The Global The Global Financial Financial

System as a System as a Threat to Threat to

Sustainable Sustainable DevelopmentDevelopment

Greenaccord Conference,Greenaccord Conference, Viterbo, Italy, Nov. 25-28, Viterbo, Italy, Nov. 25-28,

20082008

The Dynamics and The Dynamics and Consequences of the Consequences of the

Wall Street Meltdown…Wall Street Meltdown…oror

Will Global Capitalism Will Global Capitalism Survive its Worst Crisis Survive its Worst Crisis

since the Great since the Great Depression?Depression?

Just as hope emergesJust as hope emerges

from despair,from despair,

and day follows night,and day follows night,

November comes afterNovember comes after

October…October…

But October, let’s face it, But October, let’s face it,

was a nightmare, was a nightmare,

and it will not go away,and it will not go away,

and it will be with us for and it will be with us for some time to come…some time to come…

Turmoil onTurmoil on

Flying into New York to take up my Flying into New York to take up my professorial assignment at the State professorial assignment at the State University of New York in late September, University of New York in late September, I had the same feeling I had when I arrived I had the same feeling I had when I arrived in Baghdad a few days before the in Baghdad a few days before the American invasion in 2003 and in Beirut American invasion in 2003 and in Beirut two years ago, at the height of the Israeli two years ago, at the height of the Israeli bombing of that city—that of entering a bombing of that city—that of entering a war zone. war zone.

The immigration agent, upon learning I The immigration agent, upon learning I taught political economy, commented, taught political economy, commented, “Well, I guess you folks will now be “Well, I guess you folks will now be revising all those textbooks.” The bus revising all those textbooks.” The bus driver welcomed passengers with the driver welcomed passengers with the words, “New York is still here, ladies and words, “New York is still here, ladies and gentlemen, but Wall Street has gentlemen, but Wall Street has disappeared, like the Twin Towers.”disappeared, like the Twin Towers.”

Even the usually cheerful morning shows Even the usually cheerful morning shows feel obligated to begin with the bad news, feel obligated to begin with the bad news, with one host attributing the bleak events with one host attributing the bleak events to “the fatcats of Wall Street who turned to “the fatcats of Wall Street who turned into pigs.”into pigs.”

““Hi folks, we’veHi folks, we’ve gotgot

To let reality slipTo let reality slip

in occasionally.”in occasionally.”

OktoberdammerungOktoberdammerung: Oct. 6-10 : Oct. 6-10 Worst Week ever in Wall Street Worst Week ever in Wall Street

HistoryHistory-$2.3 trillion dollars of investor wealth went up in smoke Oct. 6-10 as -$2.3 trillion dollars of investor wealth went up in smoke Oct. 6-10 as the Dow Jones Industrial Average registered its worst week ever, the Dow Jones Industrial Average registered its worst week ever, plunging 18 percent as investors panicked and kept on unloading plunging 18 percent as investors panicked and kept on unloading stock despite various US government plans to bail out the banks. stock despite various US government plans to bail out the banks.

- The ghastly week came on the heels of the collapse of one of the - The ghastly week came on the heels of the collapse of one of the Street’s most prominent investment banks, Lehman Brothers, Street’s most prominent investment banks, Lehman Brothers, followed by the largest bank failure in US history, that of Washington followed by the largest bank failure in US history, that of Washington Mutual, the country’s largest savings and loan institution;Mutual, the country’s largest savings and loan institution;

-the effective nationalization of Wall Street, with the Federal -the effective nationalization of Wall Street, with the Federal Reserve and the Treasury Department making all the major Reserve and the Treasury Department making all the major strategic decisions in the financial sector and, with the rescue of the strategic decisions in the financial sector and, with the rescue of the American International Group (AIG), the amazing fact that the US American International Group (AIG), the amazing fact that the US government now runs the world’s biggest insurance company;government now runs the world’s biggest insurance company;

At the end of that fateful week over $8.4 trillion in total At the end of that fateful week over $8.4 trillion in total market capitalization had been wiped out since October market capitalization had been wiped out since October of 2007, with over a trillion of this accounted for by the of 2007, with over a trillion of this accounted for by the unraveling of Wall Street’s financial titans. The massive unraveling of Wall Street’s financial titans. The massive devaluation of US financial institutions has continued devaluation of US financial institutions has continued since then. One very famous candidate for collapse is since then. One very famous candidate for collapse is Citigroup. Two years ago, Citigroup was worth $244 Citigroup. Two years ago, Citigroup was worth $244 billion. By last Friday, Nov. 21, it was worth only $20 billion. By last Friday, Nov. 21, it was worth only $20 billion.billion.Banks also began to totter and near collapse in Europe Banks also began to totter and near collapse in Europe as the “American financial virus” spread. The whole as the “American financial virus” spread. The whole financial system of Iceland has now collapsed.financial system of Iceland has now collapsed.The usual explanations no longer suffice. Extraordinary The usual explanations no longer suffice. Extraordinary events demand extraordinary explanations. But first…events demand extraordinary explanations. But first…

Is the worst over?Is the worst over?

No, if anything is clear from the contradictory moves of the last few No, if anything is clear from the contradictory moves of the last few weeks--allowing Lehman Brothers to collapse while taking over AIG, weeks--allowing Lehman Brothers to collapse while taking over AIG, engineering Bank of America’s takeover of Merrill Lynch, proposing engineering Bank of America’s takeover of Merrill Lynch, proposing to buy up the banks’ bad assets, then advocating their to buy up the banks’ bad assets, then advocating their recapitalization or partial nationalization--there is no strategy to deal recapitalization or partial nationalization--there is no strategy to deal with the crisis, just tactical responses, like the fire department’s with the crisis, just tactical responses, like the fire department’s response to a conflagration. (Some say this description is an insult response to a conflagration. (Some say this description is an insult to the fire department.)to the fire department.)

The moves of the US and European governments to “recapitalize The moves of the US and European governments to “recapitalize the banking system” amount to desperate efforts to shore up the banking system” amount to desperate efforts to shore up confidence in the system, to prevent the erosion of trust in the banks confidence in the system, to prevent the erosion of trust in the banks and other financial institutions and prevent a massive bank run such and other financial institutions and prevent a massive bank run such as the one that triggered the Great Depression of 1929.as the one that triggered the Great Depression of 1929.

The financial crisis has now spread to Europe and Asia, The financial crisis has now spread to Europe and Asia, and it is no longer something that only affects banks that and it is no longer something that only affects banks that hold subprime securities they bought from US hold subprime securities they bought from US institutions. It is now a question of fear overcoming trust. institutions. It is now a question of fear overcoming trust. Banks don’t want to lend to one another because they Banks don’t want to lend to one another because they don’t know who among them is overexposed to toxic don’t know who among them is overexposed to toxic subprime securities or because they want to hold on subprime securities or because they want to hold on cash and other secure assets to defend themselves from cash and other secure assets to defend themselves from an unpredictable conflagration, and depositors have an unpredictable conflagration, and depositors have growing fears about whether their money is safe in the growing fears about whether their money is safe in the bank, in spite of FDIC (government) insurance. In this bank, in spite of FDIC (government) insurance. In this crisis, no bank, even the seemingly most impregnable, is crisis, no bank, even the seemingly most impregnable, is safe from a run such as that which triggered the Great safe from a run such as that which triggered the Great Depression in 1929. Depression in 1929. In a run, no bank is solvent.In a run, no bank is solvent.

Causes of the Meltdown: Greed?Causes of the Meltdown: Greed?

So what caused the collapse So what caused the collapse of global capitalism’s nerve of global capitalism’s nerve center?center?

Was it Greed? Yes. Was it Greed? Yes.

This isThis is whatwhat Klaus Schwab, the organizer of the Klaus Schwab, the organizer of the World Economic Forum, the yearly global elite World Economic Forum, the yearly global elite jamboree in the Swiss Alps, had in mind when he jamboree in the Swiss Alps, had in mind when he told his clientele in Davos earlier this year:told his clientele in Davos earlier this year:““We have to pay for the sins of the past.”We have to pay for the sins of the past.”

Wall Street Outsmarting Itself?Wall Street Outsmarting Itself?

Definitely. Financial speculators Definitely. Financial speculators outsmarted themselves by outsmarted themselves by creating more and more complex creating more and more complex financial contracts like derivatives financial contracts like derivatives that would securitize and make that would securitize and make money from all forms of risk. money from all forms of risk. Derivatives might be labeled, Derivatives might be labeled, following Derrida, as following Derrida, as spectral spectral assetsassets---that is, they are contracts -that is, they are contracts that enable gambling and making that enable gambling and making money from the risk associated money from the risk associated with an underlying asset—that is, with an underlying asset—that is, on the price of that asset’s rising on the price of that asset’s rising or falling---without trading the or falling---without trading the asset itself. asset itself.

Derrida and DerivativesDerrida and Derivatives

Derivatives include exotic futures Derivatives include exotic futures instruments such as “credit default instruments such as “credit default swaps” that enable investors to bet on swaps” that enable investors to bet on the odds that the banks’ own the odds that the banks’ own corporate borrowers would not be corporate borrowers would not be able to pay their debts! This is the able to pay their debts! This is the unregulated multi-trillion dollar trade unregulated multi-trillion dollar trade that brought down AIG.that brought down AIG.

On December 17, 2005, when On December 17, 2005, when International Financing International Financing Review Review ((IFRIFR) announced its 2005 Annual Awards — one ) announced its 2005 Annual Awards — one of the securities industry's most prestigious awards of the securities industry's most prestigious awards programs—it had this to say:programs—it had this to say:

"[Lehman Brothers] not only maintained its overall "[Lehman Brothers] not only maintained its overall market presence, but also led the charge into the market presence, but also led the charge into the preferred space by ... developing new products and preferred space by ... developing new products and tailoring transactions to fit borrowers' needs…tailoring transactions to fit borrowers' needs…Lehman Brothers is the most innovative in the preferred Lehman Brothers is the most innovative in the preferred space, just doing things you won't see elsewherespace, just doing things you won't see elsewhere."."

No comment.No comment. But Warren Buffett, the grand But Warren Buffett, the grand speculator who eliminated derivatives from his investment speculator who eliminated derivatives from his investment fund long before the recent crisis, because he said he fund long before the recent crisis, because he said he could not understand how they worked, called derivatives could not understand how they worked, called derivatives in 2003 “financial weapons of mass destruction” devised by in 2003 “financial weapons of mass destruction” devised by ““madmen” whom he recently defined as “geeks bearing madmen” whom he recently defined as “geeks bearing formulas.”formulas.”

The truth is that the top graduates of the US The truth is that the top graduates of the US business schools like Harvard and Stanford and business schools like Harvard and Stanford and Wharton brought us this crisis. Wharton brought us this crisis.

(A financial executive I interviewed in New York last (A financial executive I interviewed in New York last month qualified this by saying that these operators were month qualified this by saying that these operators were not just rich white kids but many of these professionals with not just rich white kids but many of these professionals with Ivy League credentials were of Indian and Chinese Ivy League credentials were of Indian and Chinese origin. “Most are very good at math, like me, but like me, origin. “Most are very good at math, like me, but like me, probably bad at business.” He was from the Philippines.)probably bad at business.” He was from the Philippines.)

Lack of Regulation?Lack of Regulation?

Yes—everyone acknowledges by now that Wall Street’s Yes—everyone acknowledges by now that Wall Street’s capacity to innovate and turn out more and more capacity to innovate and turn out more and more sophisticated financial instruments had run far ahead of sophisticated financial instruments had run far ahead of government’s regulatory capability, government’s regulatory capability, not because not because government was not capable of regulating but because government was not capable of regulating but because the dominant neoliberal, laissez-faire attitude prevented the dominant neoliberal, laissez-faire attitude prevented government from devising effective mechanisms with government from devising effective mechanisms with which to regulatewhich to regulate. The massive trading in derivatives . The massive trading in derivatives helped precipitate this crisis, and the man who did the helped precipitate this crisis, and the man who did the most to prevent the regulation of derivatives was Alan most to prevent the regulation of derivatives was Alan Greenspan, the former chairman of the Federal Reserve Greenspan, the former chairman of the Federal Reserve Board, who believed that the derivatives market would Board, who believed that the derivatives market would regulate itself. regulate itself.

The US Congress agreed with Greenspan and The US Congress agreed with Greenspan and passed a law excluding derivatives from being passed a law excluding derivatives from being regulated by the Securities Exchange Commission regulated by the Securities Exchange Commission in 2000. Deregulation, it must be noted, was not in 2000. Deregulation, it must be noted, was not just a Republican initiative. It was a bipartisan just a Republican initiative. It was a bipartisan campaign.campaign. Led by Wall Streeter Robert Rubin, Bill Led by Wall Streeter Robert Rubin, Bill Clinton’s Treasury Secretary, the Clinton Clinton’s Treasury Secretary, the Clinton administration and Congressional Democrats administration and Congressional Democrats were strong supporters of another law that were strong supporters of another law that helped father the current crisis, the repeal of the helped father the current crisis, the repeal of the Glass-Steagall Act, which had prevented Glass-Steagall Act, which had prevented commercial banks from also being investment commercial banks from also being investment banksbanks. Citigroup was a product of this deregulatory act. . Citigroup was a product of this deregulatory act. Rubin is now one of President-Elect Obama’s main Rubin is now one of President-Elect Obama’s main economic advisers, which should worry us all.economic advisers, which should worry us all.

But isn’t there something more that But isn’t there something more that is happening? Something systemic?is happening? Something systemic?

Well, another grand Well, another grand speculator, George Soros, speculator, George Soros, who saw this coming, says who saw this coming, says what we are going through what we are going through is the crisis of the “gigantic is the crisis of the “gigantic circulatory system” of a circulatory system” of a “global capitalist system “global capitalist system that is…coming apart at that is…coming apart at the seams.”the seams.”

What do you mean?What do you mean?

To elaborate on the arch-speculator’s insight, To elaborate on the arch-speculator’s insight, what we are seeing is the intensification of one what we are seeing is the intensification of one of the central crises or contradictions of global of the central crises or contradictions of global capitalism which is the crisis of capitalism which is the crisis of overproductionoverproduction, , also known as also known as overaccumulationoveraccumulation or or overcapacityovercapacity. . This is the tendency for capitalism to build up This is the tendency for capitalism to build up tremendous productive capacity that outruns the tremendous productive capacity that outruns the population’s capacity to consume owing to population’s capacity to consume owing to income inequalities that limit popular purchasing income inequalities that limit popular purchasing power, thus eroding profitability, in the context of power, thus eroding profitability, in the context of heightened competition. heightened competition.

But What Does Overproduction But What Does Overproduction Have to Do with the Current Have to Do with the Current

Financial Meltdown?Financial Meltdown?Plenty. But to understand the connections, we must go back in time to Plenty. But to understand the connections, we must go back in time to the so-called Golden Age of Contemporary Capitalism, the period from the so-called Golden Age of Contemporary Capitalism, the period from 1945 to 1975.1945 to 1975.

This was a period of rapid growth both This was a period of rapid growth both in the center economies and in in the center economies and in the underdeveloped the underdeveloped

economies—one that was partly economies—one that was partly triggered by the massive reconstruction of triggered by the massive reconstruction of

Europe and East Asia after the Europe and East Asia after the devastation of the Second World War, and devastation of the Second World War, and partly partly

by the new socio-economic arrangements that by the new socio-economic arrangements that were were institutionalized under the new Keynesian state. institutionalized under the new Keynesian state. Key Key among the latter were strong state controls over among the latter were strong state controls over market activity, market activity, aggressive use of fiscal and monetary aggressive use of fiscal and monetary policy to minimize policy to minimize inflation and recession, and a inflation and recession, and a regime of relatively high wages regime of relatively high wages to stimulate and maintain to stimulate and maintain demand.demand.

So what went wrong?So what went wrong?

But this period of high growth came to an end in the mid-seventies, when the But this period of high growth came to an end in the mid-seventies, when the center economies were seized by stagflation, meaning the coexistence of low center economies were seized by stagflation, meaning the coexistence of low growth with high inflation, which was not supposed to happen under growth with high inflation, which was not supposed to happen under neoclassical economics.neoclassical economics.

Stagflation, however, was Stagflation, however, was but a symptom of a deeper but a symptom of a deeper cause: the reconstruction of cause: the reconstruction of Germany and Japan and the Germany and Japan and the rapid growth of industrializing rapid growth of industrializing economies like Brazil, Taiwan, economies like Brazil, Taiwan, and South Korea added tremendous and South Korea added tremendous new productive capacity and increasednew productive capacity and increasedglobal competition, while income global competition, while income inequality within countries and between inequality within countries and between countries limited the growth of purchasing power and demand, thus eroding countries limited the growth of purchasing power and demand, thus eroding profitability. This was aggravated by the massive oil price rises of the profitability. This was aggravated by the massive oil price rises of the seventies.seventies.

A New Mode of Capitalist A New Mode of Capitalist Accumulation?Accumulation?

According to some political economists, the crises of the According to some political economists, the crises of the seventies marked the demise of one mode of capitalist seventies marked the demise of one mode of capitalist accumulation and regulation—the Fordist regime—and accumulation and regulation—the Fordist regime—and the rise of another, the Neoliberal regime. I would not be the rise of another, the Neoliberal regime. I would not be confident of late capitalism’s recuperative powers. I confident of late capitalism’s recuperative powers. I think what happened after the seventies was a think what happened after the seventies was a desperate but ultimately unsuccessful effort to surmount desperate but ultimately unsuccessful effort to surmount the intractable crisis of overproduction of global the intractable crisis of overproduction of global capitalism by resorting to several stabilizing capitalism by resorting to several stabilizing mechanisms, which I shall call “escape routes.” mechanisms, which I shall call “escape routes.” This is This is not the crisis of a new regime but the latest crisis of the not the crisis of a new regime but the latest crisis of the old regime of capital accumulationold regime of capital accumulation..

So how did capitalism try to solve So how did capitalism try to solve the crisis of overproduction? the crisis of overproduction?

Capital tried three escape Capital tried three escape routes from the conundrum of routes from the conundrum of overproduction: neoliberal overproduction: neoliberal restructuring, globalization, restructuring, globalization, and financializationand financialization

Neoliberal restructuring took Neoliberal restructuring took the form of Reaganism and the form of Reaganism and Thatcherism in the North and Thatcherism in the North and Structural Adjustment in the Structural Adjustment in the South.South.

- The aim was to invigorate capital - The aim was to invigorate capital accumulation, and this was to be done by accumulation, and this was to be done by 1) removing state constraints on the 1) removing state constraints on the growth, use, and flow of capital and growth, use, and flow of capital and wealth; and 2) redistributing income from wealth; and 2) redistributing income from the poor and middle classes to the rich on the poor and middle classes to the rich on the theory that the rich would then be the theory that the rich would then be motivated to invest and reignite economic motivated to invest and reignite economic growth.growth.

- The problem with this formula was that in redistributing income to The problem with this formula was that in redistributing income to the rich, you were gutting the incomes of the poor and middle the rich, you were gutting the incomes of the poor and middle classes, thus restricting demand, while not necessarily inducing the classes, thus restricting demand, while not necessarily inducing the rich to invest more in production. In fact, it could be more profitable rich to invest more in production. In fact, it could be more profitable to invest in speculation.to invest in speculation.

- In fact, neoliberal restructuring, which was generalized in the North In fact, neoliberal restructuring, which was generalized in the North and south during the eighties and nineties, had a poor record in and south during the eighties and nineties, had a poor record in terms of growth: global growth averaged 1.1 per cent in the nineties terms of growth: global growth averaged 1.1 per cent in the nineties and 1.4 in the eighties, whereas it averaged 3.5 per cent in the and 1.4 in the eighties, whereas it averaged 3.5 per cent in the 1960’s and 2.4 per cent in the seventies, when state interventionist 1960’s and 2.4 per cent in the seventies, when state interventionist policies were dominant. Neoliberal restructuring could not shake off policies were dominant. Neoliberal restructuring could not shake off stagnation.stagnation.

How was globalization a response How was globalization a response to the crisis?to the crisis?

The second escape route The second escape route global capital took to counter global capital took to counter stagnation was “extensive stagnation was “extensive accumulation” or globalization, accumulation” or globalization, or the rapid integration of or the rapid integration of semi-capitalist, non-capitalist, semi-capitalist, non-capitalist, or pre-capitalist areas into the or pre-capitalist areas into the global market economy. Rosa global market economy. Rosa Luxemburg, the famous Luxemburg, the famous German radical economist, German radical economist, saw this long ago in her classic saw this long ago in her classic The Accumulation of Capital The Accumulation of Capital as necessary to shore up the as necessary to shore up the rate of profit in the rate of profit in the metropolitan economies. metropolitan economies. ..

How? By gaining access to cheap How? By gaining access to cheap

labor, by gaining new, albeit limited, labor, by gaining new, albeit limited,

markets, by gaining new sources of markets, by gaining new sources of

cheap agricultural and raw material products, cheap agricultural and raw material products, and by bringing into being new areas for and by bringing into being new areas for investment in infrastructure. Integration is investment in infrastructure. Integration is accomplished via trade liberalization, removing accomplished via trade liberalization, removing barriers to the mobility of global capital, and barriers to the mobility of global capital, and abolishing barriers to foreign investment.abolishing barriers to foreign investment.

China is, of course, theChina is, of course, themost prominent case ofmost prominent case ofa non-capitalist area to a non-capitalist area to be integrated into the globalbe integrated into the globalcapitalist economy over the last 25 capitalist economy over the last 25 years. years.

To counter their declining profits, a To counter their declining profits, a sizable number of the Fortune 500 sizable number of the Fortune 500 corporations as well as Europe’s corporations as well as Europe’s largest corporations have moved a largest corporations have moved a significant part of their operations significant part of their operations to China to take advantage of the to China to take advantage of the so-called “China Price”—the cost so-called “China Price”—the cost advantage deriving from China’s advantage deriving from China’s seemingly inexhaustible cheap seemingly inexhaustible cheap labor.labor.

ShanghaiShanghai

By the middle of the first By the middle of the first decade of the 21decade of the 21stst century, century, roughly 40 t0 50 per cent of roughly 40 t0 50 per cent of the profits of US corporations the profits of US corporations came from their operations came from their operations and sales abroad, especially and sales abroad, especially China.China.

Why did globalization not surmount Why did globalization not surmount the crisis?the crisis?

The problem with this escape route from stagnation is The problem with this escape route from stagnation is that it exacerbates the problem of overproduction that it exacerbates the problem of overproduction because it adds to productive capacity. A tremendous because it adds to productive capacity. A tremendous amount of manufacturing capacity has been added in amount of manufacturing capacity has been added in China over the last 25 years, and this has had a China over the last 25 years, and this has had a depressing effect on prices and profits. Not surprisingly, depressing effect on prices and profits. Not surprisingly, by around 1997, the profits of US corporations stopped by around 1997, the profits of US corporations stopped growing. According to one calculation, the profit rate of growing. According to one calculation, the profit rate of the Fortune 500 went from 7.15 in 1960-69 to 5.30 in the Fortune 500 went from 7.15 in 1960-69 to 5.30 in 1980-90 to 2.29 in 1990-99 to 1.32 in 2000-2002. 1980-90 to 2.29 in 1990-99 to 1.32 in 2000-2002. By the By the end of the 1990’s, with excess capacity in almost every end of the 1990’s, with excess capacity in almost every industry, the gap between productive capacity and sales industry, the gap between productive capacity and sales was the largest since the Great Depression.was the largest since the Great Depression.

What about financialization?What about financialization?

Given the limited gains in countering the depressive impact of Given the limited gains in countering the depressive impact of overproduction via neoliberal restructuring and globalization, the overproduction via neoliberal restructuring and globalization, the third escape route became very critical for maintaining and raising third escape route became very critical for maintaining and raising profitability: financialization.profitability: financialization.

In the ivory tower of of neoclassical economics, the financial system In the ivory tower of of neoclassical economics, the financial system is the mechanism by which the savers or those with surplus funds is the mechanism by which the savers or those with surplus funds are joined with the entrepreneurs who have need of their funds to are joined with the entrepreneurs who have need of their funds to invest in production. In the real world of late capitalism, with invest in production. In the real world of late capitalism, with investment in industry and agriculture yielding low profits owing to investment in industry and agriculture yielding low profits owing to overcapacity, large amounts of surplus funds are circulating and overcapacity, large amounts of surplus funds are circulating and being invested and reinvested in the financial sector—that is, the being invested and reinvested in the financial sector—that is, the financial sector is turning on itself. financial sector is turning on itself.

“ “You can’t skip the ‘C’ in ‘M-C-M,’ dumpkopf!”You can’t skip the ‘C’ in ‘M-C-M,’ dumpkopf!”

This is not a new phenomenon. Our good friend This is not a new phenomenon. Our good friend had this to say in had this to say in Capital:Capital: “To the possessor of “To the possessor of money capital, the process of production money capital, the process of production appears merely as an unavoidable link, as a appears merely as an unavoidable link, as a necessary evil for the sake of moneymaking. All necessary evil for the sake of moneymaking. All nations with a capitalist mode of production are nations with a capitalist mode of production are therefore seized periodically by a feverish therefore seized periodically by a feverish attempt to make money without the intervention attempt to make money without the intervention of the process of production.”of the process of production.”This is indeed a great temptation when the This is indeed a great temptation when the system of production is in the grip of long-term system of production is in the grip of long-term stagnation.stagnation.

The result is an increased bifurcation between a The result is an increased bifurcation between a hyperactive financial economy and a stagnant real hyperactive financial economy and a stagnant real economy. As one financial executive notes, “there has economy. As one financial executive notes, “there has been an increasing disconnect between the real and been an increasing disconnect between the real and financial economies in the last few years. The real financial economies in the last few years. The real economy has grown…but nothing like that of the economy has grown…but nothing like that of the financial economy—until it imploded.”financial economy—until it imploded.”What this observer does not tell us is that the disconnect What this observer does not tell us is that the disconnect between the real and the financial economy is not between the real and the financial economy is not accidental—that the financial economy exploded accidental—that the financial economy exploded precisely to make up for the stagnation owing to precisely to make up for the stagnation owing to overproduction of the real economy.overproduction of the real economy.

Another indicator of the super-profitability Another indicator of the super-profitability of the financial sector is the fact that 40 of the financial sector is the fact that 40 per cent of the total profits of US financial per cent of the total profits of US financial and nonfinancial corporations is accounted and nonfinancial corporations is accounted for by the financial sector although it is for by the financial sector although it is responsible for only 5 per cent of US gross responsible for only 5 per cent of US gross domestic product (and even that is likely todomestic product (and even that is likely to

be an overestimate).be an overestimate).

What were the problems with What were the problems with financialization as an escape financialization as an escape

route?route?The problem with investing in financial sector operations is that it is The problem with investing in financial sector operations is that it is tantamount to squeezing value out of already created value. It may tantamount to squeezing value out of already created value. It may create profit, yes, but it does not create new value—only industry, create profit, yes, but it does not create new value—only industry, agricultural, trade, and services create new value. Because profit is agricultural, trade, and services create new value. Because profit is not based on value that is created, investment operations become not based on value that is created, investment operations become very volatile and prices of stocks, bonds, and other forms of very volatile and prices of stocks, bonds, and other forms of investment can depart very radically from their real value—for investment can depart very radically from their real value—for instance, the stock of Internet startups that keep on rising, driven instance, the stock of Internet startups that keep on rising, driven mainly by upwardly spiraling financial valuations, that then crash.mainly by upwardly spiraling financial valuations, that then crash.

Profits then depend on taking advantage of upward price departures Profits then depend on taking advantage of upward price departures from the value of commodities, then selling before reality enforces a from the value of commodities, then selling before reality enforces a “correction,” that is a crash back to real values. The radical rise of “correction,” that is a crash back to real values. The radical rise of prices of an asset far beyond real values is what is called the prices of an asset far beyond real values is what is called the formation of a bubble.formation of a bubble.

Why is financialization so volatile?Why is financialization so volatile?

Profitability being dependent on speculative coups, it is not Profitability being dependent on speculative coups, it is not surprising that the finance sector lurches from one bubble to surprising that the finance sector lurches from one bubble to another, or from one speculative mania to another.another, or from one speculative mania to another.Because it is driven by speculative mania, finance driven capitalism Because it is driven by speculative mania, finance driven capitalism has experienced about 100 financial crises since capital markets has experienced about 100 financial crises since capital markets were deregulated and liberalized in the 1980’s.were deregulated and liberalized in the 1980’s.Prior to the current Wall Street meltdown, the most explosive of Prior to the current Wall Street meltdown, the most explosive of these were the Mexican Financial Crisis of 1994-95, the Asian these were the Mexican Financial Crisis of 1994-95, the Asian Financial Crisis of 1997-1998, the Russian Financial Crisis of 1998, Financial Crisis of 1997-1998, the Russian Financial Crisis of 1998, the Wall Street Stock Market Collapse of 2001, and the Argentine the Wall Street Stock Market Collapse of 2001, and the Argentine Financial Collapse of 2002.Financial Collapse of 2002.Bill Clinton’s Treasury Secretary, Goldman Sachs operative Robert Bill Clinton’s Treasury Secretary, Goldman Sachs operative Robert Rubin, predicted five years ago that “future financial crises are Rubin, predicted five years ago that “future financial crises are almost surely inevitable and could be even more severe.”almost surely inevitable and could be even more severe.”

How do bubbles form, grow, and How do bubbles form, grow, and burst?burst?

Let’s take the AsianLet’s take the Asian

financial crisis offinancial crisis of

1997 as a 1997 as a

case case

study.study.

The key ingredients of a speculative bubble were on display during The key ingredients of a speculative bubble were on display during the Asian Financial Crisis of 1997-98: the Asian Financial Crisis of 1997-98:

- Capital account and financial liberalization at the urging of the IMF - Capital account and financial liberalization at the urging of the IMF and the US Treasury Dept.and the US Treasury Dept.- Entry of foreign funds seeking quick and high returns, meaning - Entry of foreign funds seeking quick and high returns, meaning they went to real estate and the stock marketthey went to real estate and the stock market- Overinvestment, leading to fall in stock and real estate prices, - Overinvestment, leading to fall in stock and real estate prices, leading to panicky withdrawal of funds—in 1997, $100 billion left the leading to panicky withdrawal of funds—in 1997, $100 billion left the East Asian economies in a few weeksEast Asian economies in a few weeks- Bailout of foreign speculators by the IMF- Bailout of foreign speculators by the IMF- Collapse of the real economy—recession throughout East Asia in - Collapse of the real economy—recession throughout East Asia in 19981998

Self-regulation—the fruit of the Self-regulation—the fruit of the Asian Financial CrisisAsian Financial Crisis

Despite massive destabilization, efforts to impose both Despite massive destabilization, efforts to impose both national and global regulation of the financial system national and global regulation of the financial system were opposed on ideological grounds. The rhetoric were opposed on ideological grounds. The rhetoric about creating a new global financial architecture about creating a new global financial architecture degenerated into “financial self regulation.”degenerated into “financial self regulation.”Under the so-called Basel II process, all talk of Tobin Under the so-called Basel II process, all talk of Tobin taxes and capital controls was avoided in favor of self-taxes and capital controls was avoided in favor of self-regulation, and the Northern governments vetoed even regulation, and the Northern governments vetoed even such weak financial mechanisms such as a Sovereign such weak financial mechanisms such as a Sovereign Debt Restructuring Mechanism to provide some Debt Restructuring Mechanism to provide some protection to developing country debtors that have protection to developing country debtors that have problems paying their debts on time.problems paying their debts on time.

Let’s go to the current bubble. Let’s go to the current bubble. How did it form? How did it form?

The current Wall Street collapse has its roots in the The current Wall Street collapse has its roots in the Technology Bubble of the late 1990’s, when the price of Technology Bubble of the late 1990’s, when the price of the stocks of Internet startups skyrocketed, then the stocks of Internet startups skyrocketed, then collapsed, resulting in the loss of $7 trillion worth of collapsed, resulting in the loss of $7 trillion worth of assets and the recession of 2001-2002.assets and the recession of 2001-2002.

The loose money policies of the Fed under Alan The loose money policies of the Fed under Alan Greenspan had encouraged the Technology Bubble, and Greenspan had encouraged the Technology Bubble, and when it collapsed into a recession, Greenspan, trying to when it collapsed into a recession, Greenspan, trying to counter a long recession, cut the prime rate to a 45-year-counter a long recession, cut the prime rate to a 45-year-low of 1 per cent in June 2003 and kept it there for over low of 1 per cent in June 2003 and kept it there for over a year. This had the effect of encouraging another a year. This had the effect of encouraging another bubble—the real estate bubble. bubble—the real estate bubble.

As early as 2002, progressive economists were As early as 2002, progressive economists were warning about the real estate bubble. However, warning about the real estate bubble. However, as late as 2005, then Council of Economic as late as 2005, then Council of Economic Advisers Chairman and now Federal Reserve Advisers Chairman and now Federal Reserve Board Chairman Ben Bernanke attributed the Board Chairman Ben Bernanke attributed the rise in US housing prices to “strong economic rise in US housing prices to “strong economic fundamentals” instead of speculative activity. Is fundamentals” instead of speculative activity. Is it any wonder that he was caught completely off it any wonder that he was caught completely off guard when the Subprime Crisis broke in the guard when the Subprime Crisis broke in the summer of 2007?summer of 2007?

And how did it grow?And how did it grow?

The dynamics of this bubble are described thus by one The dynamics of this bubble are described thus by one key market player, George Soros: “Mortgage institutions key market player, George Soros: “Mortgage institutions encouraged mortgage holders to refinance their encouraged mortgage holders to refinance their mortgages and withdraw their excess equity. They mortgages and withdraw their excess equity. They lowered their lending standards and introduced new lowered their lending standards and introduced new products, such as adjustable mortgages (ARMs), products, such as adjustable mortgages (ARMs), “interest only” mortgages, and promotional teaser rates. “interest only” mortgages, and promotional teaser rates. All this encouraged speculation in residential housing All this encouraged speculation in residential housing units. House prices started to rise in double digit rates. units. House prices started to rise in double digit rates. This served to reinforce speculation, and the rise in This served to reinforce speculation, and the rise in house prices made the owners feel rich; the result was a house prices made the owners feel rich; the result was a consumption boom that has sustained the economy in consumption boom that has sustained the economy in recent years.”recent years.”

Let’s translate this Wall Street jargon into lay Let’s translate this Wall Street jargon into lay language: tlanguage: the subprime mortgage crisis was not he subprime mortgage crisis was not a case of supply outrunning real demand. The a case of supply outrunning real demand. The “demand” was largely fabricated by speculative “demand” was largely fabricated by speculative mania on the part of developers and financiers mania on the part of developers and financiers that wanted to make great profits from their that wanted to make great profits from their access to foreign money—most of it Asian and access to foreign money—most of it Asian and Chinese in origin--that flooded the US in the last Chinese in origin--that flooded the US in the last decade. Big ticket mortgages were decade. Big ticket mortgages were aggressively sold to millions who could not aggressively sold to millions who could not normally afford them by offering low “teaser” normally afford them by offering low “teaser” interest rates that would later be readjusted to interest rates that would later be readjusted to jack up payments from the new homeowners. jack up payments from the new homeowners.

But how could subprime mortgages going sour But how could subprime mortgages going sour turn into such a big problem?turn into such a big problem?

Because these assets were then “securitized”—Because these assets were then “securitized”—that is converted into spectral commodities that is converted into spectral commodities called “collateralized debt obligations” (CDO’s) called “collateralized debt obligations” (CDO’s) that enabled speculation on the odds that the that enabled speculation on the odds that the mortgage would not be paid. These were then mortgage would not be paid. These were then traded by the mortgage originators working with traded by the mortgage originators working with different layers of middlemen who understated different layers of middlemen who understated risk so as to offload them as quickly as possible risk so as to offload them as quickly as possible to other banks and institutional investors. These to other banks and institutional investors. These institutions in turn offloaded these securities institutions in turn offloaded these securities onto other banks and foreign financial onto other banks and foreign financial institutions. institutions.

The idea was to make a sale quickly, get your The idea was to make a sale quickly, get your money upfront and make a tidy profit, while money upfront and make a tidy profit, while foisting the risk on the suckers down the line—foisting the risk on the suckers down the line—the hundreds of thousands of institutions and the hundreds of thousands of institutions and individual investors that bought the mortgage-individual investors that bought the mortgage-tied securities. This was called “spreading the tied securities. This was called “spreading the risk,” and it was actually seen as a good thing risk,” and it was actually seen as a good thing because it lightened the balance sheet of because it lightened the balance sheet of financial institutions, enabling them to engage in financial institutions, enabling them to engage in other lending activities.other lending activities.

Game’s Up…Game’s Up…

When the interest rates were raised on the When the interest rates were raised on the subprime loans, adjustable mortgage, and subprime loans, adjustable mortgage, and other housing loans, the game was up. other housing loans, the game was up. There are about six million subprime There are about six million subprime mortgages outstanding, 40% of which will mortgages outstanding, 40% of which will likely go into default in the next two years, likely go into default in the next two years, Soros estimates. Soros estimates.

……and five million more defaults from adjustable and five million more defaults from adjustable rate mortgages and other “flexible loans” geared rate mortgages and other “flexible loans” geared to snag the most reluctant potential homebuyer to snag the most reluctant potential homebuyer will occur over the next several years. will occur over the next several years. But But securities whose value run into as much as two securities whose value run into as much as two trillion dollars have already been injected, like trillion dollars have already been injected, like virus, into the global financial system. Global virus, into the global financial system. Global capitalism’s gigantic circulatory system has been capitalism’s gigantic circulatory system has been fatally infected. And, as with a plague, we don’t fatally infected. And, as with a plague, we don’t know who and how many are fatally infected know who and how many are fatally infected until they keel over because the whole financial until they keel over because the whole financial system has become so non-transparent owing to system has become so non-transparent owing to lack of regulation. lack of regulation.

Or to use Derridean imagery, the spectral Or to use Derridean imagery, the spectral derivative, the non-asset asset, has taken derivative, the non-asset asset, has taken over, gone wild and spectralized and killed over, gone wild and spectralized and killed off the assets on which it has subsisted, of off the assets on which it has subsisted, of which it has been a shadow… which it has been a shadow…

But how could Wall Street titans But how could Wall Street titans collapse like a house of cards?collapse like a house of cards?

For Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, and For Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, and Bear Stearns, the losses represented by these toxic securities Bear Stearns, the losses represented by these toxic securities simply overwhelmed their reserves and brought them down. And simply overwhelmed their reserves and brought them down. And more are likely to fall once their books are corrected to reflect their more are likely to fall once their books are corrected to reflect their actual holdings of these assets. actual holdings of these assets.

And many others will join them as other speculative operations such And many others will join them as other speculative operations such as credit cards and different varieties of risk insurance seize up. as credit cards and different varieties of risk insurance seize up. The American International Group (AIG) was felled by its massive The American International Group (AIG) was felled by its massive exposure in the unregulated area of credit default swaps, derivatives exposure in the unregulated area of credit default swaps, derivatives that make it possible for investors to bet on the possibility that that make it possible for investors to bet on the possibility that companies will default on repaying loans. According to Soros, such companies will default on repaying loans. According to Soros, such bets on credit defaults now make up a $45 trillion market that is bets on credit defaults now make up a $45 trillion market that is entirely unregulated. It amounts to more than five times the total of entirely unregulated. It amounts to more than five times the total of the US government bond market. The mega-size of the assets that the US government bond market. The mega-size of the assets that could go bad should AIG collapse was what made Washington could go bad should AIG collapse was what made Washington change its mind and salvage it after it let Lehman Brothers collapse.change its mind and salvage it after it let Lehman Brothers collapse.

What’s going to happen now?What’s going to happen now?

We can safely say then that there will be more We can safely say then that there will be more bankruptcies and government takeovers, with some bankruptcies and government takeovers, with some European and Asian banks and institutions joining their European and Asian banks and institutions joining their troubled US counterparts in being either allowed to fail, troubled US counterparts in being either allowed to fail, propped or taken over by government. We will also see propped or taken over by government. We will also see government taking over non-financial corporations as the government taking over non-financial corporations as the recession spreads, with the US automobile industry recession spreads, with the US automobile industry being a prime candidate for takeover. Without a massive being a prime candidate for takeover. Without a massive bailout, GM, Ford, and Chrysler will go bankrupt. bailout, GM, Ford, and Chrysler will go bankrupt. However, Washington will probably give them money However, Washington will probably give them money only if they yield significant management control to the only if they yield significant management control to the government. In short, the process of nationalization has government. In short, the process of nationalization has just begun.just begun.

In Asia, Europe, and elsewhere, a US recession In Asia, Europe, and elsewhere, a US recession will translate into a recession, if not worse. Asia will translate into a recession, if not worse. Asia will definitely suffer, and not only because most will definitely suffer, and not only because most countries are greatly dependent on the US countries are greatly dependent on the US market for their exports. China’s capacity to market for their exports. China’s capacity to counteract the recessionary impact is limited counteract the recessionary impact is limited since China’s main foreign market is the US and since China’s main foreign market is the US and it imports raw materials and intermediate goods it imports raw materials and intermediate goods that it uses for its exports to the US from Japan, that it uses for its exports to the US from Japan, Korea, and Southeast Asia. Globalization has Korea, and Southeast Asia. Globalization has made “decoupling” impossible. The US, China, made “decoupling” impossible. The US, China, and East Asia are like three prisoners bound and East Asia are like three prisoners bound together in a chain-gang.together in a chain-gang.

“ “China Slows, World China Slows, World Feels the Pain,”Feels the Pain,”

Wall Street JournalWall Street Journal headline headline

We are facing not only a We are facing not only a export slowdown but the crisis export slowdown but the crisis of an economic paradigm: the of an economic paradigm: the export-oriented globalized export-oriented globalized economy.economy.

One unfortunate consequence of this crisis One unfortunate consequence of this crisis is that governments might retreat from is that governments might retreat from making commitments to radically cut making commitments to radically cut greenhouse gas emissions, using the greenhouse gas emissions, using the excuse that they cannot afford to do so excuse that they cannot afford to do so owing to the need to preserve jobs. This owing to the need to preserve jobs. This will simply ensure that temperatures will will simply ensure that temperatures will rise above the 2 degree celsius, bringing rise above the 2 degree celsius, bringing upon us ecological catastrophe.upon us ecological catastrophe.

In a nutshell…In a nutshell…

The Wall Street meltdown is not only due to greed and to the lack of The Wall Street meltdown is not only due to greed and to the lack of government regulation of a hyperactive sector. The Wall Street government regulation of a hyperactive sector. The Wall Street collapse stems ultimately from the crisis of overproduction that has collapse stems ultimately from the crisis of overproduction that has plagued global capitalism since the mid-seventies. plagued global capitalism since the mid-seventies.

Financialization of investment activity has been one of the escape Financialization of investment activity has been one of the escape routes from stagnation, the other two being neoliberal restructuring routes from stagnation, the other two being neoliberal restructuring and globalization. With neoliberal restructuring and globalization and globalization. With neoliberal restructuring and globalization providing limited relief, financialization became attractive as a providing limited relief, financialization became attractive as a mechanism to shore up profitability. But financialization has proven mechanism to shore up profitability. But financialization has proven to be a dangerous road, leading to speculative bubbles that lead to to be a dangerous road, leading to speculative bubbles that lead to the temporary prosperity of a few but which ultimately end up in the temporary prosperity of a few but which ultimately end up in corporate collapse and in recession in the real economy. corporate collapse and in recession in the real economy.

The key questions in everyone’s mind The key questions in everyone’s mind now are: How deep and long will this now are: How deep and long will this recession be? Will this recession tip recession be? Will this recession tip into a depression? And of course, how into a depression? And of course, how do we get out of this mess?do we get out of this mess?

Well, there is one thing that Well, there is one thing that we can be certain of: that we can be certain of: that neoliberal free-market neoliberal free-market policies and globalization, policies and globalization, which got us into this mess which got us into this mess in the first place, will not in the first place, will not provide the answer. In fact, provide the answer. In fact, the silver lining in all this is the silver lining in all this is the discrediting and the discrediting and delegitimizing of free market delegitimizing of free market ideology, the globalist ideology, the globalist paradigm, and ivory tower paradigm, and ivory tower neoclassical economics, neoclassical economics, which was blind to the which was blind to the developments in the real developments in the real world.world. Adios companeros!Adios companeros!

The reaction of civil society groups The reaction of civil society groups throughout the world to the crisis has been throughout the world to the crisis has been a volatile one where outrage and a volatile one where outrage and frustration are mixed with hope. Outrage frustration are mixed with hope. Outrage at the greed of Wall Street, frustration at at the greed of Wall Street, frustration at the fact that we had been warning for so the fact that we had been warning for so long about the dangers of globalization long about the dangers of globalization and deregulation and this would not have and deregulation and this would not have happened had people listened to us.happened had people listened to us.

There is also concern that avoiding the There is also concern that avoiding the recession or depression will become an excuse recession or depression will become an excuse for the US, European, and other developed for the US, European, and other developed country governments to postpone indefinitely the country governments to postpone indefinitely the radical transformation needed in their economic radical transformation needed in their economic systems to drastically curtail greenhouse gas systems to drastically curtail greenhouse gas emissions and ward off ecological catastrophe emissions and ward off ecological catastrophe within the decade. Unless greenhouse gas within the decade. Unless greenhouse gas emissions are reduced by 80-90 per cent of their emissions are reduced by 80-90 per cent of their 1990 levels by 2050, the global mean 1990 levels by 2050, the global mean temperature will rise above the 2 degrees temperature will rise above the 2 degrees celsius limit necessary to prevent ecological celsius limit necessary to prevent ecological catastrophe.catastrophe.

But along with outrage and But along with outrage and concern comes hope that we concern comes hope that we are being presented with an are being presented with an opportunity to push for a opportunity to push for a transformation of a transformation of a dysfunctional global economic dysfunctional global economic systemsystem..

Alternatives are now being proposed to the Alternatives are now being proposed to the unpopular bailout plans in Washington and unpopular bailout plans in Washington and Europe. At the recently concluded Asia-Europe Europe. At the recently concluded Asia-Europe Peoples Forum (AEPF) in Beijing, for instance, Peoples Forum (AEPF) in Beijing, for instance, scores of participants drafted a “transition scores of participants drafted a “transition program” towards a more comprehensive program” towards a more comprehensive strategic program of radical transformation, one strategic program of radical transformation, one that would address the threats that people face that would address the threats that people face in the short term while pushing towards radical in the short term while pushing towards radical transformation. transformation.

Among the elements of the “Beijing Declaration: A Transitional Among the elements of the “Beijing Declaration: A Transitional Program Program

towards Radical Socio-economic Transformation” are: towards Radical Socio-economic Transformation” are:

Introduce full-scale socialization of banks, not just nationalization of Introduce full-scale socialization of banks, not just nationalization of bad assets.bad assets.Institutionalize full transparency within the financial system through Institutionalize full transparency within the financial system through the opening of the books to the public, to be facilitated by citizen the opening of the books to the public, to be facilitated by citizen and worker oversight bodies.and worker oversight bodies.Introduce parliamentary and citizens’ oversight of the existing Introduce parliamentary and citizens’ oversight of the existing banking system.banking system.Apply social and environmental criteria to all lending, including for Apply social and environmental criteria to all lending, including for business purposes.business purposes.Prioritize lending to meet social and environmental needs, at Prioritize lending to meet social and environmental needs, at minimum rates of interest.minimum rates of interest.

Safeguard migrant remittances to their families and Safeguard migrant remittances to their families and introduce legislation to restrict charges and taxes on introduce legislation to restrict charges and taxes on transferstransfersOverhaul central banks and make them autonomous but Overhaul central banks and make them autonomous but publicly accountable institutions.publicly accountable institutions.Create people-based banking institutionsCreate people-based banking institutionsReintroduce stringent capital controls as well as currency Reintroduce stringent capital controls as well as currency transactions taxestransactions taxesCancel the debt of all developing countries to enable Cancel the debt of all developing countries to enable them to have resources to protect their populations from them to have resources to protect their populations from the developing recession or depression.the developing recession or depression.

In other words, bail out the In other words, bail out the people, people, not the banks!not the banks!

The PresentThe Present The past… and theThe past… and the

future?future?The present…The present…

The past…and the future?The past…and the future?

Time for a Different Real Economy Time for a Different Real Economy Model?Model?

But reforms cannot be limited to short term and But reforms cannot be limited to short term and medium term measures focused on the financial medium term measures focused on the financial economy. We are being forced to address the economy. We are being forced to address the roots of the problem in the real economy. As we roots of the problem in the real economy. As we said earlier, we are facing not only a export said earlier, we are facing not only a export slowdown but the crisis of an economic slowdown but the crisis of an economic paradigm: the export-oriented globalized paradigm: the export-oriented globalized economyeconomyIt is time in other words, to move away from the It is time in other words, to move away from the globalized economy to the deglobalized globalized economy to the deglobalized economy.economy.

What are some of the features of What are some of the features of the deglobalized economy whose the deglobalized economy whose

time has come?time has come?Move away from export-oriented production to production for local Move away from export-oriented production to production for local and national marketsand national marketsPrinciple of subsidiarity—whenever possible, encourage production Principle of subsidiarity—whenever possible, encourage production to take place at the local level or, in the case of some industries, at to take place at the local level or, in the case of some industries, at the national levelthe national levelEquity of income and asset distribution is the key to local market-Equity of income and asset distribution is the key to local market-driven growth and sustainable developmentdriven growth and sustainable developmentEquity in distribution of income must be accompanied by more Equity in distribution of income must be accompanied by more democratic arrangements in management of production and democratic arrangements in management of production and creation of more diverse production complex consisting of private creation of more diverse production complex consisting of private enterprises, cooperatives, state enterprises—the mixed economyenterprises, cooperatives, state enterprises—the mixed economyCentral to equitable asset and income distribution is not only class Central to equitable asset and income distribution is not only class but genderbut genderProgressive taxation is the key to generating financial resources for Progressive taxation is the key to generating financial resources for development, not access to foreign capitaldevelopment, not access to foreign capital

And very important, move toward a radical And very important, move toward a radical ecological transformation of the economy, ecological transformation of the economy, so that dependence on fossil fuels and so that dependence on fossil fuels and other greenhouse gas-emitting activities is other greenhouse gas-emitting activities is eliminated. Instead of growth, increase in eliminated. Instead of growth, increase in the quality of life for all owing to a better the quality of life for all owing to a better environment and equality of income environment and equality of income distribution must be the central criterion of distribution must be the central criterion of the economy.the economy.

Civil society organizations, of course, know that these Civil society organizations, of course, know that these demands will not be granted merely by demanding them demands will not be granted merely by demanding them from governments. But they see politics as being from governments. But they see politics as being unfrozen by the recent events and are hopeful that unfrozen by the recent events and are hopeful that people will become more and more susceptible to people will become more and more susceptible to mobilization around radical programs as the crisis of mobilization around radical programs as the crisis of legitimacy of neoliberalism, globalization, and capitalism legitimacy of neoliberalism, globalization, and capitalism deepens. deepens. One important consideration for us in this meeting is that One important consideration for us in this meeting is that owing to their lower levels of integration into the global owing to their lower levels of integration into the global economy, the less developed countries might have a economy, the less developed countries might have a less difficult time deglobalizing than the developed less difficult time deglobalizing than the developed economies.economies.

Nevertheless, owing to the centrality of Nevertheless, owing to the centrality of the US in the global economy, its future the US in the global economy, its future directions will affect everyone, so the directions will affect everyone, so the question on everyone’s mind at this question on everyone’s mind at this point is:point is:

Will he deliver?Will he deliver?

Or maybe, the more appropriate Or maybe, the more appropriate question is: what will he deliver?question is: what will he deliver?

Obama’s role models: FDR and Keynes: two men Obama’s role models: FDR and Keynes: two men

who saved capitalismwho saved capitalism

from itself…Obama’sfrom itself…Obama’s

role models?role models?

Many progressives sense that we are Many progressives sense that we are entering an era of great danger mixed with entering an era of great danger mixed with great possibilities for progressive change. great possibilities for progressive change. They realize that alternatives cannot be They realize that alternatives cannot be limited to a return of Keynesianism. They limited to a return of Keynesianism. They realize that unless they intervene now with realize that unless they intervene now with practical but attractive progressive practical but attractive progressive programs, the crisis of neoliberal programs, the crisis of neoliberal capitalism might redound to the benefit not capitalism might redound to the benefit not of the left but the populist, fascist right.of the left but the populist, fascist right.

Oh no, not again!Oh no, not again!

At no other period have the words of the At no other period have the words of the great Italian thinker Antonio Gramsci been great Italian thinker Antonio Gramsci been more relevant than today…more relevant than today…

““To the pessimism of the To the pessimism of the intellect, [we must intellect, [we must counterpose] the optimism of counterpose] the optimism of the will.”the will.”

Having said this, we are Having said this, we are in uncharted territory, in uncharted territory,

and we don’t know how and we don’t know how this story is going to this story is going to

end…end…

Wait—he says he knows how Wait—he says he knows how it’s going to end….it’s going to end….

Thank you….Thank you….