The False Promises of Finance Capitalism: Interview with Walden Bello

The False Promises of Finance Capitalism

Globalization – the New Subjugation of the South

Interview with Walden Bello, winner of the 2003 Alternative Nobel Prize

[This interview originally published in: Zeit-Fragen Nr.15, April 19, 2004 is translated from the German on the World Wide Web,  http://www.zeit-fragen.ch/ARCHIV/ZF_116a/INDEX.HTM.]

In connection with the World Social Forum in Bombay in January 2004 Deutschlandfunk (German radio) broadcast a 7-part series “Total global” that discussed globalization and possible alternatives.. The following interview is with Walden Bello, sociologist at the University of the Philippines and winner of the 2003 Alternative Nobel Prize.]

* ZEIT-FRAGEN: Despite all the crises of the last years in the West and in a country like Germany so dependent on exports, a majority of the people still believe that opening markets and free capital flow are basic presuppositions for development policy and greater economic prosperity in the North. In your summary of the past 30 years of the globalization process, neoliberalism appears as an instrument of a new colonialism that enforces the interests of the North over the South even after decolonialization. What is wrong with the principle of international division of labor as propounded by David Ricardo where everyone produces what he or she can produce best?

WALDEN BELLO: Let me say first that free trade is not negative in itself. Trade can be an instrument of development from the perspective of the South. This assumes that trade is used for developmental purposes, contributes to the creation of national economic strength and serves precedent social goals.

In contrast, an intensely ideologized doctrine has formed in the last years that only aims at the removal of so-called trade barriers and limitations on capital traffic. The single-minded credo is: Prosperity arises automatically in the unhindered play of market forces by its supposedly effective “invisible hand”. However the historical truth is very different. In all economically successful countries, whether Germany, the United States, Japan or South Korea, the state played a central role in the process of economic development. In all these cases, it was the state that promoted targeted national economic output and actively encouraged the development of national economies. This was accomplished by conscious control of trade and regulation of the markets through protectionist measures.

During the whole postwar period from 1950 to 1980, the conviction prevailed in the North and the South that development was impossible without state intervention and that the free play of market forces had to be subject to the goal of development. This protectionist policy led both to industrialization of parts of Latin America and to the flourishing of the economic miracle in Southeast Asia. The effects of these development-oriented economic strategies proved very limited. In the 1980s through the so-called “structural adjustment programs”, this policy was inverted into its exact opposite. Opening the markets of developing countries for the goods and capital from Europe, the US and Japan became the preeminent goal.

The process called liberalization or globalization created the exact opposite of that prosperity promised by its ideologues. Greater poverty, dramatic increase of economic inequality and chronically recurring growth crises occurred. Economic stagnation prevails in the majority of developing countries subjected to these principles of structural adjustment, liberalization and globalization.

· Let us go back for a moment to that time of the 1960s and early 1970s when state-supported capitalism was practiced above all in Southeast Asia. What were the core mechanisms that had relatively positive effects on developing national economies in this area? Was it only a kind of protectionism?

In the period between 1950 and 1970, there was really only the alternative between communist socialism and a kind of state-supported capitalism. This special variety of capitalism was accepted by much of the political spectrum in these countries, from social democracy to the conservative dictatorial elites. The role of building a national infrastructure for production through an active industrial policy fell to the state. This was complemented by a trade policy that systematically controlled imports with the help of taxes and quantity limitations and sought to replace certain strategically important foreign goods with national products. For example, the whole Brazilian aviation industry arose in this period. This did not happen everywhere with the same consequences. Nevertheless the results were manifest. The growth rates of the developing countries in this period were very respectable, fluctuating between four and six percent. In contrast, the growth rates of the liberalization epochs between 1980 and 2000 were far more modest if the special case of China is ignored. Still I don’t want to give the impression that this was the golden era for the South. Their state-supported capitalism was driven by conservative, authoritarian and anti-communist elites and dictatorships. The consequences for the environment in the rapidly industrializing countries were catastrophic. Agriculture had to bear the whole burden of an industrialization-oriented policy. Corruption reached dimensions unknown in the past. Nevertheless when the statistics on industrial development, development of the service sector and growth rates are cited, this kind of a state-initiated development turns out very positive. A similar assessment is also found in the analysis of the Argentinean economist Raul Prebisch.

Finally this concept was institutionalized by the Trade- and Development conference of the United Nations UNCTAD convened in 1964. With its help, world trade was understood explicitly as an instrument of development. Preferred treatment of underdeveloped countries within the new world economic order was emphasized. In addition the policy of UNCTAD aimed explicitly at a redistribution of economic wealth from the North to the South. The new self-confidence of independent countries was based on this perspective up to the middle of the 1970s. The neoliberal programs as advanced by Margaret Thatcher in England and Ronald Reagan in the US abruptly reversed this process into its opposite. The World Bank and the International Monetary Fund quickly became models of the new economic direction. The debt crisis at the end of the 1970s and the beginning of the 1980s gave the two Bretton-Woods institutions a lever to realize the political U-turn in the developing countries. From then on, access to capital from the North for developing countries was tied to the condition of bowing to the structural adjustment programs of the World Bank and the Monetary Fund as they were advanced at the beginning of the 1980s.

· Was the competition between the Soviet and American empires the most important factor making possible this relative strengthening of the South?

Capitalism in the North had a clear Keynesian orientation in this epoch. In the time after the great world economic crisis and after the Second World War, state interventions played a dominant role for stabilizing the economy. This was true for Europe, Japan and the United States. The ideas of the economist John Maynard Keynes on the positive role of the state were widely accepted at that time in the industrialized countries. We still remember Nixon’s 1971 when he accepted the gold standard for the dollar: “Now we are all Keynesians.” That was remarkable for a republican from California.

Obviously the Cold War also played an important role. This was very clear in Asia. The West sought to forge anti-communist military alliances. Whether the allies practiced an unorthodox form of capitalism and gave the state more weight than the free play of markets was secondary. The Cold War gave a free space to developing countries where they could create str4ong national economies that were politically regulated. Still I would warn against idealizing this epoch. The power elites in the third world profited far more from this variety of capitalism than the broad multitudes of the population.

An irreversible inner contradiction in this economic policy also ultimately contributed to its breakdown. The overly agrarian structure of these countries meant that a large part of the population de facto did not participate at all in market events. Thus when industrialization was pushed in the 1960s and 1970s, the purchasing power of these sectors had to be strengthened. Genuine social reforms like land reform had to be carried out. But the power elites in Thailand, the Philippines and in most countries of Latin America refused to do what was economically sensible and persecuted this kind of state-supported capitalism regardless of the consequences. Thus the breakdown was caused by the change in American foreign policy after Ronald Reagan’s assumption of office and by barriers curbing the dynamic of the development process in the countries of the South. There were only a few exceptions, Taiwan, Korea and China. All in all it was a very contradictory process.

· Nevertheless the Reagan administration was an important stage in this “roll-back” of the relative strength of the South after the 1960s and 1970s. The “Reaganides” discovered the Bretton-Woods institutions, the World Bank and the International Monetary Fund, as instruments for re-disciplining the South. What were the political forces in America and in the West altogether behind this conservative revolution, this conservative “roll-back”?

In the US and also in Europe, entrepreneurial capital began noticing the tight political restrictions that the Keynesian state imposed on possibilities for maximizing profit, a state that sought to maintain the social compromise between labor and capital. This led to considerable irritations. American businessmen strived for both a new order of the balance of power between unions and capital and the total reorientation of the capitalism dominating politics in the United States. The great political project of the Reagan administration to gain a moral legitimacy for the neoliberal economic concepts was developed at the University of Chicago. The 1970s were the decade when the North got rid of its bad conscience toward the South. In Africa and Latin America, populist movements gained victory in the struggle for national independence. Popular front governments assumed power. The South succeeded in making strategic alliances that seemed to re-order the hierarchy of power in the world economy. With apprehension, conservative elites, especially in the United States, saw the genesis of UNCTAD and the acceptance of the so-called “new international economic order” by the United Nations in 1974 stressing a massive redistribution of wealth from the North to the South.

The explosion of the crude oil price carried out by OPEC in 1973 and 1979 was felt as a shock since people had accustomed themselves to oil as a practically free resource. At the end of the 1970s, the threat scenario for the West included both the communist danger and the South as a potential threat. The Reaganides could instrumentalize these fears in the 1980 election. When they came to power, one of their first steps was the political reorientation of the Bretton-Woods institutions. These institutions were already instruments of American hegemony in the sense of pragmatic control strategy toward communism. Now these original Keynesian institutions became the central levers for enforcing the neoliberal revolution in the South against state-supported capitalism. This happened between 1980 and 2000 and continues today.

· When the history of this globalization process is considered in this way, could it be seen as a dominant American project, a continuation of European colonialism with modern techniques?

Yes. A glance at the two epochs of globalization shows very clearly the connections between Europe and the United States in this process. In the first phase that lasted from 1815 to the beginning of the First World War, globalization was led by Great Britain, which carried out at that time a liberalization of capital flows, trade and a worldwide mobilization of the work force. Then the “Interregnum” followed that was marked by the stabilizing intervention of the state from the 1930s to the 1980s. With Reagan, the second phase of globalization began that was largely dominated by the political and economic elites of the United States. These elites recognized that focusing the American economy on the domestic market could not continue for long. Export-orientation and internationalization of the capital market were the consequences. The expanding American capital in the 1980s required a global institution like the World Trade Organization that could enforce free trade worldwide. Obviously the European elites did not remain outside. In France, Germany and Great Britain, there were also strong economic forces that were thorns in the eye to state interventions. Restoring the profitability of capital was uppermost in these countries.

In many regards, there was an overlapping or coincidence between the interests of American and European capital. A transnational capitalist class formed in this period. The transnational sectors of the American and European economies allied to form a very efficient global lobby. American capital never really abandoned its leading role. However in the 1990s, there was actually a transnational transatlantic alliance of economic elites that relied on the World Trade Organization as the core of the globalization project. The European elites were far more reserved in adopting the dogma of globalization with all its consequences.

Interestingly enough, the democrat Bill Clinton, not the republican Ronald Reagan, was convinced that these interests of a global capitalist class had to be secured through a system of economic governance that could implement free trade and frictionless capital transfer. Clinton and his Secretary of the Treasury Robert E. Rubin were the most resolute defenders of transnational capitalist interests in the US, Japan and Europe. They gave a superficially human tinge to the dogma without really changing anything. Under Clinton, the World Trade Organization was institutionalized. Speculative capital streams were strongly guided to Asia under Clinton and Rubin. Under Clinton, the project of the inter-American free trade zone was promoted. The so-called “new democrats” in America were really the most important actors of the globalization project.

· What is the result of this so-called “stabilization- and structural adjustment program” enforced around the globe by the Bretton-Woods institutions? What did the Bretton-Woods shock therapy actually accomplish?

Globalization is nothing but a new subjugation of the South. In the North, the social compromise of the Keynesian state was cancelled and capital’s original power restored. However when this process reached its climax in the middle of the 1990s, the strong resistance movement also began, resistance by national political movements, resistance by the global civil society and resistance by movements against neoliberalism that sought political power in Latin America. The triumph of globalization in the 1990s was brief since the history of the following years was marked by the genesis of increasingly effective resistance movements against this globalization controlled by capital.

· Would you say we are beyond the climax of neoliberal thinking and that a deep crisis is occurring? Is the Bush administration with its mixture of geo-strategic and neoliberal goals a sign that we have reached a new threshold of a re-nationalized capitalism?

We are in the middle of a period full of contradictions. I believe the ideological legitimacy of neoliberalism is definitively over. Neoliberalism has only produced economic crises including the present growth crisis. In a phase of stagnation, the battles over market shares and profits naturally intensify. The readiness of national economies to open their markets clearly diminishes. The economic policy of the Bush administration is characterized by a series of protectionist positions that clearly violate the spirit embodied by the Clinton administration. National economic interests have priority over global interests whether in the conflict around steel subsidies, the awarding of contracts in Iraq or the weakened dollar. Bush doesn’t have the same trust in the globalization process that characterized Clinton and Rubin. This administration on principle is not interested in a globalization process not dominated by US capital. Therefore globalization should be strongly oriented in the interests of American corporations.

The motto is: Free trade for the world and protectionism for us. The Bush administration is much more skeptical towards the institutions of the globalization process. As in the political field of foreign policy, it prefers unilateral or bilateral strategies to multilateral institutions. For this administration, military power is more important than economic power. Now more nationalistic circles hold power whose interests are those of the military-industrial complex. This complex is connected much less intensely with the globalization process than other sections of American elites like Wall Street for example. An economically strong China could ultimately become the rival of the US. At the moment, strategic power has absolute priority. This will continue for a while. Some say this will only be an intermezzo that will end with Bush’s leaving office.

George Soros has urged a return to the transnational principles of the Clinton presidency. I have doubts about this. Are there relevant circles within the American economic elite who press for a return to the transnational paradigm of globalization? I don’t believe so. I believe people like Soros are a minority. The prevailing opinion is that protectionism presently benefits the interests of US capital more than globalization. Obviously this isn’t loudly admitted.

The neoliberal doctrine is still the general confession. However the practice has changed. We in Asia are familiar with this phenomenon. When the Asian tigers began their ascent, our government officials were never tired of advocating the free play of the markets. This disappointed Americans with their protectionist policy. Now the Americans follow the same strategy. Still in reality the clientele of the globalization project has clearly shriveled within the elites in the US, Europe and Japan.