Democrats, Social Security and the Fiscal Cliff

A Web of Convenient Fictions
by ROB URIE


With democrats ecstatic that political dysfunction has postponed their cutting the social insurance programs that Americans have paid for and count on for a few weeks, discussion of the intricacies of ‘chained CPI’ (Consumer Price Index) versus other measures of inflation used to adjust Social Security can now apparently wait for the New Year. Still, this probably isn’t a bad time to ask: why? Why cut Social Security? The program is currently solvent, is expected to remain solvent for decades to come, and projected shortfalls in the future could be better addressed by raising the incomes of the people who pay into the program, not by cutting payments to those who depend on them. What is to be gained by ‘solving’ a problem that isn’t?

If cutting Social Security isn’t necessary, why then is it being proposed? Barack Obama provided copious evidence in prior proposals, television interviews and speeches that doing so is his intent. Congressional democrats and labor leaders quickly acceded to his proposal to do so, with former House Speaker Nancy Pelosi going so far as to actively lie that proposed cuts will ‘strengthen’ the program. And given the cuts will eventually put tens of millions of Americans into dire poverty from a program they paid into for all of their working lives, what rationale could possibly justify doing so?

The reason I ask is a coalition of democrats, labor, liberals and progressives just re-elected Mr. Obama and democrats in Congress to what—cut Social Security? Mr. Obama created the ‘fiscal cliff’ to first push his stacked (in favor of cutting social insurance programs) ‘deficit commission’ to develop a plan to cut government spending and second, to force the issue to be revisited immediately after the election if no plan was agreed to. And Republican threats to refuse to raise the debt ceiling for leverage to ‘force’ spending cuts are idiotic—George W. Bush and congressional Republicans just led the largest increase in government spending in modern history. And that is not a difficult point to make. (And had it been on beneficial programs, it would have been laudable).

Ultimately the entire ‘debate’ is nonsense—the U.S. doesn’t fund spending directly from taxes. As the Federal Reserve is in the process of demonstrating with its QE (Quantitative Easing) programs, it can buy an unlimited quantity of government debt with money it ‘creates’ –the ‘debt limit’ is an arbitrary misdirection. This isn’t to argue that there is no relationship between economic production and money creation, but it is to point out that the ‘Federal budget’ is a convenient fiction. So, given his repeated analogy of the Federal budget to a family budget, is Mr. Obama ignorant of government finances or does he understand them and is purposely using the misleading analogy to further unstated goals?

The ‘Fix the Debt’ committee of politicians, corporate executives and connected financiers claiming to be concerned about the Federal deficit isn’t discussing eliminating the ‘carried interest’ deduction that benefits billionaire hedge fund managers, raising effective corporate tax rates that are currently the lowest in modern history, materially cutting end-of-empire levels of military spending and raising personal income tax rates on the titans of finance who would be begging for change in the street were it not for Federal government largesse in the (ongoing) bank bailouts. But they are deeply concerned about the Federal deficit, as are Mr. Obama and congressional democrats.

But again, why? The web of convenient fictions currently in play amongst both democrats and republicans in Washington—corporate tax cuts promote economic growth and job creation, government spending ‘crowds out’ more productive private sector spending, ‘excessive’ government debt will cause a financial market rebellion (bond vigilantes) and handing social insurance programs to private market profiteers is beneficial to the insured, are all demonstrably nonsense with only a cursory look at ‘the evidence.’

Effective corporate tax rates are the lowest in modern history and job creation, even before the economic calamity began in 2008, is the weakest since the 1930s. As global warming caused by largely private production and the predatory, dysfunctional private sector demonstrate on a daily basis, the ‘efficiencies’ of private production come from cost shifting, not by levels of human motivation intrinsic to capitalism. As QE is demonstrating, the Federal Reserve can control both short and long term interests rates—the ‘bond vigilantes’ are only in control when they provide cover for private interests. And Barack Obama didn’t choose the ‘least bad’ option with his healthcare ‘reform,’ he chose the private option to which he is ideologically committed.

Without apparent irony, these convenient fictions are straight from the IMF (International Monetary Fund) and World Bank playbooks circa 1980. While couched in the language of ‘economic development,’ IMF policies were / are extractive, designed to exert control over political economies and were / are tools of economic imperialism. The ‘austerity’ of IMF policies, cutting social spending to divert funds to service external debt, was rarely accompanied by even the pretense it benefited those whose social insurance programs were being looted. Cut to Mr. Obama and Democratic Speaker Nancy Pelosi mirroring the Vietnam Warism that to strengthen Social Security we must weaken it. Welcome to neo-Colonial America.

Also without apparent irony, the neo-Keynesian wing of the Democratic Party claims to have correctly analyzed current economic travails and prescribed the necessary and sufficient solutions if only Mr. Obama and the DC democrats would listen. In the first, this leaves the great mystery of why they haven’t listened and have actively articulated the policies of the radical right instead? In the second, Keynesian solutions imply that ‘we are all in this together,’ economically speaking, decades after official Washington and America’s plutocracy made it abundantly clear they believe they are responsible for their lot and we for ours, except when they need a few trillion dollars for a bailout. Finally, the ‘we’re all in this together’ monetary policies of the neo-Keynesians have benefited America’s richest 10% who own financial assets alone. (For explanations see Minsky’s essays on inflation and Marx’s Capital, Volume II).

With no respect whatsoever, this leads to the observation that Mr. Obama and his co-conspirators in the Democratic Party haven’t ‘caved,’ ‘capitulated,’ ‘relented,’ ‘given in,’ ‘submitted’ or ‘yielded’ by agreeing to cut social insurance programs. Mr. Obama’s far-right-of-center policies of his first term were just affirmed by the coalition that re-elected him. He will propose cutting Social Security again in just a few weeks. And democrats, labor, liberals and progressives will again be sincerely debating the merits of chained CPI versus other measures of inflation by which to cut Social Security. But while the effects of cuts will be real, the ‘debate’ won’t be. Put another way, the goal is to cut Social Security, not to ‘strengthen’ it.

In his speech at the Hamilton Project launch (link above) in 2006 Mr. Obama articulated the ‘slippery slope’ argument he believed was the ‘left’ position against ‘modernizing’ America’s social insurance programs. He argued supporters of these programs feared minor ‘adjustments’ were a pretext for the wholesale cuts desired by the radical right. But what this explanation leaves out is context. Were the ‘discussion’ taking place as the economic prospects of the poor and working classes were dramatically rising– rapid income gains, increasing income security, rising food security and income and wealth distribution resembling economic democracy, interpreted intent might be benign. But with Mr. Obama and congressional democrats several decades into giving voice to the desires and policies of the radical right, it would require a fool to believe benign intent today.

Hopefully I am underestimating the political pushback proposed cuts will engender. But given the propensity of democrats, labor, liberals and progressives to sincerely debate irrelevancies while giving unwavering support to the increasingly debased policies of their leaders, I doubt it. The bourgeois of these constituencies will likely break with the poor and working class and accede to the bogus rationale that the programs must be weakened so they may be strengthened, calculating that they’ll be all right in any case. And the pundit class will do the narrow calculus of cutting this program to save that without noticing the unwavering trajectory toward neo-liberal hell of the last forty years. To the folks who support the Democratic Party without apparently knowing what their policies are, good luck with that Social Security thing and all. To everyone else, we didn’t ask for this, but it’s coming our way anyhow.

Free Trade Is Ravaging National Economies

by: Thom Hartmann, Berrett-Koehler Publishers

Tuesday 4 October 2011

In the great days of the USA, Henry Ford stated that he wanted to pay high wages to his employees so that they could become his customers and buy his cars. Today we are proud of the fact that we pay low wages. We have forgotten that the economy is a tool to serve the needs of society, and not the reverse. The ultimate purpose of the economy is to create prosperity with stability.
—Billionaire speculator Sir James Goldsmith, 1993 1

Equal trade, fair trade, honest, decent trade requires reasonable balance between trading partners and strong domestic economies. When that happens, Adam Smith’s model works pretty well: prices for labor, materials, and finished goods all settle near the area where they “naturally” should be.

But as we’ve seen from the immensely imbalanced statistics on distribution of wealth, something is not working the way Smith envisioned. Wages appear to be dwindling, and the number of strong, healthy competitors appears to be shrinking.

Watch: Free Trade - POOF goes the Money & the Stimulus

Teddy Roosevelt Weighs In

President Theodore Roosevelt brilliantly defined the American Dream in the context of the dynamic difference between a business that is a builder of community and one that hollows out community. “We are a business people,” Roosevelt said at the Ohio Constitutional Convention in Columbus in 1912.

The tillers of the soil, the wage workers, the business men—these are the three big and vitally important divisions of our population. The welfare of each division is vitally necessary to the welfare of the people as a whole.

The great mass of business is of course done by men whose business is either small or of moderate size.

The middle-sized business men form an element of strength which is of literally incalculable value to the nation. Taken as a class, they are among our best citizens. They have not been seekers after enormous fortunes; they have been moderately and justly prosperous, by reason of dealing fairly with their customers, competitors, and employees. They are satisfied with a legitimate profit that will pay their expenses of living and lay by something for those who come after, and the additional amount necessary for the betterment and improvement of their plant.

The average business man of this type is, as a rule, a leading citizen of his community, foremost in everything that tells for its betterment, a man whom his neighbors look up to and respect; he is in no sense dangerous to his community, just because he is an integral part of his community, bone of its bone and flesh of its flesh. His life fibers are intertwined with the life fibers of his fellow citizens...

So much for the small business man and the middle-sized business man. Now for big business.

It is imperative to exercise over big business a control and supervision which is unnecessary as regards small business. All business must be conducted under the law, and all business men, big or little, must act justly....“Big business” in the past has been responsible for much of the special privilege which must be unsparingly cut out of our national life.

I do not believe in making mere size of and by itself criminal.

The mere fact of size, however, does unquestionably carry the potentiality of such grave wrongdoing that there should be by law provision made for the strict supervision and regulation of these great industrial concerns doing an interstate business, much as we now regulate the transportation agencies which are engaged in interstate business. The antitrust law does good in so far as it can be invoked against combinations which really are monopolies or which restrict production or which artificially raise prices....

The important thing is this: that, under such government recognition as we may give to that which is beneficent and wholesome in large business organizations, we shall be most vigilant never to allow them to crystallize into a condition which shall make private initiative difficult.

It is of the utmost importance that in the future we shall keep the broad path of opportunity just as open and easy for our children as it was for our fathers during the period which has been the glory of America’s industrial history— that it shall be not only possible but easy for an ambitious man, whose character has so impressed itself upon his neighbors that they are willing to give him capital and credit, to start in business for himself, and, if his superior efficiency deserves it, to triumph over the biggest organization that may happen to exist in his particular field.

Whatever practices upon the part of large combinations may threaten to discourage such a man, or deny to him that which in the judgment of the community is a square deal, should be specifically defined by the statutes as crimes. And in every case the individual corporation officer responsible for such unfair dealing should be punished.

We grudge no man a fortune which represents his own power and sagacity exercised with entire regard to the welfare of his fellows. We have only praise for the business man whose business success comes as an incident to doing good work for his fellows. But we should so shape conditions that a fortune shall be obtained only in honorable fashion, in such fashion that its gaining represents benefit to the community....

We stand for the rights of property, but we stand even more for the rights of man.

We will protect the rights of the wealthy man, but we maintain that he holds his wealth subject to the general right of the community to regulate its business use as the public welfare requires.2

In this speech Roosevelt identified the key distinction and pointed directly to the situation the world finds itself in now.

Corporations have become so large and powerful that We the People— citizens and their governments around the world—no longer have the ability to control or restrain corporate misbehavior when it endangers the common good. And so we have epidemics of cancer, acid rain, ozone holes, and massive species die-offs as multinational corporations roam the world, strip-mining it for human labor, minerals, fossil fuels, and the fragile remaining bounty of its forests and oceans.

The ultimate in unequal trade has ensued from increasing corporate influence. Very large corporations—Roosevelt’s “big businesses”—have now become able to sue an entire nation, in a court that they, the companies, lob- bied to create, and can overturn the laws of independent nations with virtually no appeal. And unlike any court in the civilized world, this court is as secret, private, and difficult to appeal to as any military tribunal.

Free Trade Ravages National Economies

Free trade is a phrase behind which multinational corporations have essentially strip-mined both the developed and the developing world. That’s strong language, but the metaphor holds up under examination. In strip-mining, a company comes in, strips off anything necessary to get at what it wants, and leaves. Similarly, the developing world is being mined for its resources, including human labor. At the same time, the already-developed world is being mined for its wealth, as its middle class and working poor sink farther into debt while multinational corporations become richer than any historic kingdom the planet has ever seen.

To understand what we can do about this, we first need to understand the mechanism. And there most definitely is a mechanism. When properly executed, it works quite reliably.3

Every product from shoes to nails to computers requires some human labor to manufacture. This can be done under working conditions that are safe and comfortable (or unsafe and uncomfortable) and using chemicals, techniques, and energy from toxic or safe/renewable sources.

For the cost of one American or European or Australian laborer, a company can hire between fifteen and fifty laborers in a developing country; and as an added bonus, the company can go back to using toxic chemicals banned in the United States over the past fifty years and buying cheap electricity from coal-fired power plants that would be illegal in this country. And when workers are injured or die, there’s virtually no cost to the company.

Thus as transnational corporate lobbying succeeded in bringing about a “flat” world opened for free trade, about 4 billion people suddenly came into the same labor market that was once a protected space occupied by about a half-billion, and the other costs of manufacturing fell through the floor.

The first result of this was that companies that moved manufacturing from the developed world to the developing world were able to decrease labor and externality costs and increase earnings (profits). As companies used this principle to their advantage and built empires in industries from shoes to retailing by selling products made in low-labor-cost nations into the retail channels of the high-labor-cost nations, it seemed like it was a good thing (it was certainly promoted as a good thing!). Cheaper products were available in the wealthy nations, jobs were created in the poorer nations, and the people who made it all happen got rich.

But there were complications.

• If an American company wanted to compete with the one that had gone offshore for labor or to avoid environmental regulations, it faced only two choices: shut its domestic factories and move manufacturing offshore, or go out of business. The result—on a vast scale—has been that the larger companies have moved offshore and the smaller companies that lacked the resources to do that have gone out of business. The number of competitors has dwindled, and markets have become concentrated in fewer and fewer hands.

• As a consequence well-paying manufacturing jobs in the developed world have evaporated at a startling pace. This echoes all the way up from the local level, through state and national economies, finally showing up as a general lowering of the standard of living in the developed world. Wages drop, benefits vanish, jobs become scarce, and people become insecure.

• Along with the economic changes come social changes. The worst of it shows up at the bottom first—the number of people in prison explodes, as do other negative social indicators. Antidepressant drug use goes up, suicide goes up (particularly among teenagers, who are developmentally most fragile and are watching their future earnings prospects evaporate), and spouses and even children go to work to help support the household. Debt goes up as the society becomes progressively poorer.

• Wealthy nations respond to the offshore challenge by trying to be competitive, which means further lowering wages and benefits. Companies may even cut promised benefits to their longtime employees who have already retired. But even if the local company cuts wages in half (doing enormous damage to the local economy), a transnational corporation is still able to hire a dozen or more workers for the same job in a poor nation. Consequently, the race to the bottom gathers momentum—the bottom is where more than 6 billion people compete for the same work that was, until recently, performed in a tariff-protected economy of 1 billion people (the developed world). Resources won’t stretch that far. The bottom is worldwide poverty supervised by a wealthy few, also known as feudalism.

• In the developing nations where these “new jobs are created,” people who have been doing traditional farming leave the land for the sweat-shops, and the land is turned over to intensive corporate agriculture. People who in previous generations were independent, self-sufficient farmers become urban slum-dwellers, the working poor, dependent on agribusiness and supermarkets for their food.

• When the new sweatshop nation’s urban working poor begin demanding higher wages and benefits, clean air and water, and a safe workplace, the corporations move to another country where labor is cheaper and regulations are looser. It happened in the 1990s when a mass exodus of multinational corporations left Korea, Taiwan, and Thailand for the ultracheap labor of Vietnam, Myanmar (Burma), and China, shattering the economies of those former “Asian tigers.”* Poverty explodes as slums overflow with crime, drugs, and prostitution—the symptoms of desperate people seeking some sort of income when the real jobs are gone. It is just like strip-mining, and it’s a sign of the worst sort of corporate citizen—one without the slightest concern for the impact it has.

• In the process the multinational corporations become richer, moving their “mining” activities from one nation to another as profits dictate. As multinational corporate wealth increases, stock prices go up and the top few percent of the socioeconomic pyramid become wealthier. Nations learn to watch the stock market, thinking—in complete error— that it is an accurate indicator of the nation’s wealth and economic health. In fact, from the Dutch tulip market collapse in 1637 to the U.S. stock market rises and crashes of 1929 and 2008, rapidly increasing markets have historically been indicators of an economy on the edge of implosion or undergoing radical social transformation.

As Sir James Goldsmith suggested in the epigraph of this chapter, we have forgotten that the purpose of economies—the whole reason why humans began trading with each other from the earliest days—was to provide for social stability. Your country makes good cheese, we make good clothing, another country makes good wine: let’s all trade these products with one another so all three of us can enjoy good cheese, clothing, and wine.

But in a “flat” free-trade world dominated by corporate values instead of human values, social stability is not a consideration unless or until it affects profits. This is the lesson of unequal values. And when a country becomes socially unstable, rather than working to restore the stability of the nation, multinationals simply leave town and go somewhere else, as Asian nations learned in the 1990s and Argentina learned in 2002.

This is not a new model, by the way. It’s how the East India Company treated India, the early American colonies, and numerous smaller countries that it considered its property. It reflects the mentality not of communities but of pirates, a mentality that gives birth to phrases like robber baron, corporate raider, and private equity.

Herman Daly and Robert Goodland used to work at the World Bank. They didn’t like what they saw. Consider this prophetic 1992 comment, two years before GATT was approved:

If by wise policy or blind luck, a country has managed to control its population growth, provide social insurance, high wages, reasonable working hours and other benefits to its working class (i.e., most of its citizens), should it allow these benefits to be competed down to the world average by unregulated trade?...

This leveling of wages will be overwhelmingly downward due to the vast number and rapid growth rate of under-employed populations in the third world. Northern laborers will get poorer, while Southern laborers will stay much the same.4

And this is exactly what we have seen happening.

The Corrective, Balancing Power of Tariffs

Historically, nations used tariffs—taxes on imported goods—to equalize differences between nations. Expensive-labor nations would charge tariffs on imported goods that were labor-intensive in their manufacture, to protect their domestic industries. Nations that wanted to protect unique natural resources or strategic products would use import/export policy to ensure their long-term survival and wise use. Trade was possible—it’s always happened among nations—but it was fair trade, fair to the humans in the trading nations and in the interest of the nations themselves.

Now multinational corporations have finally succeeded in freeing themselves from the constraints of social commitment to any nation whatsoever.

In the absence of tariffs and self-interested national trade policies, they are free to roam anywhere on a moment’s notice, looking for minerals, rain forests, and cheap labor. And because increasingly all money flows through them, they have essentially infinite power in all negotiations.

Finally, in a replay of events on American shores, they have in some cases taken roles in governments around the world. More than 150 countries have joined the WTO, and the giant transnational corporations are now dangling the carrot of cash to the leaders of the poorer nations. We’ve seen this movie before; it’s easy to tell what happens next. These governments readily comply, join the WTO, and subscribe to free trade. But what they get may not be quite what they bargained for. That’s what happened to no less a power than America.

How US Legislators React

The world’s largest transnational corporations are among the biggest contributors to politicians in America, and most members of Congress have supported the WTO even if they get a bit testy when the Dispute Resolution Panels rule against their favorite legislation. One good example comes from a speech to Congress by Representative John D. Dingell of Michigan on June 21, 2000:

Our major trading partners, including Japan, Korea, and the EU [European Union nations], have turned the WTO dispute settlement process into a de facto appeals court that reviews U.S. trade agency determinations and strikes down our trade laws. Japan and Korea have gone so far as to say they will launch WTO appeals of every U.S. trade determination that is adverse to their interests. Already, WTO decisions are gutting the effectiveness of U.S. trade remedies in ways that the Administration and Congress expressly rejected during the negotiations on the agreement establishing the WTO.

Increasingly, both governments and citizens of nations all over the world are expressing concern about the WTO’s process of leveling the corporate playing field across 153 member nations. Corporations manufacturing and exporting from countries that have lax or minimal environmental and labor laws are aggressively challenging and striking down the stronger laws passed in more-developed nations.

Countries with laws that banned the import or marketing of products they consider dangerous to their citizens are finding those laws struck down because other countries with weaker laws can now, to some extent, define the standard to which every WTO-member nation must be held accountable. They do this through WTO’s primary trade-law model, which says that a country cannot ban the import of a product because of how or with what type of labor it was produced.

Overturning Our Laws

Thus it’s now largely illegal to ban the import of products made by slaves or under inhumane conditions or made with chemicals that poisoned the local environment. This has sparked an explosion of industrial activity in labor-cheap and environmentally lax nations. At the same time, the industrial core of more-developed nations with higher labor and environmental standards has been hollowed out in just the past few decades, leaving vast landscapes of abandoned factories and a populace increasingly on edge about employment security.

In a developing nation where there is little or no cost or penalty to dump-ing toxins into the air or water, manufacturing is vastly more profitable than in a developed nation where toxins must be captured, stored, tracked, and cleanly disposed of in environmentally responsible ways. In the developed world, we have minimum-wage laws, laws regarding the maximum hours that may be worked per week, and safety and environmental laws. In the past, if an offshore product wasn’t made in ways we approved, we either banned its import or added taxes or tariffs to give our cleaner domestic companies a competitively level playing field.

For example, say there’s an hour’s work in the manufacture of a pair of American-made shoes. In the United States, that hour costs $12.77, including benefits and overhead.5 That same labor may be 10 cents an hour in Malaysia. So for the past century or so, the United States would have added a tariff, or tax, of $12.67 on any shoe imported from Malaysia that had an hour’s labor in it. That way U.S. shoe manufacturers could stay in business. It would level the playing field between the two cultures and nations, thus providing for fair trade.

 

Nations have often used tariffs to discourage manufacturing operations from moving their factories and jobs to less regulated nations.

But according to WTO, those tariffs are considered “restraint of free trade.” It’s illegal under WTO rules to consider how or who makes a product or at what level of pay it is manufactured. The loss of jobs to offshore began decades ago, but the elimination of tariffs during the Reagan and Clinton administrations accelerated it markedly. In the past few decades, more than 20 million Americans in labor-intensive industries have lost their jobs.

The other upshot of this is a dramatic increase in people around the world who are working either as overt slaves or at a wage rate that makes them virtual slaves in dangerous and toxic workplaces and living in an environment of company stores and company housing.

The developed world, and particularly the United States, at first appeared to have benefited from this. It allows our consumer-based economy to continue to hum, with low inflation and rising profits, just as the American South benefited so much from cheap slave labor before the Civil War. But at best this was a short-term benefit.

The “New World Order”

In most nations of the world today, there are basically two types of political parties. Those two parties stand on either side of a nearly invisible line—one party huge and imposing and the other thin and sickly, a political sumo wrestler pitted against an aging and infirm Woody Allen. The parties, regardless of local labels, are “We Who Represent the Interests of Multinational Corporations” and “We Who Represent the Interests of Human Beings.” The first group has gotten laws passed that allow the easy movement of capital from nation to nation under rules far different and more relaxed than those for humans.

In the United States and most other developed nations, most of the distinctions between politicians are becoming increasingly blurred, and in many nations all the local politicians have joined the parties of the corporations. Those parties and politicians that exist to represent the interests of human beings have been marginalized or overwhelmed by the parties and politicians that exist to represent the interests of the corporations. The reason for this is simple: most of the world has followed our lead regarding “free speech” campaign contributions.

After the end of apartheid in South Africa, American corporations donated the services of corporate lawyers to help draft the new South African constitution. Pointing to the 1886 Santa Clara case, they essentially said that in America corporations have the same constitutional status as humans, so you should write this into your constitution, too.

South Africa did that, as have many other countries that have emerged or developed or separated from the former Soviet Union. It’s a challenge to find the details and the statistics, and I’m hopeful that this book may spur somebody to do that hard, nation-by-nation, language-by-language research, but it appears that many of the countries of the world have written corporations-as-persons into their constitutions or laws, thinking that they were following the original intent of the Framers of the U.S. Constitution, which, of course, is not the case.

The result is that corporations have functionally taken control of governments the world over, particularly through their participation in the funding of the electoral process. Thus, corporations have become the honey pot from which many politicians and political parties draw their nourishment.

In a Democracy...

In the 1996 election cycle in the United States, 96 percent of Americans didn’t make any direct contribution whatsoever to a politician or political party, and fewer than one-quarter of 1 percent of Americans gave more than $200. By contrast, each of America’s top five hundred corporations gave more than $0.5 million to the Democrats and the Republicans during the decade preceding the 1996 elections.

In the 1998 election cycle, which was not even a presidential election year, those corporations contributed $660 million to candidates, while the last remaining organized groups that represent workers—unions, which are not considered persons in the United States and most other countries but are instead regulated as artificial persons—were able to pony up only $60 million in campaign contributions raised from their members.

Unions have to operate under the same types of rules and laws that corporations did before 1886, and, in fact, additional restrictions have been placed on them since then. So-called “paycheck protection” legislation is being pro- moted by corporate lobbyists that would essentially criminalize union contributions to candidates. And, increasingly, in corporate-controlled nations around the world, unions are being deemed illegal, political, or even labeled as terrorist organizations and ferociously stamped out.

Can it change? I believe so. But only if the word gets out.

Notes: 

The collapse of “the Asian tigers” also had much to do with IMF structural adjustment programs, according to many commentators.

1. Sir James Goldsmith in an interview with Yves Messarovitch, published as The Trap (New York: Carroll & Graf, 1994).

2. Theodore Roosevelt, “A Charter for Democracy” speech at the Ohio State Constitu- tional Convention, February 21, 1912, http://teachingamericanhistory.org/library/ index.asp?document=1126.

3. A more detailed explanation of the concepts in these points is found in Goldsmith’s The Trap (see note 1 above).

4. Herman Daly and Robert Goodland, “An Ecological-economic Assessment of Dereg- ulation of International Commerce under GATT” (Washington, DC: World Bank, 1992), quoted in The Trap (see note 1 above).

5. Example from http://www.aflcio.org.

Corporate Takeover of Food Production

Food Sovereignty Responds 

Wednesday 8 June 2011

by: Yve le Grand , Truthout 

 

Introduction 

Although the credit crunch has pushed the issue of the global food crisis to the background, it is still going on today. In fact, the number of chronically hungry people worldwide has risen and is estimated to amount to 967 million people according to the new Declaration of Human Rights, launched by the Cordoba process[1] at the end of 2008, on the occasion of the Declaration's 60th anniversary.

In 1948, the of the United Nations declared "... everyone has a right to be free from hunger and to adequate food including drinking water, as set out in Article 25 of the Universal Declaration of Human Rights."[2]

The world famine in the 1970s led the Declaration to introduce the concept of food security: "... the availability at all times of adequate world food supplies of basic foodstuffs to sustain a steady expansion of food consumption and to offset fluctuations in production and prices."[3]

This definition of food security, which is basically a technical matter of providing adequate human nutrition, led to the assumption that more food production would solve the problem of mass starvation. The Green Revolution led to a spectacular increase in the amount of food produced, but the numbers of the chronically hunger did not diminish accordingly.[4]

In his landmark book on poverty and famines,[5] Amartya Sen, concluded that enough food was being produced (i.e. enough calories per capita), but that the access to food, the entitlement to it, was the core of the problem. The poor simply lacked the financial and political means to claim their share of world food production. Sen made it clear that the world food problem was, thus, not so much a matter of food production, as it was one of social inequality and injustice. To see how a perfect storm has been in the making since the first Declaration of Human Rights, it is necessary to go back to the root of all food: seeds.

The Seed Situation 

In and of themselves, "Seeds are the very beginning of the food chain. He, who controls the seeds, controls the food supply and thus controls the people."[6] To understand why this is important for current developments in the agrarian industrial complex, it is necessary to have an understanding of how "normal" agricultural practices and techniques have evolved over time, in contrast to contemporary corporate practice in the last few decades.

When people first settled down and started to grow crops for food, through a lot of hard work and through trial and error, indigenous plant breeds were improved upon over time by cross pollination. Thus, plants developed that were suited best for local circumstances and climate conditions (e.g. drought, wind, flooding, soil). Through the techniques of crop rotation, mixed crop planting and by using natural fertilizers (manure, compost), the soil was not too depleted to recover and be (re)used.

Two of the most important agricultural practices are brown bagging and seed exchange. Brown bagging is the farmer's custom to save part of the seeds from the current harvest, to sow them in the following year. Seed exchange makes for the dissemination of new strands of DNA that have been obtained through crossbreeding plants. In this way, the various genetic materials guarantee biodiversity, which is of the utmost importance in order to withstand insect attacks or other pests that threaten a growing crop.

After the Second World War, chemical companies that had already diversified into seed fertilizers, herbicides and pesticides, began to invest heavily in the research and development (R & D) of so-called "hybrid" seeds, while buying up seed companies. Hybrid seeds grow with the input of petroleum-based fertilizers, herbicides and pesticides; e.g. "Roundup Ready" seeds developed by Monsanto the devil would only be able to grow through the exclusive use of their Roundup chemicals. A short while later, R & D would focus on genetically modified (GM) seeds, for which use companies could charge money on the basis of intellectual property rights (IPR).

How has the jump from seed saving and exchange to IPR on seeds been legally possible? In 1980, in Diamond v. Chakrabarty,[7] 447 US 303, the US Supreme Court ruled that a patent covering a living organism from now on was extended to cover "a live human-made micro-organism. "

In other words, whereas prior to this process, plants and animals themselves were subject to property rights and ownership, their genetics were not. After the process, the genetics of plants and animals could be owned and, thus, subject to intellectual property rights.

As a consequence, farmers could neither freely and legally plant nor save seeds for replanting of any plant variety registered under the plant variety provisions of the new patent law. This development marked a shift from public agrarian practice in which seeds could be exchanged and saved freely, to privately owned seed DNA, subject to IPR.

Source: International Seed Federation.[8] Since 1985, the trade in commercial seed has been soaring.

IPR deprives farmers from what they and many others worldwide claim as their inherent right to save and replant seeds. Seed varieties, which have been developed over centuries, have adapted to their particular environments, while their gene pool has to survive unforeseen factors such as pests and diseases - or climate change. Thus, farmers are losing their independence and become "extensions" in the field for the biotech corporations the world over,[9] as IPR clauses in the contracts between them and the farmer forbid the farmer to save and replant their seeds. Though farmers buy the GM seeds, they do not own them. In fact, farmers are renting the GM seeds from the biotech corporation on an annual basis.

Another consequence of the court ruling is the explosion of tactical cooperations, strategic mergers and takeovers among agro-chemical-biotech companies and the ensuing consolidation of power in the hands of a few transnational corporations (TNCs).

Based on a report published by the ETC Group, the action group on Erosion, Technology and Concentration:[10]

• From thousands of seed companies and public breeding institutions three decades ago, 10 companies now control more than two-thirds of global proprietary seed sales.
   
• From dozens of pesticide companies three decades ago, 10 now control almost 90 percent of agrochemical sales worldwide.
   
•  From almost 1,000 biotech start-ups 15 years ago, 10 companies now account for three-quarters of industry revenues.

The concentration of power makes for strong industry lobbies in governmental organizations such as the World Trade Organization (WTO) and the World Bank, in favor of governmental deregulation and the promotion of free trade, including agriculture. This directly affects the lives of people, in particular in the global South.

Free Trade and Agriculture

The Agreement on Agriculture (AoA) came into being at the same time as the WTO - until then GATT[11] - on January 1, 1995. The AoA, effectively considering agricultural crops as commodities, was based on three pillars for trade regulation: domestic support, market access and export subsidies.[12]

The first pillar, domestic support, is a set of rules that regulate under which circumstances local producers can be subsidized. The second pillar, market access, is aimed at reducing the tariff on imported goods, in an attempt to "create order, fair competition and a less distorted agricultural sector."[13] Non-tariff barriers on imports - such as import quotas or import restrictions - have to be "tarifficated" in order to become part of the global market process. Once bonded to a tariff, the rate will subsequently be reduced over time. The third pillar obliges developed countries to reduce the export subsidies given to local producers, in order to reduce false competition.

Only developed countries are rich enough to sponsor their agricultural producers one way or the other.[14] These subsidized crops flood the global market at below-cost prices. This both undercuts and lowers the farm gate prices for the local producers in developing countries, while these countries cannot afford to support their domestic producers or pay them export subsidies. In practice, this leads to what has become known as export dumping.

Due to the asymmetric power relations between developed and developing countries, it seems that the trade regulations have had a virtually opposite effect from that ostensibly intended: the reduction of tariff protections has negatively affected small-scale farmers - who make up 70 percent of the population in developing countries - who see the key source of their income slip away, driving them off the land and into the cities, in search of a new way to make a living.[15]

Subsistence farmers are effectively threatened by the conditions put forward once their state government takes out a loan from the World Bank or signs a WTO Trade agreement, as these come with structural adjustment programs (SAPs). SAPs are in effect prescribed economic "reform" policies, such as the reduction of government budgets and social spending; the cutting of programs and subsidies for basic goods; the elimination of restrictions on foreign ownership; the increase in interest rates; the promotion of a switch from subsistence farming to export economies, while eliminating import tariffs.[16]

Government deregulation thus favors TNCs over smallholders[17] in a bid to compete with export crops in a global market that, in fact, is seriously distorted by the agricultural subsidy policies of the developed countries.

Recently, the dash for agrofuels, diverting food crops to produce energy, has put yet more strain on the competition for land and other resources such as water.[18] The social and environmental consequences of business as usual has driven many farmers off their land toward cities, putting additional pressure on the land, as agricultural land is urbanized. Nowhere can these non-trade concerns[19] be witnessed better than in the growing number of slums around cities in the developing world.

The dispossessed are fighting back, however. They have organized themselves in all sorts of organizations, the aim of which is to resist further global appropriation of their lands and local economies. They campaign for agricultural reform and the human right to food; they demand food sovereignty for all.

Food Sovereignty

"People facing hunger and malnutrition are, to a large extent, smallholders, landless workers, pastoralists and fisherfolk, often situated in marginal and vulnerable ecological environments. Neglected by (inter)national policies, they cannot compete with increasingly subsidized industrialized agriculture, both nationally and in the world market. Many farmers tried to catch the Green Revolution train, but became stuck in the debt trap of increasing input costs and decreasing product prices. Concentration in the food market chain is another worrying trend causing increasing dependence of both consumers and producers on a declining number of seed, inputs and food products conglomerates."[20]

Food sovereignty is a term originally coined in 1996 by the members of La Via Campesina as an alternative policy framework, countering the narrow view of food security as access to global food imports by food-deficient countries as a political goal.

Emerging in 1993, Via Campesina is "an international movement of peasants, small- and medium-sized producers, landless, rural women, indigenous people, rural youth and agricultural workers that fight for the right of people to determine their own local policy to food security through agrarian reform and rural development."[21]

Via Campesina's Seven Principles of Food Sovereignty[22]

1. Food: A Basic Human Right

Everyone must have access to safe, nutritious and culturally appropriate food in sufficient quantity and quality to sustain a healthy life with full human dignity. Each nation should declare that access to food is a constitutional right and guarantee the development of the primary sector to ensure the concrete realization of this fundamental right.

2. Agrarian Reform

A genuine agrarian reform is necessary, which gives landless and farming people - especially women - ownership and control of the land they work, and returns territories to indigenous peoples. The right to land must be free of discrimination on the basis of gender, religion, race, social class or ideology; the land belongs to those who work it.

3. Protecting Natural Resources

Food sovereignty entails the sustainable care and use of natural resources, especially land, water, seeds and livestock breeds. The people who work the land must have the right to practice sustainable management of natural resources and to conserve biodiversity free of restrictive intellectual property rights. This can only be done from a sound economic basis with security of tenure, healthy soils and reduced use of agro-chemicals.

4. Reorganizing Food Trade

Food is first and foremost a source of nutrition and only secondarily an item of trade. National agricultural policies must prioritize production for domestic consumption and food self-sufficiency. Food imports must neither displace local production nor depress prices.

5. Ending the Globalization of Hunger

Food sovereignty is undermined by multilateral institutions and by speculative capital. The growing control of multinational corporations over agricultural policies has been facilitated by the economic policies of multilateral organizations such as the WTO, World Bank and the International Monetary Fund (IMF). Regulation and taxation of speculative capital and a strictly enforced code of conduct for TNCs is therefore needed.

6. Social Peace

Everyone has the right to be free from violence. Food must not be used as a weapon. Increasing levels of poverty and marginalization in the countryside, along with the growing oppression of ethnic minorities and indigenous populations, aggravate situations of injustice and hopelessness. The ongoing displacement, forced urbanization, repression and increasing incidence of racism of smallholder farmers cannot be tolerated.

7. Democratic control

Smallholder farmers must have direct input into formulating agricultural policies at all levels. The United Nations and related organizations will have to undergo a process of democratization to enable this to become a reality. Everyone has the right to honest, accurate information and open and democratic decision-making. These rights form the basis of good governance, accountability and equal participation in economic, political and social life, free from all forms of discrimination. Rural women, in particular, must be granted direct and active decision-making on food and rural issues.

The acceptance of this framework[23] in the context of the Declaration of Human Rights, is extremely important, not only for the small, food-producing people involved, but also for the end consumer in the developed world: the true right to food and the true right to produce food, mean that all people have an unalienable right to safe, nutritious and culturally-appropriate food as well as to food-producing resources, while they have the ability to sustain themselves and their societies in the process.

If the no consensus on a G8-driven global partnership against hunger is the surprise outcome of the High Level Meeting on Food Security held in Madrid in January of this year, it may well be an indication that the food sovereignty movement is conquering terrain. In the final declaration of the farmers' and civil society organizations, they state that:

"We see the proposed Global Partnership as just another move to give the big corporations and their foundations a formal place at the table, despite all the rhetoric about the 'inclusiveness' of this initiative. Furthermore it legitimates the participation of WTO, World Bank and IMF and other neoliberalism-promoting institutions in the solution of the very problems they have caused. This undermines any possibility for civil society or governments from the Global South to play any significant role. We do not need this Global Partnership or any other structure outside the UN system."[24]

After all, until a few decades ago, it was primarily the small farmers of this world who sustained us all with their hard work in the field.

Footnotes:

[1] "The Cordoba process was started at an international seminar on the right to food at CEHAP [Chair of Studies on Hunger and Poverty], Cordoba October 2007, further pursued at the Right to Food Forum organised by the FAO Right to Food Unit in October 2008 and completed in its present version following a second meeting convened in Cordoba by CEHAP on November 28-29, 2008. It will be subject of further consultations and possible revisions during 2009." Source.

[2] Source.

[3] FAO 1974

[4] See here.

[5] Sen, Amartya (1981): "Poverty and Famines: An Essay on Entitlements and Deprivation," Claredon Press, Oxford.

[6] Dominique Guillet, Association Kokopelli.

[7] Diamond v. Chakrabarty, 447 US 303 (1980)

[8] See here.

[9] For a brief history of the seed industry, see here and here.

[10] The ETC Group, an international advocacy organization based in Canada, has been monitoring corporate power in the industrial life sciences for the past 30 years, revealed this in a report in November 2008 that can be downloaded here.

[11] General Agreement on Tariffs and Trade, 1947. A tariff is a tax on goods upon importation.

[12] See here.

[13] See here.

[14] United Nations Development Programme (UNDP) Human Development Report 2005, p.129 vv.

[15] UNDP Human Development Report 2005, chapter 4.

[16] See here.

[17] Raj Patel in "Stuffed and Starved" (2007), London Portobello Books, describes this process in detail.

[18] GRAIN, "Stop the Agrofuel Craze."

[19] Fourth Special Session of the Committee on Agriculture (2000).

[20] Jonas Vanruesel, 2008. "Food as a human right: a struggle for human dignity and food sovereignty" in Omertaa Volume 2008/2.

[21] See here.

[22] A concise summary of the principles of food sovereignty can be found on the site of the organization for the defense of family farms in the USA.

[23] See here and here.

[24] Final declaration of farmers and civil society organizations.

World Bank: Food prices at "dangerous levels"

by Christopher Leonard, Ap Agribusiness Writer – Tue Feb 15, 4:39 pm ET

ST. LOUIS – Global food prices have hit "dangerous levels" that could contribute to political instability, push millions of people into poverty and raise the cost of groceries, according to a new report from the World Bank.

The bank released a report Tuesday that said global food prices have jumped 29 percent in the past year, and are just 3 percent below the all-time peak hit in 2008. Bank President Robert Zoellick said the rising prices have hit people hardest in the developing world because they spend as much as half their income on food.

"Food prices are the key and major challenge facing many developing countries today," Zoellick said. The World Bank estimates higher prices for corn, wheat and oil have pushed 44 million people into extreme poverty since last June.

The report comes a day before Finance ministers and central bank chiefs from the Group of 20 leading economies meet in Paris. Zoellick said he's worried some countries might react to food inflation by banning exports or implementing price controls, which would just aggravate the problem.

The World Bank's food price index rose by 15 percent between October and January alone. The increase has been driven by volatile global trading in wheat, corn and soybeans. Global corn futures more than doubled since this summer, from $3.50 to $7 a bushel, in part because of higher demand from developing countries and a growing biofuels industry.

Prices are rising in part because global grain traders have gotten jittery about historically low reserve levels of corn, wheat and soybeans, said Chris Nagel, an analyst with Northstar Commodity in Minneapolis. Growing demand from customers in China and elsewhere is putting pressure on the supply of most commodities, he said.

The U.S. Department of Agriculture predicted last week U.S. corn farmers will have just 675 million bushels of corn at the end of August, before next year's harvest begins. That's just an 18-day supply, Nagel said.

The slim reserves mean traders will likely bid up crop prices further at any weather event that reduces next year's planting.

"We need to get good crops, all around the world, in all of these commodities," Nagel said. "You just don't have much foot room for error.

The global price of fats and oils rose 22 percent and wheat rose 20 percent between October and January, according to the World Bank. The prices of sugar rose by 20 percent in that time.

Industrialized nations like the United States are insulated from the price increases because raw ingredients account for just a fraction of the total food costs. But in many developing counties, prices get transmitted more drastically.

Between June and December, wheat prices climbed 54 percent in Kyrgyzstan, 45 percent in Bangladesh and 16 percent in Pakistan, for example.

Zoellick warned that higher prices could stoke political instability in countries like Egypt and Tunisia. Both countries are big wheat importers and higher grain costs could aggravate social unrest as the countries form new regimes, he said.

"That's where the international system needs to try to be aware of these issues, and try to do things at a minimum not to exacerbate food prices," he said.

Holder Reaffirms US commitment to fight corruption

(Bullshit! They reward corruption. See the healthcare bill, TARP, and the financial reform bill.--jef)

+++

Holder: World Bank estimates corruption serves as 20 percent tax
By Agence France-Presse
Monday, May 31st, 2010

US Attorney General Eric Holder on Monday reaffirmed his country's commitment to fight corruption, which he described as "one of the great struggles of our time."

"Put simply, corruption undermines the promise of democracy. It imperils development, stability, and faith in our markets," he said at the Paris headquarters of the Organisation for Economic Cooperation and Development.

"The struggle against corruption, as President Obama has put it, 'is one of the great struggles of our time'," Holder said in a speech to delegates of the 35-nation OECD economic grouping in Paris.

The attorney general said that World Bank estimates showed that more than one trillion dollars in bribes are paid each year.

"That's a staggering three percent of the world's economy," he noted. "In fact, the World Bank estimates that corruption serves, essentially, as a 20-percent tax."

Holder paid tribute to the OECD as a leader in the global fight against graft.

"A little over a decade ago, foreign bribery was not only legal in many countries; it was tax deductible. That has changed," thanks to advances such as the OECD's Anti-Bribery Convention, he said.

The United States for its part has since 2004 prosecuted 37 different corporations for foreign bribery-related offences, levying criminal penalties in excess of 1.5 billion dollars, Holder said.

The US Justice Department has also focused on prosecuting individuals guilty of corruption to reinforce the message that "the risk of heading to prison for bribery is real, from the boardroom to the warehouse."

The Poverty Trap

Is Corruption the Cause?
By WALDEN BELLO

The issue of corruption resonates in developing countries. In the Philippines, for instance, the slogan of the coalition that is likely to win the 2010 presidential elections is "Without corrupt officials, there are no poor people."

Not surprisingly, the international financial institutions have weighed in. The World Bank has made "good governance" a major thrust of its work, asserting that the "World Bank Group focus on governance and anticorruption (GAC) follows from its mandate to reduce poverty — a capable and accountable state creates opportunities for poor people, provides better services, and improves development outcomes."

Because it erodes trust in government, corruption must certainly be condemned and corrupt officials resolutely prosecuted. Corruption also weakens the moral bonds of civil society on which democratic practices and processes rest. But although research suggests it has some bearing on the spread of poverty, corruption is not the principal cause of poverty and economic stagnation, popular opinion notwithstanding.

World Bank and Transparency International data show that the Philippines and China exhibit the same level of corruption, yet China grew by 10.3 percent per year between 1990 and 2000, while the Philippines grew by only 3.3 percent. Moreover, as a recent study by Shaomin Lee and Judy Wu shows, "China is not alone; there are other countries that have relatively high corruption and high growth rates."

Limits of a Hegemonic Narrative

The "corruption-causes-poverty narrative" has become so hegemonic that it has often marginalized policy issues from political discourse. This narrative appeals to the elite and middle class, which dominate the shaping of public opinion. It's also a safe language of political competition among politicians. Political leaders can deploy accusations of corruption against one another for electoral effect without resorting to the destabilizing discourse of class.

Yet this narrative of corruption has increasingly less appeal for the poorer classes. Despite the corruption that marked his reign, Joseph Estrada is running a respectable third in the presidential contest in the Philippines, with solid support among many urban poor communities. But it is perhaps in Thailand where lower classes have most decisively rejected the corruption discourse, which the elites and Bangkok-based middle class deployed to oust Thaksin Shinawatra from the premiership in 2006.

While in power, Thaksin brazenly used his office to enlarge his corporate empire. But the rural masses and urban lower classes — the base of the so-called "Red Shirts" — have ignored this corruption and are fighting to restore his coalition to power. They remember the Thaksin period from 2001 to 2006 as a golden time. Thailand recovered from the Asian financial crisis after Thaksin kicked out the International Monetary Fund (IMF), and the Thai leader promoted expansionary policies with a redistributive dimension, such as cheap universal health care, a one-million-baht development fund for each town, and a moratorium on farmers' servicing of their debt. These policies made a difference in their lives.

Thaksin's Red Shirts are probably right in their implicit assessment that pro-people policies are more decisive than corruption when it comes to addressing poverty. Indeed, in Thailand and elsewhere, clean-cut technocrats have probably been responsible for greater poverty than the most corrupt politicians. The corruption-causes-poverty discourse is no doubt popular with elites and international financial institutions because it serves as a smokescreen for the structural causes of poverty, and stagnation and wrong policy choices of the more transparent technocrats.

The Philippine Case

The case of the Philippines since 1986 illustrates the greater explanatory power of the "wrong-policy narrative" than the corruption narrative. According to an ahistorical narrative, massive corruption suffocated the promise of the post-Marcos democratic republic. In contrast, the wrong-policy narrative locates the key causes of Philippine underdevelopment and poverty in historical events and developments.

The complex of policies that pushed the Philippines into the economic quagmire over the last 30 years can be summed up by a formidable term: structural adjustment. Also known as neoliberal restructuring, it involves prioritizing debt repayment, conservative macroeconomic management, huge cutbacks in government 

spending, trade and financial liberalization, privatization and deregulation, and export-oriented production. Structural adjustment came to the Philippines courtesy of the World Bank, the IMF, and the World Trade Organization (WTO), but local technocrats and economists internalized and disseminated the doctrine.

Corazon Aquino was personally honest — indeed the epitome of non-corruption — and her contribution to the reestablishment of democracy was indispensable. But her acceptance of the IMF's demand to prioritize debt repayment over development brought about a decade of stagnation and continuing poverty. Interest payments as a percentage of total government expenditures went from 7 percent in 1980 to 28 percent in 1994. Capital expenditures, on the other hand, plunged from 26 percent to 16 percent. Since government is the biggest investor in the Philippines — indeed in any economy — the radical stripping away of capital expenditures helps explain the stagnant 1 percent average yearly growth in gross domestic product in the 1980s, and the 2.3 percent rate in the first half of the 1990s.

In contrast, the Philippines' Southeast Asian neighbors ignored the IMF's prescriptions. They limited debt servicing while ramping up government capital expenditures in support of growth. Not surprisingly, they grew by 6 to 10 percent from 1985 to 1995, attracting massive Japanese investment, while the Philippines barely grew and gained the reputation of a depressed market that repelled investors.

When Aquino's successor, Fidel Ramos, came to power in 1992, the main agenda of his technocrats was to bring down all tariffs to 0–5 percent and bring the Philippines into the WTO and the ASEAN Free Trade Area (AFTA), moves intended to make trade liberalization irreversible. A pick-up in the growth rate in the early years of Ramos sparked hope, but the green shoots were short-lived. Another neoliberal policy, financial liberalization, crushed this early promise. The elimination of foreign exchange controls and speculative investment restrictions attracted billions of dollars from 1993-1997. But this also meant that when panic hit Asian foreign investors in summer 1997, the same lack of capital controls facilitated the stampede of billions of dollars from the country in a few short weeks. This capital flight pushed the economy into recession and stagnation in the next few years.

The administration of the next president, Joseph Estrada, did not reverse course, and under the presidency of Gloria Macapagal Arroyo, neoliberal policies continued to reign. Over the next few years, the Philippine government instituted new liberalization measures on the trade front, entering into free-trade agreements with Japan and China despite clear evidence that trade liberalization was destroying the two pillars of the economy: industry and agriculture. Radical unilateral trade liberalization severely destabilized the Philippine manufacturing sector. The number of textile and garments firms, for instance, drastically reduced from 200 in 1970 to 10 in recent years. As one of Arroyo's finance secretaries admitted, "There's an uneven implementation of trade liberalization, which was to our disadvantage." While he speculated that consumers might have benefited from the tariff liberalization, he acknowledged that "it has killed so many local industries."

As for agriculture, the liberalization of the country's agricultural trade after the country joined the WTO in 1995 transformed the Philippines from a net food-exporting country into a net food-importing country after the mid-1990s. This year the China ASEAN Trade Agreement (CAFTA), negotiated by the Arroyo administration, goes into effect, and the prospect of cheap Chinese produce flooding the Philippines has made Filipino vegetable farmers fatalistic about their survival.

During the long Arroyo reign, the debt-repayment-oriented macroeconomic management policy that came with structural adjustment stifled the economy. With 20-25 percent of the national budget reserved for debt service payments because of the draconian Automatic Appropriations Law, government finances were in a state of permanent and widening deficit, which the administration tried to solve by contracting more loans. Indeed, the Arroyo administration contracted more loans than the previous three administrations combined.

When the deficit reached gargantuan proportions, the government refused to declare a debt moratorium or at least renegotiate debt repayment terms to make them less punitive. At the same time, the administration did not have the political will to force the rich to take the brunt of bridging the deficit, by increasing taxes on their income and improving revenue collection. Under pressure from the IMF, the government levied this burden on the poor and the middle class by adopting an expanded value added tax (EVAT) of 12 percent on purchases. Commercial establishments passed on this tax to poor and middle-class consumers, forcing them to cut back on consumption. This then boomeranged back on small merchants and entrepreneurs in the form of reduced profits, forcing many out of business.

The straitjacket of conservative macroeconomic management, trade and financial liberalization, as well as a subservient debt policy, kept the economy from expanding significantly. As a result, the percentage of the population living in poverty increased from 30 to 33 percent between 2003 and 2006, according to World Bank figures. By 2006, there were more poor people in the Philippines than at any other time in the country's history.

Policy and Poverty in the Third World

The Philippine story is paradigmatic. Many countries in Latin America, Africa, and Asia saw the same story unfold. Taking advantage of the Third World debt crisis, the IMF and the World Bank imposed structural adjustment in over 70 developing countries in the course of the 1980s. Trade liberalization followed adjustment in the 1990s as the WTO, and later rich countries, dragooned developing countries into free-trade agreements.

Because of this trade liberalization, gains in economic growth and poverty reduction posted by developing countries in the 1960s and 1970s had disappeared by the 1980s and 1990s. In practically all structurally adjusted countries, trade liberalization wiped out huge swathes of industry, and countries enjoying a surplus in agricultural trade became deficit countries. By the beginning of the millennium, the number of people living in extreme poverty had increased globally by 28 million from the decade before. The number of poor increased in Latin America and the Caribbean, Central and Eastern Europe, the Arab states, and sub-Saharan Africa. The reduction in the number of the world's poor mainly occurred in China and countries in East Asia, which spurned structural readjustment policies and trade liberalization multilateral institutions and local neoliberal technocrats imposed other developing economies.

China and the rapidly growing newly industrializing countries of East and Southeast Asia, where most of the global reduction in poverty took place, were marked by high degrees of corruption. The decisive difference between their performance and that of countries subjected to structural adjustment was not corruption but economic policy.

Despite its malign effect on democracy and civil society, corruption is not the main cause of poverty. The "anti poverty, anti-corruption" crusades that so enamor the middle classes and the World Bank will not meet the challenge of poverty. Bad economic policies create and entrench poverty. Unless and until we reverse the policies of structural adjustment, trade liberalization, and conservative macroeconomic management, we will not escape the poverty trap.

Economic and Corporate Powers Call for Hike in Global Water Price

Really? That's messed up. Nothing surprises me anymore...

~~//o0o\\~~

World Bank and OECD say water is a finite resource that must be valued at a higher price in order to repair old supply systems and build new ones
by Juliette Jowit in Paris

Major economies are pushing for substantial increases in the price of water around the world as concern mounts about dwindling supplies and rising population.

Water drips from an irrigation pipe on fallow fields on a farm in Firebaugh, California. (Photograph: Robyn Beck/AFP/Getty Images)With official UN figures showing that 1 billion people lack access to clean drinking water and more than double that number do not have proper sanitation, increases in prices will be – and in some countries are already proving to be – hugely controversial.

However experts argue that as long as most countries provide huge subsidies for water it will not be possible to change the wasteful habits of consumers, farmers and industry, nor to raise the investment needed to repair old supply systems and build new ones. And price rises can be managed so that they do not penalise the poorest.

Last Friday, the World Bank held a high-level private meeting about water in New York, at which higher prices were discussed. Days before that the OECD, which represents the world's major economies, issued three water reports calling for prices to rise. "Putting a price on water will make us aware of the scarcity and make us take better care of it," said Angel Gurría, the OECD secretary-general. It has also been a key theme at this week's meeting of industry leaders in Paris, hosted by Global Water Intelligence.

The discussion at the World Bank was raised by Lars Thunell, chief executive officer of the International Finance Corporation. "Everyone said water must be somehow valued: whether you call it cost, or price, or cost recover," said Usha Rao-Monari, senior manager of the IFC's infrastructure department. "It's not an infinite resource, and anything that's not an infinite resource must be valued."

Concern about dwindling water supplies has been rising with growing populations and economies. And with climate change altering rainfall patterns, experts warn that unless changes are made, up to half the world's population could live in areas without sustainable clean water to meet their daily needs.

Global Water Intelligence's 2010 market report estimated the industry needs to spend $571bn (£373bn) a year to maintain and improve its networks and treatment plants to meet rising demand - more than three times this year's projected spending.

At the same time, a major report last year by consultants McKinsey, paid for by a group of water-dependent global brands including SABMiller and Nestlé, said that most of the estimated "gap" in water in 2030 could be met from efficiency savings such as better irrigation and new showerheads.

However, highly subsidised prices are hampering both investment and efficiency, because private and public companies cannot collect enough water, nor persuade farmers, homeowners and businesses to make - and sometimes pay for - changes to reduce their water use, say the experts.

"We were in a vicious cycle," says Virgilio Rivera, a director of Manila Water, which took over water and sewage services in the city when the Philippines government passed a National Water Crisis Act in 1997. "Lack of investment; poor service; government can't increase the water rates because customers are dissatisfied; they are not paying, so low cash flows; so the government can't improve the service."

Huge opposition to price rises is expected however, especially as so many prices are set by elected politicians.

Even in Washington DC there has been an outcry over calls for prices to double over the next five years to help the city raise money to spend on its 76-year-old network of leaking lead pipes.

Obstacles include a long term "legitimacy" from providing free or very cheap water; and vested interests, says Rao-Monari, who cites the example of water vendors in India making big profits from desperate households.

The biggest concern though is the impact on the poorest households. There is evidence that they suffer most from the bad services of poorly funded water companies, because often they are not connected at all or have such bad services they are forced to rely on even more expensive water vendors.

In Manila, Manila Water increased bills from 4.5 to 30 pesos per cubic metre. At first there was resistance but by 2003 the company doubled connections from 3m to 6m, including 1.6m of the poorest squatters, leakage had been cut drastically, and pressure and quality had improved, said Rivera, one of the company's directors visiting Paris. Bills for the poorest households are now less than one-tenth of when they relied on vendors, and payment in the slum areas is 100%, said Rivera.

Some say step pricing can be used to protect a basic water allowance for drinking, cooking and washing – either for very low prices or for free, as it is in South Africa.

"I fully agree the water we need of hydration and minimal hygiene are part of the Human Rights declaration, but this is 25 litres of water [a day], which is the smallest part," said Peter Brabeck-Letmathe, chairman of food giant Nestlé and one of the most prominent global business leaders campaigning on water. More than 95% of water is used to grow food, for other household needs and for industry, he added.

Food prices should not have to rise as higher water bills could be offset by efficiency improvements, from irrigation, to new seeds, or even a changing pattern of what is eaten to favour less water-intensive ingredients, said Brabeck-Letmathe.

Others favour separating water supply from government's duty to take care of the most vulnerable. "Ideally utilities should not make any distinction between rich and poor," said Prof Asit Biswas, president of the Third World Centre for Water Management. "The moment you subsidise [someone's bill] people don't use water prudently."