For a change, here is another mushroom cropping up (It actually cropped up as an idea and then materialised in 2008-09), this time, thanks to Leftist governments of Venezuela, Ecuador and Bolivia. Christened “Bank of the South“, the $7 billion fund-Development Bank is the most logical culmination (what else is there?) of these Latin Americans against the neoliberal, austerity-directed reforms of the Bretton Woods behemoths. Let them dig the grounds for fecundity, what really caught my attention here is that almost a decade back, Joseph Stiglitz endorsed Hugo Chavez’s economic policies, and in 2007 even called such a development bank calling it as reflecting the perspectives of those in the South. And that was a bad call.
I want to chip in why I think such endorsements portray the vacuity, and strangely that too coming from the likes of Joseph Stiglitz.
South-South cooperation is actually becoming the malafide of the resistance against the neoliberal (Oh! how much do I despise this word now, and all the more so when it is gaining currency amongst the alternative political viewpoints) policies, and it is easily gauged by the receding of the Pink Tide in Latin america, the so-called cradle of Left in the late 90s of the earlier century and the first decade of the new. “With global stagnation and falling export prices, the ‘pink tide’ states must choose between their social programme and their economic strategy,” Financial Times is tightening screws on the coffin of Left on the continent. With the recent killing of Bolivia’s Deputy Interior Minister Rodolfo Illanes by striking miners, President Evo Morales has resorted to what the Left has always been classically resorting to: “conspiracy theory”. As Richard Seymour has quipped with a lot of prescience, Morales’ resort to conspiracy theory makes a certain sense in the context of Latin America, where a series of left-wing governments elected as part of a “pink tide” in the 2000s have gone into crisis. Argentina elected its first right-wing government in 12 years in November. Venezuela’s economic crash has led to the victory of the right-wing opposition in the senate. Notwithstanding the hyperventilating coverage of the country’s total collapse, the country is beset by real problems, a combination of opposition disruption, international pressure and government mistakes exacerbating the turmoil. In Brazil, impeachment proceedings against Dilma Rousseff have put the unelected opposition in power. Rousseff is impeached for manipulating the figures to make the government’s finances look better than they were, but the real problem appears to be that amid economic troubles, Rousseff was elected on a programme of investment rather than austerity. Bolivia, did set an example of an anomaly, where growth stabilised, public investment reached a high level, and minimum wages greater than the rate of inflation were introduced. So, why this turnaround? The government has built its authority on support from the police and army, and has repeatedly deployed police against social movements where they were inconvenient, such as during the protests against fuel price increases in 2010, or against a road built on indigenous land during 2011. Dissatisfaction with the left-wing and left-center governments in Argentina, Brazil, and Venezuela did not arise because the right-wing is admired by the public, but rather because the improvements begun under the left have stalled. The problems are most severe in Venezuela, where the drop in world oil prices has led to extreme inflation and scarcity of supplies in many sectors of the economy. It is important to understand that, largely, the problems have not arisen in the socialist part of the economies of these countries, but in sectors that are still under the control of private enterprise. In Venezuela, more than 70 percent of economic activity is still private. Food distribution, which is central to the problems of scarcity and inflation, is virtually monopolized by a small number of private companies that have ties to the right-wing opposition, especially the Polar company that controls 40 percent of the market. Venezuela, in short is a failed state. So, obviously the tide is turning.
From within the simmering, rises a reinvigorated bank, and its efficiency would depend on a host of issues, viz. a replication of WB/IMF’s more contributions to fund, more weightage to vote; exemption from taxes salaries and procurement of investment, which also incidentally happens to be copy of WB/IMF; undecidability on reserve funds; prioritising infrastructure over agriculture and social sectors; chalking out a plan for investment in financial intermediaries to develop national companies; procurement; and participation & transparency. Would the Bank actually be able to overcome these is in time. But, my main intention has been Joseph’s remark, or rather his subscription to such alternatives to WB/IMF. More than he actually welcoming this bank, or for that matter the NDB as rivalling the hegemonic structures of WB/IMF, it’s his stance on financialisation of capital that needs to be sent through a scanner. I have to admit honestly that I was bowled over by his discontent book, which did send me on a trip to track change via his honest and integrity-filled analysis of globalisation. Even reading Bhagwati in concomitance wasn’t a powerful let down to following JS. But, just like the Left stands precariously, JS’s conceptualisation somehow misses the beat for me these days.
He, undoubtedly was a voice to hear during and in the aftermath of global crisis. His attack was three-pronged and all of it suited the purpose for the non-esoteric to figure out the causes of 2008-09 downturn. That there are problems associated with mainstream economics with over reliance on algorithms designed by mathematical geniuses, questionable character of rationality as a result of conflict of interests impairing ratings agencies, and lack of accountability on Wall Street’s excessive risk-taking adventures isn’t really in any doubt. But, thereafter fluctuations start becoming noticeable, and as a left-inclined theorist, he blames the neoliberal policies that had its beginnings in the 70s for all the ills with current economic and financial mess the world over. Assuming it to be true, then how do we explain the fact that Western Europe’s hyper-regulated economies are presently in even worse shape than America’s? Today Greece is a nation on financial life-support. Yet it has long been one of the most regulated and interventionist economies in the entire EU. This, however, doesn’t stop Stiglitz from proposing a massive expansion of regulation. This, he says, should be shaped “by financial experts in unions, nongovernmental organisations and universities”. More generally, there’s nothing new about what Stiglitz calls “New Capitalism.” It’s a return to old-fashioned Keynesian demand-management and the pursuit of “full employment” – that old Keynesian mantra – through the government’s direction of any number of economic sectors. Then there’s Stiglitz’s proposal for a Global Reserve System to effectively undertake demand-management for the world economy. To be fair, this is not an instance of megalomania on Stiglitz’s part. Keynes argued for something similar almost 70 years ago. But here Stiglitz wraps himself again in contradiction. Having stressed the Fed’s inability to manage America’s economy, why does Stiglitz imagine a global central bank could possibly manage monetary policy for the entire world economy? What precisely, we might ask, is the optimal interest rate for the global economy? Surely only God could know that. Until then, I’d have my reservations in taking him seriously.