20 July 2010

One Law for the Rich . . .

One of the greatest benefits of an academic life is that it forces you to keep in contact with academics from across the world so that you keep an international perspective. For a localist like me, who might otherwise lurk in my burrow with only the occasional foray to the 'big city' (Cardiff) this is a salutory obligation. In Bordeaux I recently had the pleasure of listening to two presentations about radical economics in Latin America. This is not the wishful thinking of pressure groups or smaller parties but the work of governments on behalf of their citizens.

Ana Rosa de Mendonca from Brazil presented a paper about the role of public banks in the Brazilian economy. In Brazil these banks, which are politically managed, control 43% of the credit in the economy. For many people they are their retail bank of choice, in place of the high-street banks we rely on, which exist to maximise profits for their shareholders.

Economic theory suggests that such public banks can play a useful role in underdeveloped economies until the market is sufficiently developed so that the private banks can take over, offering their manifestly superior services. Ana Rosa quite reasonably questioned whether such public banks might in reality play an important role in developed economies too, especially since they can act in an anti-cylical way, i.e. investing more when the economic is in recession and drawing money out to prevent over-heating.

Public banks, operating in the public interest, can also support important economic transitions as they did in Latin America's building of its industrial infrastructure in the 1950s and 1960s. In the UK, if the banks which we already own large portions of were simply turned into public banks, with political governance structures we could see them playing a similar role in our transition to a low-carbon economy.

Meanwhile, Eugenia Correa from the National University of Mexico outlined arguments for politicians to retake political power over the financial structures of the Latin American countries. Venezuela and Bolivia are already controlling their currencies on the foreign exchange markets. All the LA countries, she argued, have been net exporters of foreign capital for decades, as their wealthy citizens have deposite funds abroad, Switzerland being the destination of choice. This has left them short of capital for domestic investment and expansion.

She also proposed a Banco del Sur and a regional exchange currency. The latter already exists in the form of the SUCRE, which already exists to enable countries to settle foreign-exchange balances without needing to hold foreign exchange reserves. This could allow the Latin American economies to create a thriving regional economy that is insulated from the depredations of the rest of the world.

Like Africa, Latin America has for long seen its resources sucked out to benefit corporations sited elsewhere. Its people are no longer engaged in violent revolution in response to economic injustice but are rather electing politicians who are smart enough and courageous enough to defend their interests. Viva la revolucion economica!

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