By Joydeep Gupta, IANS,
Viterbo (Italy) : The worst of the global financial crisis is not over because governments have no strategy to fight it, says Walden Bello, winner of the alternative Nobel Prize in 2003.
The solution, he says, is to move from an export-oriented globalised economy to one that produces for local and national markets.
“Only that will address overcapacity in the real economy, the root cause of the current crisis,” said Bello, executive director of the Bangkok-based organisation Focus on the Global South.
He suggested various ways out of the mess, including safeguarding migrant remittances and introducing a legislation to restrict charges and taxes on transfers.
Bello also called for cancelling the debt of all developing countries to prevent recession or depression in these economies.
Addressing delegates to an international seminar on environment and development at this city, some 100 km north of Rome, Bello analysed the root causes of the financial crisis that saw $2.3 trillion go up in smoke on Wall Street between Oct 6 and Oct 10 alone. The seminar was organised by the Rome-based NGO Greenaccord.
Bello was highly critical of financial markets, which, he said, tried to handle overcapacity in the real economy by creating “spectral assets”.
He was also critical of the US government, “which had not regulated these financial markets” and had now been forced to “effectively nationalise Wall Street, and, with the rescue of the American International Group (AIG), the amazing fact is that the US government now runs the world’s biggest insurance company”.
According to him, the collapse had been caused by greed.
“The massive trading in derivatives helped precipitate this crisis, and the man who did the most to prevent the regulation of derivatives was Alan Greenspan, the former chairman of the Federal Reserve Board, who believed the derivatives market would regulate itself.
“The US Congress agreed with Greenspan and passed a law excluding derivatives from being regulated.”
Bello also hit at the Clinton Administration and then Treasury Secretary Robert Rubin for repealing the Glass-Steagall Act, which had prevented commercial banks from also being investment banks.
“Citigroup was a product of this deregulatory act. Rubin is now one of President-Elect Obama’s main economic advisers, which should worry us all,” Bello said.
Going back to the root cause of the crisis, he said it was “the tendency for capitalism to build up tremendous productive capacity that outruns the population’s capacity to consume”.
Bello said the financial markets tried to tackle the overproduction problem by redistributing income from the poor and middle classes to the rich on the theory that the rich would then be motivated to invest and reignite economic growth.
“The problem with this formula was that in redistributing income to the rich, you were gutting the incomes of the poor and middle classes, thus restricting demand, while not necessarily inducing the rich to invest more in production,” he said.
“The problem with investing in financial sector operations is that it is tantamount to squeezing value out of already created value. It may create profit, yes, but it does not create new value – only industry, agricultural, trade, and services create new value.”
Saying this was what had happened in the US housing sector, Bello quoted a George Soros estimate that there were “six million subprime mortgages outstanding, 40 percent of which will likely go into default in the next two years”.