" nations to accelerate development, raise wages, regularize safety and environmental standards and improve living conditions. All wealthy nations provide enormous subsidies to their industries and agriculture, they all placed, and some still place, high tariffs on manufactured imports and low or no tariffs on raw material imports. They all provided, and still provide, subsidies to exports. There are also land donations, tax breaks, and below cost services in bidding wars to gain or retain industry as well as wage subsidies, and outright cash incentives. Between 1995 and 2005, $165bn of American taxpayers' money was used to support US agricultural commodities. Soya, corn, rice, wheat and cotton accounted for 90% of that money. Sugar was also heavily subsidised. The real beneficiaries of this system of government support have not been US farmers, who have gone out of business in their thousands, but the mainly US-based trading giants. For subsidies have allowed them to export grains at less than the cost of production, making it impossible for other countries to compete, while bringing the money from added-value markets back home. In this they mirror the patterns of trade established between previous empires and their colonies. The European Union gives out about $41 billion a year in agricultural subsidies, about $8.2 billion to France alone.

If people don't have enough food to put in their mouths, what's the use of an economic boom in exports. Countries are scrambling to come to terms with the new economics of food. India scrapped all import duties on cooking oils and banned exports of non-basmati rice. Japan is importing genetically modified grains for the first time. China has tried to calm its people by announcing reserve grain holdings, once a state secret. Meanwhile, the truly poor, the billion living on less than a dollar a day are trying to survive by cutting out bread and switching to different grains such as sorghum, eliminating meals and drinking tea for lunch. What can you do when wheat prices have leapt 80% from 2005 to early 2008? Much of the root of this problem can be linked to "free trade" and agricultural subsidies. Annual subsidies paid to farmers in "rich" countries total about $280 billion while total annual development assistance to the "poor" nations totals about $60 billion. The aforementioned agricultural subsidies flow mainly to a few commodity crops, wheat, cotton, corn, soybeans and rice (about 90% of US subsidies). This not only makes it more difficult for farmers in the "poor" nations to compete, but also makes other fresh fruit and veggies relatively more expensive. A Japanese cow gets a $3000 subsidy, one in the EU $1000 while the average income in sub-Saharan Africa is $500. So, what happens to the farmers in poor nations? They stop farming as they can't compete with the cheaper imports. World food prices spike and now you have a crisis of unimaginable proportions.

An interesting case in point is the effect that the price bubbles in oil and food are having on the have and have-not nations of the Middle East. While Egypt has banned exports and raised taxes to pay for the 88% in food subsidies it has been forced to give it's people following rioting, Saudi Arabia simply lowers tariffs and the UAE buys farms abroad. The rich and the poor, within and among nations behave in different ways towards crisis. The end result of neo-liberalism, or globalization has been an ever intensifying concentration of wealth. The rich get richer and the poor get poorer, a global game of winners and losers. Perhaps if the winners weren't faceless corporations or greedy money managers the looming food crisis wouldn't now be upon us. The ease with which capital flows has contributed to the recent price surge. As investors fleeing Wall Street's mortgage strife noticed the price spike early last summer as reports of weak wheat harvest in the US and Europe along with a prolonged drought in Australia, they poured money into grain futures. Of course their actions can't be seen in isolation, as many other factors such as government subsidized biofuel programs and national governments reactions from the barring of exports in producing nations, to increased purchasing by importing nations such as China also came into play. Food became the new gold for hedge fund investors last year and they're looking for the next disaster play. “every debt crisis in history since Solon of Athens has ended in inflation, bankruptcy or war” - George, Fate Worse Than Debt, p. 196

So, what happens when someone doesn't want to play by the rules set by the world's elite? That's easy, embargo, destabilization, attack or an engineered change of government. Most of the world's resources are found in the developing world, this is why we see the race for free trade agreements and feel the ever growing threats implied towards other nations who don't toe the line. If these less developed nations were to form alliances and barter for a better deal for their natural resources, they would be able to develop. Unfortunately, what we have is a true vicious circle: the world economy is dependent on growth in the U.S. economy but the U.S. domestic economy is [now] skewed more towards consumption than production and investment, and this consumption is in turn sustained by borrowing—at home and abroad.... The deal with surplus countries essentially has been as follows: you can run a big trade surplus with us provided that you put the money back into our capital markets. One of the major points free traders point to for the reason that poor nations are poor is corruption. While it's hard to argue against the fact that corruption is a huge drain on wealth, how can the World Bank and IMF criticise recipient governments for their lack of transparency, widespread corruption and undemocratic regimes, insisting on the reform of these aspects as a pre-condition to granting loans and debt relief? These same issues haunt the World Bank and IMF which are widely regarded as not transparent, undemocratic and unaccountable. Corruption within these organisations is rife, and millions of dollars unaccounted. Remember Paul Wolfowitz?

Finally, labour from two angles, one lie for the poor, another for the rich. If the "rich" nations of the world want free trade with free movement of capital and resources, the third component in the wealth creation equation should also be able to move freely; labour and people should be allowed to move across borders as easily as goods, services and money. In today's Guardian, Evo Morales, president of Bolivia, wrote an open letter to the leaders of the EU in which he pleas for them not to punish illegal immigrants too harshly. The US fights with it's own immigration policies, while millions around the world seek to escape poverty and war only to find the door closed. Meanwhile, in developed countries, labour faces it's own challenges. Corporations are able to combine labour and equipment from anywhere in the world, making it easier for them to use lower priced labour overseas. Businesses can use the threat of relocating as a lever to get what they want in the form of tax policy, regulations and subsidies, with the costs being borne by labour itself. South Korea will be losing jobs to cheap labor in Thailand and even China may someday lose factories to Bangladesh. Industries can be built quickly. But the markets of an efficiently functioning economic infrastructure (roads, schools, universities, businesses, homes, postal system, trucking companies, and airlines) can be built only slowly.

Over my last three posts I've tried to point out some of the most common lies that the public are fed daily. I understand that it is part of a politician's job to portray a state of calm in the face of growing turbulence. It may seem a little paradoxical to claim in a blog that part of the problem lies in the narrow range of views the public is fed daily. You might be reading this, we all may have access to different sources of information, but the fact is that the majority of people get their news from one of six sources: GE, Time Warner, Walt Disney, News Corp, CBS or Viacom. Forget the WTO or even the G8, the power of who gets traded with in in fact in the hands of only 4, the Quadrilateral Group of trade ministers. While there's no denying that the global economy has grown, the real questions are who benefits and what are the costs. The growth model that everything is built on seems inherently flawed, especially of late with the surge in oil prices. And what of the effects on the environment, a subject not even touched upon here.

If you like the film at the beginning, you can download it in it's entirety and legally, here.