Priming the World Pump

[BERNIETUCMN@xxxxxxxxxx id <01HPHZN5F8U899FUTU@xxxxxxxxxx>; Tue, 18 Apr 1995 21:50:00 -0500 (EST)]

     I am new to this list, so a word of introduction.  I'm a lifelong
socialist.  While my education was in economics and economic history, I have
been working for many years in public policy analysis; I am not a
professional economist or academic.

     The following argument and proposal is not a finished scheme, but only
meant to point in a useful direction in the struggle for a democratic
alternative to the escalating crisis in the world economic order.

     In brief, I propose a re-structuring of the rules of the international
monetary game.  The principle that debts must be paid back as quickly as
possible would be replaced with a new imperative: that liquidity must be
created on an ongoing basis to break the contractionary grip of the present
world economic order.

     The weakness and strength of the proposal is that it would require
conscious choice (1) to determine how these funds would be used; and (2) to
control the creation of this international fiat money in order to minimize
inflationary pressures.

     Capitalists would like us to think that democratic control of such
matters on an international scale is utopian.  They would tell us that the
amount of money must be fixed by those who can be trusted to avoid inflation
-- the bankers -- and its allocation must be determined by the ability of
borrowers to repay their loans at the prevailing rate of interest.

     It is admittedly difficult to raise the issue of an alternative
international monetary order based on an explicitly political
decision-making process.  On the other hand, the concept should be
increasingly attractive over time.  As high purchasing-power markets erode
under competitive pressures, even the transnationals will look for a way to
reflate the world economy.

     The reason why capitalists won't voluntarily choose this path, however,
is that it might take a direction which could ultimately release us from
their stranglehold.  Its logic would open up the domain of economic
decision-making as a political issue, subject to democratic struggles which
might get out of control.  It would give "workers of the world" something to
rattle their chains about.

     The only other conceptual framework now available to workers in the
wealthy countries (now known as "the middle class") would lead them down the
path of competitive economic nationalisms -- reactionary utopias which would
reinforce the invisible hand with the jackboot.

     I think this proposal gives us a concrete and international demand
around which various national and local movements could unite; and if
capitalists ever do engage in international Keynesianism, prepares us to
understand that we are also actors on that stage and can demand speaking
parts.

     I would appreciate your critique and suggestions.

Thanks,

Bernie Tuchman
New York, NY

BERNIETUCMN@xxxxxxxxxx


The following is the full statement of the argument and proposal:

                    A CHANGE IN ORDERS

     Is it possible to halt the competitive downward spiral in wages,
employment, and social conditions that we have been witnessing on a world
scale over the last twenty years?  And why have unions and other
institutions, which represent the needs of the vast majority of people,
fallen into disarray, unable to halt the multi-pronged offensive against the
living standards and security of so many?

     It appears that vast economic forces are operating, on a planetary
scale, by their own laws, and there is no one who is responsible for the
consequences.  No one but the Invisible Hand is to blame for shoving us off
the cliff.

     Successful struggle is not possible unless people sense that there is a
realistic prospect that things could be different and better -- that they
are not simply victims of "the nature of things".  Workers and communities
have not been able to hold on to previous gains because they have not been
able to pose a credible alternative which could break the contractionary
imperative of the present world economic order.

     Capital can now maximize profit without compromise because for the
first time it has no competitors on the world stage.  No longer haunted by
the specter of communism, or by any other alternative system, it is rapidly
discarding the mask of social responsibility it had been forced to wear for
a hundred years -- it is peeling away its human face.

     With apparently secure political conditions, instant
telecommunications, and historically low energy and transportation costs,
the barriers to international production have rapidly vaporized.  Many
low-wage countries have invested enough in education and in export-oriented
infrastructure to offer attractive platforms for the transnationals.

     Manufacturing wage differentials between advanced and developing
country economies are substantially greater than productivity differentials.
 Unless there is a conscious program to the contrary, the only way that this
differential will be closed is by the fall of wages in the advanced nations.

     Over the last twenty years entry into the world market produced real
increases in the living standards of a few small nations with limited labor
pools -- Singapore, Korea, and Taiwan.  But as the number of countries
willing and able to provide user-friendly conditions for capital has
mushroomed, spillover benefits from the inflow of capital have evaporated.
 That is because the traditional low-productivity sector in developing
countries remains unaffected by international wage standards.  And wage
rates in the modern export-oriented sector are determined by prevailing
wages in domestic labor markets.

     Thus, as more countries step into the world arena, they bring into the
ring an endless army of hungry people who serve to keep down wages in the
modern international sector.  It may take many decades and possibly
centuries to absorb the traditional sector into the modern sector.  "In the
meantime, we can expect the surplus labor of the traditional sector to exert
a continuing downward pressure on global wages," according to Walter Russell
Mead, in "The Low-Wage Challenge to Global Growth" (Economic Policy
Institute, 1990).  He argues: "...the effect of low-wage manufacturing on
global purchasing power is likely to present serious obstacles to global
economic performance." "...[T]o the extent that low wages in developing
countries slow the rise of wages and employment in advanced countries, then
the danger of international stagnation grows."  This is "generating
pressures that ultimately will close the markets on which export-oriented
economies depend."

     Under capitalism the growth of purchasing power begins as an extension
of credit. The extension of credit can only be sustained by an act of faith
in the creditworthiness of the borrower -- public or private -- which is
receiving that credit.  The ballooning of debt -- public and private;
domestic and international -- makes the stability of the international house
of I.O.U. cards appear ever more in-credible.  Without conscious direction,
the logic of individual self-interest would lead to the withdrawal of
capital to imagined havens of safety.  The consequent extinction of credit
would result in continuing contraction, to the benefit of no one -- not even
of capitalists, taken as a whole.

     During the Great Depression of the 1930s the national state could
intervene to "prime the pump", creating the effective demand needed to
re-start production.  This can no longer be done on a national basis.  The
benefits to any single nation of monetary expansion are dissipated by
increased imports.  Only the most major of powers -- the U.S. -- could prime
the pump for the world as a whole, as it did after World War II, and again
with Reagan's disastrous deficit policy.  Ultimately, not even the U.S. can
sustain such a policy.  International concerted action is required to avoid
currency devaluation, inflationary pressure, and capital flight from the
country which initiates monetary expansion.

     In order to achieve a net stimulation of growth of the world economy it
is necessary to expand total demand for goods and services.  This can be
achieved without inflation to the extent that production can be increased by
employing resources which are currently unemployed or redeploying resources
which are inefficiently used.

     This requires strategic international economic planning, effectuated by
the creation of a means of payment -- an expansion of international credit
(not backed by savings but created by fiat).  Saving capitalism from its own
self-destructive logic thus requires a political act which transcends the
commands of the market.  The market-signals which motivate and mobilize the
atomized decisionmakers of the Smithian model will not solve this problem.

     The central questions in controlling the direction of the world economy
are: Who will receive the purchasing power to make their demand effectual,
who will decide this question, and by what rules will they make this
decision?

     Those questions already have one set of answers.  An increasingly
dominant World Bank and IMF under the stewardship of the international
banking community direct credit towards the propagation of transnational
corporate power, and act to deny credit and quash the development of any
alternative locus of economic independence.  But the demands on the global
system are tearing this order apart, so that its very constitution is up for
re-negotiation.

     The International Monetary Fund, and the International Bank for
Reconstruction and Development (the World Bank) were formed at the end of
World War II.  At that time a choice was made to follow the American version
of the Capitalist Road and not an alternative capitalist road proposed by
the British.   The version of the Americans envisioned banks with limited
resources for temporary short-term conditions.  The logic was to turn around
the debtor as soon as possible to become a low price producer for the world
market, and thus a net exporter who could quickly repay its debt.  The plan,
authored by Harry Dexter White, "gave the Fund's officers the right to
express opinions and to make recommendations on its members' national
policies and even to hold back currency from debtor countries who
continually avoided making internal adjustments to correct their balance of
payments or if they 'failed to carry out measures recommended by the Fund
designed to correct the disequilibrium in the country's balance of
payments'" (from "The Economic Aspects of New Deal Diplomacy" Lloyd C.
Gardner, 1964).

     On the other side of the debate on the Postwar World Monetary Order was
an alternative model proposed by John Maynard Keynes.  Keynes's Plan
(designed to aid the debtor) centered around an overdraft principle.  The
British desired to discourage creditor nations from maintaining a permanent
favorable balance of trade, but if creditors insisted upon doing so anyway,
they would have to allow their liability to the fund to increase
correspondingly.  "'The object is that the creditor should not be allowed to
remain entirely passive.  For if he is, an intolerably heavy task may be
laid on the debtor country, which is already for that very reason in the
weaker position.'"  The Keynes Plan put 'virtually the whole responsibility
for adjustment' upon the creditor country." (Gardner)

     So world economic orders, even under capitalism, are not handed down
from on high by the invisible hand, but are the product of human
arrangements.  The need to create increased liquidity in the face of
deepening stagnation will lay the basis for demanding a new world economic
order based on the Keynesian model.   There is every reason for this to be
the demand of a broad constituency -- not only workers, but also all those
who are squeezed by an austerity that profits a smaller and smaller minority.

     Raising the demand for a democratic world monetary order can make it
possible to re-engage large numbers of people into the political process as
they come to understand that there are choices to be made that make a
difference -- that there is an alternative to the inhuman world order of the
IMF.  It becomes possible to wage and win a contest over the direction this
world will take once it becomes clear that the stranglehold now exercised by
capital is not based on real and inexorable economic laws, but is in fact
the result of particular institutional constructions.  The IMF is only the
Wizard of Oz, and the spell of enchantment can be broken.

     What program should we struggle for?  An internationally planned
allocation of new purchasing power should be geared towards meeting the
moral and environmental challenge of our time -- the vast disparity of
wealth between the rich and poor, across all nations.  The aim should be a
long-term convergence of development and living standards between two worlds
which find that they are in fact one world.  A politically viable program
must deal with the key issues affecting each society.  High income countries
need to systematically re-direct their economies to conserve on their
demands for global resources, and to re-integrate their people into
conscious and intentional communities.  Low-income countries need greater
command over material resources, and development within the bounds of
environmental and communal sustainability.

     For instance, let's take Mexico -- once again, as in 1982, the Achilles
heel of world capital.  In a democratic human-focused world economic order,
the priority for increasing consumption and investment would be directed
towards countries like Mexico, and world credit would be channeled to meet
this need.  Then production in Mexico and elsewhere would expand to meet
rising Mexican demand.  The need to emigrate to survive would disappear.

     In a wealthy country like the U.S., where high cost private solutions
to social problems have bankrupted both the state and the family, the task
would be different: re-investment in community facilities to meet our needs
less expensively and more consciously.  We can live better with less, but
not without an expanded commons.

     The bitter pill of our 20th Century experience need not be a poison
pill.  Bitter pills can also be strong medicine which help us fight a
virulent onslaught.  We trusted our victories -- the Welfare State, the
Socialist Revolution -- to be safeguarded by institutions which in fact we
did not control.  We cannot afford to make that mistake ever again.

     If we can maintain a vision of a future worthy of the human project, a
vision which we ourselves believe to be realizable, then we can struggle for
it, even if that struggle is never-ending.  And it will be worth it.