Part 2
Responsibility for the eurozone crisis does not hinge around what they did or did not do; and will not be solved by the resignations of Papandreou and Berlusconi. The present crisis is deeply rooted in the nature of economic organisation, consumption habits of the super rich and the marginalisation and impoverishment of billions of people from the social underclass who have been made to subserve the lavish lifestyles and greed of the minority. Responsibility lies with the system of economic organisation, supported by constant political bullying by the West and reinforced anytime domination is threatened with the military might of the industrial world.
But the eurozone crisis (and that is a very restricted encapsulation of what is facing the world economy) is only the latest of such crises which have hit capitalism. In 2008-2010, the EU leaders were self-righteous in their criticism of the financial institutions in the US, and condemnatory of Washington for its soft regulatory policies. Today, president of the World Bank, American Robert Zoellick, is critical of the EU about "the common responsibilities of a common currency." The contention of this column is that the 2008-2010 crisis in the USA and the present one revolve not around reckless lending policies of financial institutions, but rather the absolute requirement of the financial system to keep turning over the accumulated billions even if it means "reckless" lending and paper ponzi schemes.
The system would also have crashed if the finance houses were to keep the billions in their vaults. It is inherent in the nature of the capitalist system that money has to be recirculated to feed other parts of the economy and keep shareholders always flushed with dividends and corporations with massive profit balances. Cows chew their cuds up to eight hours a day to allow their complicated digestive systems to function properly, says Donna Amaral-Phillips. Chewing the cud, says the animal nutritionist, allows "a cow to digest forages better and to eat more feed which helps her produce more milk;" finance houses have to keep chewing their cuds.
The first column in this series ended on the issue of the crisis of capitalism by noting that Greece and other member states were borrowing and spending way beyond what could be sustainable in their economies, and this was notwithstanding the fact that the Greek, Italian and other econo-mies had become unproductive and uncompetitive. Similarly, in the USA the finance houses had to lend to keep the money circulating, even if it meant refinancing to have home owners pay mortgages: loans to repay loans. But the eurozone crisis and the recession of the recent past were not the first crises of capitalism in modern times. The 1980s was declared as the "lost decade" for development in Latin America. Interestingly, the managing director of the IMF, Christine Lagarde, seems to agree with commentators who are saying this could be the "lost decade" for the world economy.
Back in the 1980s, the debt of LA amounted to US$350 billion; annual debt-servicing required US$66 billion; inflation was running at over 250 per cent in many economies; the terms of trade were very unfavourable to LA and untold human suffering was the reality for the middle class and the poor. The western banking system, flushed with funds from the Arab sheiks (the oil price had climbed from US$2 to US$30), had to keep lending. By 1985, Fidel Castro declared to the Mexican newspaper, Excelsior, that the debt could not be repaid; and in any case the financial institutions had already received debt repayments which far exceeded their original loans and with healthy returns.
The deal with Greece allows for a 50 per cent cut in the debts owed, but at a high interest rate. The fear of Italy not being able to service the 1.7 trillion euro debt (118 per cent of GDP) has caused the banks to increase interest rates to collect up front; but, like the cow, they cannot stop regurgitating to keep the system turning over. Outside of the macro-economic implications of a crash of the financial system, including the demise of the euro, there is need to focus on the human impact of the decades of capitalism. The 2010 UN?Millennium Development Goals Report estimates that 920 million people are living below the poverty line; women and children are the most disadvantaged judged by a number of health and social development indices; 1.1 billion people lack access to potable water, and 2.6 billion do not have basic sanitation facilities.
"Those twin deficits are rooted in institutions and political choices not in water's availability," states the MDG report. Further, almost two out of every three people who lack access to clean water live on US$2 a day with one in three of such people having to exist on US$1 a day. Between 2006-2007, 830 million people were undernourished, up from the 1990-1992 survey by over 13 million; the problem continues to escalate. And while further impoverishment is taking place, a survey by Capgemini, Bank of America and Merill Lynch found an 8.3 per cent increase, to a total of 10.9 million, of the excessively rich. But not only is the small group of multi-millionaires growing but their bank accounts are getting fatter. Those accounts grew by 9.7 per cent in the last year to a total US$42.7 trillion. "The rich are getting richer."
The International Labour Organisation has estimated that 80 million jobs will need to be created during and after this crisis. But projecting the growth path to the future, the ILO fears only 50 per cent of jobs needed will be created. And this is merely to keep the jobs constant at pre-crisis levels as 200 million people remain without jobs-and surely that figure does not take into consideration the hundreds of millions more who have little hope in their lifetime of getting employment. It is far from certain that China, India and Brazil are adopting a more human-centred approach to their development. These countries have massive populations with hundreds of millions living in unimaginable rural poverty and backwardness. Leaders must know that the western path to development will further marginalise their rural populations. "We just can't go on this way"... Explainer.
• To be continued