Timothy A. Wise
Just when you thought the unhealthy ties between food, fuel, and financial markets couldn’t get more perverse, we get the announcement that Vitol, the world’s largest independent oil trader, is entering the grain-trading business, hiring a team from Viterra, based in Toronto, to run the show. And lest we toss this off as just another corporate deal, Javier Blas in the Financial Times reminds us that Viterra has itself recently been bought by Glencore, perhaps the world’s greatest global commodity speculator.
What could go wrong?
For the world’s poor, plenty. They’ve already endured three food price spikes in the last six years, fueled in part by financial speculators gambling on agricultural, energy, and metals commodities as they fled the wreckage of the housing and stock market crashes. This corporate deal may not change a thing, but it is a powerful symbol of what’s wrong with our broken food system.
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Kevin Gallagher
In the immediate aftermath of the global financial crisis, the world economy was characterized as experiencing a “two-speed” recovery. Industrialized nations, where the crisis occurred, saw slow growth whereas many emerging market and developing countries grew significantly. These growth differentials, coupled with significant interest rate differentials across the globe, triggered significant flows of financial capital to the emerging market and developing countries. As a result, many countries experienced sharp appreciations of their currencies and associated concerns about the development of asset bubbles.
Two of these countries were South Korea and South Africa. Between 2009 and 2011 currency appreciation in each country was from close to 20 and 40 percent respectively and stock prices doubled. This triggered significant political debates in each country over what to do. Interest groups lined up along predictable lines. In South Korea and South Africa the financial sector was dead set against any intervention by the government, as they perceived themselves to be “winners” of the cheap credit and cross-border finance entering and leaving these nations at will. In South Korea, exporters were split. Some were in lock-step with the financial sector, especially the shipping industry that was using the carry trade to not only hedge currency risk but also to speculate for more profit. Others, such as US auto firms operating in South Korea, were quite concerned about the impact of exchange rate volatility on their competitiveness and asked the government to take action. However, the financial authorities in South Korea still had the 1990s and global financial crisis in their memory and overpowered interest groups to create a set of traditional and innovative measures from taxes on inflows to limits on the speculative positions of foreign exchange derivatives.
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Ilene Grabel
There’s a political cartoon that I’ve had in mind these days when I think about recent changes in the international political economy of capital controls. Picture a sailboat in stiff winds on rough seas. The wind in the sails is labeled something like “Cyprus, Iceland, Brazil, China, or the Global South.” The boat is labeled “S.S. Capital Controls.” The International Monetary Fund’s (IMF) Managing Director Christine Lagarde is at the tiller, and she barks at her worry-stricken shipmate—“No, don’t trim the sails!” But we also see that the ship is trailing its anchor, which is labeled “Neoliberalism.”
I begin with this image because I think it captures well the conflicted processes surrounding capital controls during the current global financial crisis. Many extraordinary things have happened during the crisis. One is that we’ve come to learn an awful lot about countries like Iceland and Cyprus, countries that we could safely say weren’t even at the periphery of any discussions of the global financial system until 2008. Another is that capital controls (so long anathema to neo-liberals) have been successfully “re-branded” as a tool of prudential financial management, even within the corridors of the IMF. In a recent paper, I examine the myriad factors that have enabled this re-branding. As with most rebranding exercises there is uncertainty about whether the framing will prove sufficiently sticky, especially in the context of tensions and countervailing impulses at the IMF and elsewhere.
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Thomas Palley, Guest Blogger
Many countries are now debating the causes of the global economic crisis and what should be done. That debate is critical for how we explain the crisis will influence what we do.
Broadly speaking, there exist three different perspectives. Perspective # 1 is the hardcore neoliberal position, which can be labeled the “government failure hypothesis”. In the U.S. it is identified with the Republican Party and Chicago school economics. Perspective # 2 is the softcore neoliberal position, which can be labeled the “market failure hypothesis”. It is identified with the Obama administration and MIT economics.
Perspective # 3 is the progressive position which can be labeled the “destruction of shared prosperity hypothesis”. It is identified with the New Deal wing of the Democratic Party and labor movement, but it has no standing within major economics departments, owing to their suppression of alternatives to orthodox theory.
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Daniela Schwarzer
In the euro area, the crisis mood has somewhat calmed down. Several events in late 2012 have reduced the tensions. Among them are the European Central Bank’s announcement of its bond-buying programme OMT, the agreement on the creation of a banking union (however incomplete it may be for the time being) and the launch of the permanent European Stability Mechanism (ESM). The relief the euro area is experiencing at the moment may, however, only be temporary. Risks are emerging all over. The more obvious challenges still lie in the financial sector and in public finances – and further steps of crisis management and integration may indeed prove necessary to tackle them. Less obvious and more complex to solve are the political and social challenges.
The debate on the EU’s democratic legitimacy has gained pace. The European Union is quite used to discussing its democratic deficiencies. This post argues that the current crisis adds new dimensions to an old problem. The immature governance structures of the currency union prevent it from providing what European integration has been based on since its start: output legitimacy. While it is today (still) uncontested that European integration contributes to maintaining peace on the continent, it is hard to argue that the euro zone has sufficient instruments at hand to ensure long-term economic growth, social stability and sustainable public finances.
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Jayati Ghosh
All too often people in countries experiencing financial crisis are told that the road to recovery necessarily involves pain, that fiscal austerity and cuts in spending that adversely affect the lives of ordinary citizens are necessary costs of correction of macroeconomic imbalances and the consequent adjustment that is considered essential for recovery. This is repeated so often that it is now taken as received wisdom by policy makers and civil society alike – yet in fact it is not true at all. It can actually be plausibly argued that in several situations the reverse is correct, that attempts to reverse economic downswings through cuts in public spending are counterproductive and makes matters much worse. This is clearly evident for all to see in the case of crisis-ridden countries in the eurozone, for example.
And there are also positive counter-examples, that show how taking into account the concerns and requirements of ordinary citizens (and paid and unpaid workers in particular) can work as a positive macroeconomic strategy that actually provides a route out of crisis. Sweden provides an example of a country that responded to the financial crisis by explicitly recognizing and attempting to reduce the pressures on workers, and particularly women workers whose needs are often the last to be considered in such periods of crisis. Sweden incorporated measures to maintain or ensure favourable conditions of women’s work and life into its broader economic recovery strategy.
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Gerald Epstein
Among the critical problems that were pushed aside by the “fiscal cliff” negotiations between President Obama and Congressional Republicans, none are more pressing – or more intertwined– than the criminally high rate of unemployment still plaguing the country and the massive debt overhang faced by underwater homeowners.
While President Obama, the House Republicans and billionaire-financed conservative pundits, economists and “think” tanks shriek about unsustainable debt and deficits, official unemployment languishes at 7.8% percent, while millions of Americans are struggling with underwater mortgages and many are facing foreclosure. We confront this perverse set of priorities despite the fact that, as Robert Pollin has repeatedly pointed out, U.S. government interest payments on public debt as a share of federal outlays is at an extremely low level of 7.7%, about half the level as when Ronald Reagan was President.
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Carlo Panico and Francesco Purificato, Guest Bloggers
The media and some professional blogs are spreading the view that the European debt crisis is caused by the decision of the political authorities of the countries under attack to let their citizens live beyond the material possibilities of the economy. They advertise the unfounded fears that the taxpayer of the other euro-countries is becoming the victim of a money machine that rewards the profligacy of Southern European countries. As shown in our PERI paper The debt crisis and the ECB’s role of lender of last resort, these fears have become powerful political forces inhibiting rational solutions.
When the crisis began in April-May 2010, the Greek sovereign debt was around 300 billion euros and it was sufficient to buy a portion of it to persuade the markets that the authorities were determined to stabilise the interest rates. Yet, in spite of its independence, the ECB waited the end of the regional elections of May 9 in Renania-Westfalia (Germany) to respond to the speculative attacks, which had gambled on the view that the European authorities would not react until the election had ended.
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Vamsi Vakulabharanam, Guest Blogger.
The 2007-9 crisis in global capitalism brought a new energy and focus to the heterodox economists, and more broadly to the critics of neoliberalism from different arenas of society. It seemed clear at that time that neoliberalism had run its course when it met its structural contradiction – with the burst of the US housing bubble and the concomitant financial crises across the world, it looked like the avenues through which demand was being generated were closed and the system was poised for structural change. Three years later, Southern Europe is witnessing an intense so-called sovereign debt crisis with the working people bearing the brunt of it, and real economies in the developed world are continuing to witness slow growth. The US seems to be under the threat of the so-called fiscal cliff (which seems more like a political event rather than an economic one). The economies that grew quickly during the neo-liberal period, like China and India, have slowed down considerably. Across the globe, we seem to be going through a period of uncertainty without a clear path ahead. Yet, neoliberalism persists. Why?
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François Chesnais, Guest Blogger
The story of Dexia Group or Dexia S.A. is that of the rise and fall in less than twenty years of a diversified financial services corporation, small by global standards but which tried to play in the first league. It is the story also of taxpayer money spent uselessly trying to salvage the bank by two governments at the very time they were axing socially important expenditures. This is why the political demand for true nationalization under citizen control put forward since 2010 by the Left and those in the no-global movement, notably Attac, has focused in particular on Dexia.
This story began in the 1990s, at the time financial euphoria was rampant on both sides of the Atlantic, with the privatization of Belgian and French financial institutions. In Belgium, privatization primarily concerned the Gemeentekrediet van België / Crédit Communal de Belgique, which had been set up in the 19th century and was still owned in part by municipalities. The bank became a retail bank and took the path of international acquisitions and mergers, notably in neighboring Luxemburg. In France, an entity named CAECL (Caisse d’aide à l’équipement des collectivités locales) established in the post-World War II period, converted into a new public corporation named Crédit Local de France, with a mandate and status permitting it to expand through acquisitions. A US subsidiary, the CLF New York Agency was set up in 1990. In 1991 a proper initial public offering took place on the Paris Stock Exchange, with a distribution of shares between the French State (25.5%), the Caisse des Dépôts (25%) and individual investors from France and abroad (49.5%).
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