8 June 2012
If, like me, you are tired of hearing the same old simplistic dichotomy between austerity and growth you will enjoy the new retrospective on debt from the Jubilee Debt Campaign. It leaves aside the waffling nonsense from the credit raters and finance friends who got us into the mess. It has a simple and appealing message: the system of political control over finance worked, and it is long since time that we went back to it.
The political system we are talking about is the one agreed at Bretton Woods at the end of the Second World War. It was by no means perfect, and had the serious downside that it allowed dollar domination, but until Nixon broke the link between the dollar and gold in 1971 it did guarantee relative financial stability on a global basis. Since currencies have roamed free we have had an increasing number of financial and debt crises, each more serious than the one preceding it. This conclusion comes from that well known source of radical and anti-capitalist opinion: a Bank of England policy paper. In fact their conclusion is even more damning:
'The current system has coexisted, on average, with: slower, more volatile, global growth; more frequent economic downturns; higher inflation and inflation volatility, larger current account imbalances; and more frequent banking crises, currency crises and external defaults.' (p. 8).
The JDC report gives a useful account of the past 30 years of debt crises, and their human consequences. They give as an example the island of Jamaica, whose people have struggled with debt for the past 35 years:
'At independence, the country inherited a legacy of dependence on exporting cash crops such as sugar, coffee and cocoa. . . The IMF and World Bank began lending large amounts of structural adjustment bailout loans in the 1980s, with the consequent austerity. For example, through the 1980s, the number of registered nurses fell by 60 per cent. The most drastic adjustment took place under the programme in 1989-1993, with large increases in inequality and poverty following financial liberalisation in 1991. . . Since the most recent financial crisis began, Jamaica’s debt has increased by one-third. In 2011/12, a quarter of government revenue was spent on foreign debt payments. In 2010, Jamaica went on an IMF programme again, borrowing $850 million from 2010 to 2012. One of the IMF’s conditions was wage freezes for public sector workers in 2010 and 2011, which given inflation, amounted to a 20 per cent real terms cut.' (p. 17).
Drawing on both the reports cited here we can conclude that the unregulated globalised economy has been less successful in terms of stability, growth and equity than the system that preceded it, which constrained capitalism within politically agreed boundaries. There are people who are gaining from the absence of political controls but, since they are probably around about the 1% who are the source of so much rage just now, shall we agree that next time we are going to vote for politicians who are prepared to challenge and control them?