Vol.3 No.25, 10 October 2003

The Real World Economic Outlook

Margaret Legum

September 2003

At the recent meeting of the World Trade Organisation held at Cancun in Mexico, the international financial institutions survived another bruising season of confrontation with global civil society. This type of confrontation has in recent years become an annual event. In 1990 at the G7 Economic Summit for instance, the conference was headed as usual for arcane coverage largely by the financial press and business media, when a group of economists - under the then way-out impression that economics concerns us all - held a concurrent meeting called The Other Economic Summit (TOES). From that meeting grew the New Economics Foundation (NEF) in London - destined to become a major feature of the international civil society protest against mainstream economic theory and practice. South Africa's own New Economics network (SANE) is one of its babies.

The IMF publishes its views in the annual World Economic Outlook. From the NEF's by now impressive research and publishing output now comes another radical challenge to the mainstream in the form of the publication of The Real World Economic Outlook. This book directly challenges the WTO and confronts the IMF's annual World Economic Outlook with an analysis of the real world economy. It starts with an explicit focus on economic and environmental justice. It concludes that those values are consistently undermined by the current system, but that they can be promoted by a different economic system that will provide both prosperity and sustainability.

The NEF publication knocks on the head the ideas that economics is value-free and that the current dispensation a 'natural' outcome of neutral economic forces. The neoliberal theories that now perforce dominate the policies of almost all governments were introduced by elected leaders of the rich Western world - largely the UK and the US. That historic process, its purposes and its results, is described in fascinating detail.

This process is, of course, unsustainable. It creates dependence on fossil-fuel based growth, and hence catastrophic climate change; it diminishes purchasing power on the ground, hence delivering deflation; it systemically multiplies national and international debt, hence producing financial bubbles and ultimately financial meltdown. Above all, it creates poverty, destitution and the appalling consequences of world-wide social breakdown - mental illness, drug dependence, terrorism, child abuse, crime and cynicism.

The neo-economic policies are driven by the issuing of bonds by government and government enterprises such as ESKOM. It is indeed the bond market, and what it represents, that has prevented the South African and other governments - committed at elections to radical wealth re-distribution - from adopting policies that would regulate capital flows, diminish poverty and inequality, create employment, generate prosperity in local markets and maintain control over national assets and utilities. In all these respects all governments are required to do the opposite: to allow national capital to desert in search of greener pastures, privatise assets, open local markets to unfair competition, focus enterprise on exports, cut labour costs and taxation - and thus increase poverty.

The Real World Economic Outlook, is edited by Ann Pettifor, of Jubilee Research at the NEF. As well as articles by luminaries like Joseph Stiglitz and Herman Daly, it contains a section of region-specific analysis, written by local economists of international repute. Different chapters address widespread fallacies, such as that poverty is reduced under IMF policies, and that the 'Asian Tigers' Argentina and Brazil brought about their own downfall. Other contributions explain why and how the world continues to finance the American debt, resulting in a steady flow of savings from poor countries for investment in rich countries.

In his introduction, Ed Mayo, former Director of NEF, points out that the financial system itself is rarely examined. Yet it is the real beneficiary of the neoliberal system that creates systemic debt, deflation of prices and wages as well as massive asset inflation. If you have capital what can be better than a system that inflates your own holdings, while keeping down the price of everything you buy and everyone you employ. It is a dream come true.

The last section of the book addresses possible alternatives, in particular three principles that should inform them. The first of these is the control of capital, which would tame the financial sector. The economist Keynes wrote: 'The whole management of the domestic economy depends upon being free to have the appropriate rate of interest without reference to the rates prevailing elsewhere in the world. Capital control is a corollary to this.' The other two are the upsizing of the state, and the downsizing of the single global market to the concept of appropriate scale for trading.

It is disappointing that alternatives have not been spelt out in more detail, in the NEF publication because the groundswell of understanding has reached the point where it is ready to fall in behind positive proposals. One such, that of the Basic Income Grant (BIG), has already achieved mass support in South Africa. It is not mentioned. Nor, in any depth, is the proposal for debt-free money creation at Central Bank or government level. Alternative ways of raising government revenue, including 'green' taxes' need more researched attention.

This excellent book - the glossary alone is an education in basic economics - is to be the first of an annual series. Perhaps alternatives will find more consistent attention in future volumes. Look out for them.

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