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3AO XXXIV. Vol. 135

Publicacin de la Facultad de Economa de la Universidad de La Habanaen colaboracin con la Asociacin Nacional de Economistas de Cuba

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5Hot money and cold comfort.Global capital movement and financial crises in emerging economies

Daniel McFadden

SUMARIONMERO

12004AO XXXIV VOL. 135

9

Economics, ideology and the possibility of endogenous development

Michael A. Lebowitz29

Guerra global y guerra de dinero: El futuro del mundo a corto y mediano plazo

Wim Dierckxsens

41

Un deber con el Che: vertebrar cultura y economa

Armando Hart Dvalos

58

PO

NE

NC

IAS

PO

NE

NC

IAS

PO

NE

NC

IAS

Estrategias de paralas plantas medicinales en Cuba

marketing

Gabriele Morello

72

La industria azucarera mexicana durantela dcada de los aos noventa

Vctor Manuel Castillo GirnAlma Alicia Aguirre Jimnez

82

102

Una alternativa de modelo cubano de gestin estratgica de Recursos Humanos

Alfredo Morales Cartaya

6Apuntes para una reflexin sobre las concepciones del Capital Humano

Yazmn B. Vzquez OrtizMayra Castaeda Calzadilla

116

Algunas reflexiones acerca del llamadoCapital Humano. Desde la ptica del anlisisde la gestin de la informacin

Carlos Lazcano HerreraElena Font Graupera

131

Anlisis de la concepcin y del modelode gestin de las UBPC

Emilio Rodrguez Membrado154

El Proyecto ALCA Una alternativapara el desarrollo de Amrica Latina?

Carmen Quintela FernndezVilma Hidalgo de los Santos

El Proyecto ALCA Una alternativapara el desarrollo de Amrica Latina?

Carmen Quintela FernndezVilma Hidalgo de los Santos

172

Malasia: la poltica monetario-financiera como mecanismo de defensa de sus intereses nacionales

Mnica Cortina Castellanos

190

La administracin del crdito comercial.Una propuesta para el perfeccionamientoempresarial en la ECOING 18

Mara Caridad Figueredo ReyesDorgeris Mara Graca Prez

213

7Hot money and cold comfort.Global capital movement and financial crises in emerging economies

Daniel McFadden

12004AO XXXIV VOL. 135

9

Economics, Ideology and the Possibility of Endogenous Development

Michael A. Lebowitz29

Global War and Monetary War : The Future of the World at Short and Medium Term

Wim Dierckxsens

41

A Duty with Che: Articulating Culture and Economy

Armando Hart Dvalos

58

PO

NE

NC

IAS

PO

NE

NC

IAS

PO

NE

NC

IAS

Marketing Strategies for the Medicinal Plants in Cuba Gabriele Morello

72

The Mexican Sugar Industry During the 90s

Victor Manuel Castillo Girn Alma Alicia Aguirre Jimnez

82

102

An Alternative of the Cuban Model for the Strategic Management of Human Resources

Alfredo Morales Cartaya

NUMBER

8Some Notes for a Reflection on Human Capital Conceptions

Yazmn B. Vzquez Ortiz Mayra Castaeda Calzadilla

116

Some Reflections on the So Called Human Capital" from the Perspective of the Information Management Analysis

Carlos Lazcano Herrera Elena Font Graupera

131

On the Conception and Management Model of the Basic Units of Cooperative Production (UBPC)

Emilio Rodrguez Membrado154

The FTAA Project. An Alternative for the Development of Latin America?

Carmen Quintela Fernndez Vilma Hidalgo de Los Santos

172

Malaysia: The Monetary-Financial Policy As a Defense Mechanism of its National Interests Mnica Cortina Castellanos

190

213

The Administration of Commercial Credit. A Proposal for the Entrepreneurial Improvement at ECOING 18

Mara Caridad Figueredo Reyes Dorgeris Mara Graca Prez

9Hot money and cold comfortGlobal capital movement and financial

crises in emerging economies 1

Daniel McFadden *

1. Introduction

IN THE 19 th Century, when the United States was a new nation, it had anunregulated free market system for banking and credit. Any individual with areputation for honesty among his neighbors could open a bank, accept deposits,make loans, and issue script that could be used as money. This system fueledinnovation by creating markets in which resources could flow to their most roductiveuse, and the U.S. economy grew rapidly. However, the system was intrinsicallyunstable. Any natural event, loan whose quality was questioned, or even rumorcould set off a run of withdrawals by depositors that the bank had insufficientliquidity to satisfy, leading the bank to fail. This could happen even in circumstanceswhere the fundamentals of the bank were sound, with solid prospects for eventualrecovery of loan principal and interest that would cover all deposits.

Further, these panics and the resulting bank failures spread havoc, ruiningdepositors and businesses who lost their lines of credit. The failures often cascadedinto national panics that fed violent business cycles with frequent contractions.Not only did these financial stutters in the system slow the pace of economicgrowth, but they placed a heavy toll on the lives of individuals.

No. 1 / Vol. 135 / Ene-Jun. / 2004

Economa y Desarrollo

* University of California, Berkeley.

10

The eventual policy response in the United States to this situation was tointroduce central banking, reserve requirements, bank regulation, depositorinsurance, and bankruptcy law. Over the past 50 years, these institutions, for themost part carefully administered, have in the United States largely eliminatedbanking crises and the severe business cycles these crises can generate.

The system is not perfect. In the 1980s, the U.S. relaxed some of the stringentregulations governing the loan portfolios of a class of financial institutions calledSavings and Loan Associations. These organizations were in many cases notsufficiently well capitalized and managed to survive in an openly competitiveenvironment, but by pursuing increasingly risky loan portfolios, they postponedfailure. Because deposits were insured by the government, these risky strategiesdid not cause them to lose depositors. When failure came, the government had tobear the heavy cost of bailing out the depositors. This was a case where thesystem of regulation created unintended incentives, encouraging financial firmsto gamble with the governments money. If their gambles paid, then they weresolvent; if not, it was the government and ultimately the taxpayers that had totake the loss. The lesson is that an insurer of last resort faces a severe moralhazard, an incentive structure than encourages the insured to assume additionalrisks, unless the insurance arrangement also contains sufficient prudentialsupervision and control to blunt these incentives.

2. Currency crises

The reason for recalling this history is that the international capital markettoday resembles in many respects the U.S. credit market 150 years ago, withvirtually unregulated free flow of capital across borders that fuels innovationand economic growth, but also creates volatility and financial panics that hindereconomic development and damage peoples lives. The pattern is now familiar.Opening the borders of an emerging economy and liberalizing or deregulatingits financial institutions, combined with insufficiently developed financialregulation, aggressive promotion of economic development, or loose governmentfiscal policy, leads to heavy international borrowing, with loans denominated indollars or other industrialized country currencies. Much of the borrowing is forhighly productive and innovative investments, but easy access to credit andweak financial intermediaries may also induce unwise investments or borrowingto finance current government spending. Then, some triggering event occurs,perhaps the insolvency of one or more large banks, a run by depositors, a dropin export demand, or sudden and tumultuous pressure on a fixed or crawling

11

peg exchange rate, and a currency crisis starts. Hot capital flows out of thecountry, loans from foreign institutions are not rolled over, and if the currently isnot released to float freely, it comes under speculative attack. This precipitatesa full-fledged financial crisis in which financial institutions may fail, and thecountry experiences economic, political, and social turmoil, including increasedcost of borrowing or loss of access to international capital markets. Fiscalausterity follows, often as the price of IMF intervention to stabilize the situation,economic growth is stunted, many businesses fail because they do not havesources of dollar revenue to service their suddenly very expensive dollar-denominated debt and do not have secure credit lines, and workers are damagedby the fall in economic activity and employment.

We all know about the Asian currency crisis in 1997, the Russian crisis in1998, and the Argentinean crisis in 2002, but these are only the most visible of anepidemic of problems. The IMF reports that of its 180 member nations, 130 hadserious banking problems between 1980 and 1995, and there were 211 episodesof banking or currency crises in this period.

Further, the economic costs of these crises were substantial. Typical time torecovery to trend following a currency crisis was 18 months, and typical total lostoutput was 4,3 percent of annual GDP. Banking crises were more severe, typicallylasting 3.1 years and resulting in total lost output of 11,6 percent of annual GDP.The worst crises can be truly devastating. In the 1997 currency crisis in Asia,South Korea lost more than half-a-years GDP in potential output, and the ongoingcrisis in Argentina is even worse. One of the features of currency crises is thatthey often spill beyond a nations borders. Thus, the Asian crisis in 1997 spreadfrom Thailand to Indonesia, Malaysia, the Philippines and Korea. The proximatecause of the Argentinean crisis in 2002 was a large burden of dollar-denominatedloans, a fixed exchange rate that was unsustainable given domestic inflation andits impact on trade, and rapid flows of Argentinean capital out of the country.However, a contributing cause was a unilateral Brazilian devaluation a year earlierthat had a substantial adverse impact on Argentinean exports. I will spend sometime today talking about fiscal policy in the United States, and the risk that it willignite a financial storm that could sweep across the entire international marketsystem and do great damage to unwary emerging economies.

There are five significant risks associated with foreign borrowing: Exchange rate risk domestic currency depreciates relative to foreign

currency denomination of loans Maturity risk too much short-term debt or hot money relative to payoff

periods for investments

12

Interest rate risk international (e.g., LIBOR) rate volatility. Service risk domestic contractions, export volatility, or investment project

failures increase burden of debt service. Panic/Speculative risk events trigger speculation against the domestic

currency and flight of hot capital.What changes could be made in emerging economies and in international

capital markets that would reduce these risks, and the frequency and severityof financial crises? I will first discuss what emerging nations can do forthemselves to reduce the probability of originating or being infected by crises,and to minimize their effects when they do occur. After that, I will discuss whatthe community of nations might do to reduce volatility and provide a safety netfor its constituent members.

An initial question is whether emerging economies should embrace globalizationof economic activity and borrowing, or resist it. If participating in the globaleconomy entails such risks, might a country be better off by closing its borders,limiting trade, making its currency non-convertible, restricting capital flows, in themodel of the old Soviet Union? While there is some merit to Benjamin Franklinsadage Neither a borrower nor a lender be, the answer today seems to be no.The gains from participation in international trade for goods and services bringeconomic benefits that substantially outweigh the risks associated withglobalization. Countries that have sought autarchy, such as North Korea, havefared less well than countries such as South Korea and China that have aggressivelypursued global markets. There are cases where timely interference withinternational capital movements seems to have worked to moderate the domesticimpact of crises, for example the imposition of capital flow restrictions in Malaysiain 1998 and 1999, and the relatively tough bargaining stand that Argentina appearsto be using with some success to emerge from its wrenching crisis in 2002.However, these are emergency responses to crises in progress, not prescriptionsfor financial management under normal conditions.

In a talk at the National Academy of Sciences in 2002, the U.S. Secretary ofState Colin Powell stated what I consider to be a sound position on globalization;I paraphrase his statement: There is no point in being forglobalization or againstglobalization. Like the weather, it is just there. We should concentrate on how tolive with it, maximize its benefits, and minimize its costs.

What can emerging economies do to take advantage of international tradeand globalized capital markets to stimulate economic growth, without greatlyincreasing the risk of currency crises? What internal policies and reforms are

13

self-protective? I will discuss three broad areas, prudential supervision of financialintermediaries, responsible fiscal policy, and institutions to allow pooling of riskswithin and across borders.

3. Prudential supervision

Prudential supervision of financial intermediaries is essential if lenders anddepositors are to have confidence that they are sound and well managed.Prudential supervision also provides the information that governments need todetect problems and attack them before they grow into crises. Prudentialsupervision requires that banking regulators be independent, strong, and ofunquestioned integrity. It requires banking laws that prevent interlockingrelationships between businesses and encourage transparent, arms-lengthtransactions. One of the most important effects of effective prudentialsupervision is development of healthy domestic financial markets that keepdomestic capital at home and reduce the need for foreign borrowing fordevelopment projects. Key elements of prudential supervision are: Transparent and uniformly applied laws and property rights regarding

contract enforcement, bankruptcy, and repossession. Effective institutions for oversight and regulation, and consistent, stringent

bank audits. Adherence to International Accounting Standards and public information

on performance, accounting, and disclosure standards. Early warning systems for problem borrowers and active management of

non-performing loans. Separation of financial management from industry and government, no

connected lending. Coordination of regulating agencies across jurisdictions, with oversight of

total financial firm operations, and tight control of off-shore operations.Governments can play an important part in supporting and encouraging

developments that provide jobs, fuel economic growth, and alleviate poverty.However, it rarely works well for governments to assume the dual role of regulatorand customer of the banking sector. For example, the 1997 currency crisis inSouth Korea, while induced by volatility spread from Thailand, was greatlydeepened by problems in the banking sector that came from governmentintervention to support charbols that were inefficiently managed and eventuallyunsustainable. The anemic economic performance of Japan over the past decade

14

is substantially due to an unwillingness of its government to undertakecomprehensive banking reform that makes capital available to innovativeprojects. Unless there is a clear legal separation of banking and government,with the government sticking strictly to supervision, the risks of compromisedregulation are high.

While the recent Parmalat scandal in Italy was, as its core, a simple fraud, thebalkanization of banking regulation within Europe, and between Europe, the UnitedStates, and the Caribbean allowed the fraud to spread undetected and cause agreat deal of collateral damage. The earlier Enron scandal in the United Stateswas also abetted by laxity in supervision of off-shore banking operations. Whilethese scandals both occurred in developed countries, similar problems on a smallerscale are also happening in emerging economies, and the globalization of bankingwithout a corresponding globalization of supervision is increasing the risk ofimprudent conduct or fraud.

Accountability of regulators and transparency of operations are most easilyachieved when financial institutions are clearly separated from industrialownership and management, and clearly separated from government. Otherwise,the blurring of lines between borrowers and lenders, and between financialfirms and their regulators, creates incentives for imprudent behavior that canlead to risky loan portfolios and undermine depositor confidence. Today, thereare a number of countries where banking is in trouble, and globalization ofbanking promises more trouble.

For example, in China, the state-owned banks are saddled with largeportfolios of non-performing loans, most a hang-over from the time whenboth banking and manufacturing were under government management. Today,many of these banks are well-managed, and given a level playing field couldcompete effectively in global markets. Nevertheless, there is no way theycan survive when China fully opens its banking market to foreign firms in2007 unless the state assumes their legacy of pension obligations and badpaper. In many other countries, such as Italy and Indonesia, cronyism has ledmany banks to make unwise loans, and the resulting drag on those economieshas been an impediment to growth.

When financial institutions are global, they have strong incentives to useinternational transactions and capital movements to circumvent regulation anddisguise weakness. There is a need for regulatory bodies that arecommensurately global in scope and can maintain oversight of the full spectrum

15

of firm operations. For example, the creation of the euro currency union makesnational regulation of EU-wide and international banks very difficult. A greatdeal of strengthening of banking regulation at the EU level is needed if a cascadeof future scandals like Parmalat is to be avoided.

4. Government fiscal responsibility

Government fiscal mismanagement is a second major source of currencycrises. When weak tax systems conflict with strong spending priorities, politiciansmay choose disguised taxation through the issuance of debt to finance spending.When government debt stimulates an economy that is operating below capacity,or when it is used to finance productive investments, say in infrastructure, then itmakes economic sense, in the same way that debt financing of new capacity in aprofitable industry makes sense if the return from the investment exceeds itscost. However, when a government uses debt rather than taxes to finance currentconsumption and redistribution programs, even those with laudable objectives,this is a sign of weakness and fiscal irresponsibility. Further, its costs are high.There is the direct cost that future generations must bear of servicing the debt,and the future opportunities crowded out by debt service. Incentives for privateinvestment are distorted. If the debt is financed by borrowing from abroad, indollar-denominated loans, this makes the economy more vulnerable to exchangerate risk, and to the predations of speculators.

Finally, if accumulating government debt does trigger a currency crisis, thenthe entire economy is disrupted, with major economic costs. I have been asked,rhetorically, how I can call for fiscal responsibility when children are dying everyday. I agree that protecting the lives, health, and welfare of its citizens should bea governments highest priority.

However, financing these needs through unsustainable external borrowingthat leads to currency crises and economic collapse compounds the problem andis not a solution. I believe that the only really effective way to deal with a societysmajor social problems is through a Scandinavian consensus that all citizens willgain from a just society that taxes itself to address these problems.

The leaders of the industrialized nations sometimes use the depreciatory termbanana republic to refer to a country whose government is too weak orirresponsible to manage its fiscal operations properly. The problem is in factworld wide, including both industrialized and developing nations, and including

16

a number of countries at various times in Latin America. Today, the biggestbanana republic, and the one most likely to trigger a global financial storm,is the United States. I am going to make some rather extended remarks onfiscal and trade policy in the United States, and explain why in my view it is alooming threat to the international financial system.

Figure 1 gives U.S. Government budget projections prepared by the ConcordCoalition, a non-governmental organization that is relatively conservative onbudget matters, and more realistic than the official projections of theCongressional Budget Office about extension of tax cuts and future spendingpatterns. They show the current budget deficit of $523 billion, or 4.5 percent ofGDP, continuing in the range of 400 to 600 billion per year over the comingdecade, or around 3.5 percent of GDP. As a benchmark, note that the EUrequires that member nations keep their budget deficits below 3 percent ofGDP, and there is currently a quarrel because Germany and France are abovethat target. Government deficits in industrialized nations in the range of 3 to 5percent of GDP have ample precedent, although they have been rare in theU.S. except during major wars, as Figure 2 illustrates.

Figure 1:Difference between the Agustus 2003 CBO Projections

and Our Projections

Surplus or Deficit, 1992-2003

Our Deficit Projections

August 2003 CBO Projections

Tax Cut ExtensionAMT ReliefPrescription Drug Plan

Defense, Horneland Security, and InternationalDomestic Appropriations

Ann

ual S

urpl

us o

r Def

icit

(In

Bill

ions

Def

icit

Surp

lus

-700

-600

-500-400

-300-200

-100

0100

200

300

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: The Concord Coalition, The Committee for Economic Development, and the Centerfor Budget and Policy Priorities, , 20.The Developing Crisis:Deficits Matter

17

Figure 2Post-Civil War Deficits in Relation to the size of the Economy

Effect of Post-War Economic Recessions

Perc

ent o

f GD

PSu

rplu

sD

efic

it

1866

1876

1886

1896

1906

1916

1926

1936

1946

1956

1966

1976

1986

1996

2012

-8 %

-6 %

-4 %

-2 %

-0 %

2 %

4 %

6 %

8 %World War I Great

DepressionWorld War II

Source: The Concord Coalition, The Committee for Economic Development, and the Center for Budget and Policy Priorities, 2003.The Developing Crisis: Deficits Matter,

Ann

ual (

mill

ion)

Figure 3U.S. Balance of Payments

$ 100,000

$ 0

-$ 100.000

-$200,000

-$300,000

-$400,000

-$500,0001960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Source: U.S. Department of Commerce

18

Such deficits are inflationary when an economy is near capacity, may crowdout investment, and lead to accumulating debt service costs that squeeze currentexpenditures for government goods and services. When government deficits arefinanced externally, they increase the exposure of the country to risk from volatilityin international capital markets, and increase the prospect of triggering a financialcrisis. The current U.S. deficit is a concern for fiscal conservatives and manyeconomists because it promises to persist through the next expansion, adding toinflationary pressure and pinching government spending on education and theenvironment. However, there are other factors in the U.S. fiscal picture that aremuch more alarming that todays deficit.

First, because savings rates in the United States are relatively low, U.S.government borrowing is associated with borrowing from foreigners, and isreflected in the balance of payments for goods and services. Figure 3 shows asharp decline in the U.S. trade balance since 1997. This implies a correspondingincrease in U.S. paper held abroad. Figure 4 shows that the U.S. exchange rateagainst the basket of major currencies has dropped by about 30 percent in thepast two years, indicating increasing resistence to acquiring this U.S. paper. Thisis despite the fact that China, a major trading partner with whom the U.S. has alarge bilateral trade deficit, has kept the yen pegged to the dollar and continues torapidly accumulate dollars.

Figure 4U.S. Exchange Rate

Index against Major Currencies

140

130

120

110

100

90

80

1970 1975 1980 1985 1990 1995 2000 2005

Source: Federal Reserve Board

19

Do the twin deficits in the U.S., in the government budget and in the balance ofpayments, threaten a global financial crisis? Aside from the relative sizes of the twoeconomies, is the situation in the U.S. today that much different than the situation inArgentina in 2000? Both countries faced sharply increasing debt service requirements,but the U.S. has one major advantage in that its foreign borrowing is mostly denominatedin its own currency. In general, if I borrow from you and the loan is denominated inyour currency, then I bear the exchange rate risk, but if it is denominated in mycurrency, then you bear the exchange rate risk. Thus, China cannot easily reduce itsexposure in dollar-denominated paper without damaging its own dollar reserves, andhence it is motivated to maintain the exchange rate. Then, if the prospect were simplya continuation of U.S. government deficits of 3,5 to 4,5 percent of GDP, it is likely thatthe major holders of dollars would actively resist speculative pressure on the dollar.What we would likely see instead is a continued slide in the exchange rate, a rise inlong-term interest rates, and stabilization of the trade deficit. Such a Number in 5-year Cohort (000) gradual adjustment would release pressure and avoid panics, butit would not be painless. The resulting shifts in terms of trade would disadvantagesome emerging economies who are using exports to fuel economic development.For example, a weaker dollar would have a negative impact on U.S. tourismabroad, and on imports of agricultural products.

25 000

20 000

15 000

10 000

5 000

0

Num

ber i

n 5-

year

Coh

ort (

000

)

Figure 5Census Low Population Projections

Age (5 year increments)5-year increments, 1980-2050

20

A much more serious issue in examining the impact of U.S. policy on theinternational financial system is the long term viability of U.S. government policy.The United States faces a demographic tidal wave beginning about 8 years in thefuture, as the large population cohorts born after World War II begin to retire andqualify for Social Security and Medicare. Figure 5 in which time is increasingback to front from 1980 to 2050, and age is increasing from left to right, showsthe aging over time of the baby boom generation, and of their children who forma second, smaller wave on the left. The source of this figure is U.S. Censuspopulation projections, augmented by the authors calculations.

The aging of the baby boomers implies that the ratio of retired persons tothose working will begin to rise sharply after 2012, nearly doubling by 2040, asshown in Figure 6. This graying of the U.S. will place heavy demands on healthand retirement programs.

One feature of these demographic forecasts, and economic projections builtupon them, is that they are relatively uncertain. Government policy needs to notonly deal with the median impact of these demographic shifts on government

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040

YearSource: U.S. Censusus

5 %

10 %

15 %

20 %

25 %

30 %

35 %

40 %

Figure 6The Dependancy Ratio

Ratio of Persons Aged 65 + to Working Age

21

budgets, but also needs to be sufficiently robust to respond effectly tocircumstances that could turn substantially worse.

Social security and Medicare are pay as you go entitlement programs in theU.S., with the cost of benefits to the current elderly bourne by current workers.The demographic transition implies a doubling of the burden on workers if it wereto be funded solely from payroll taxes, which has terrible economic incentiveeffects and is probably politically unsustainable. As a consequence, the fundingof these government obligations is likely to fall substantially on general governmentrevenues, and produce major government deficits.

Figure 7 projects social security income and expenditures by assuming thatthe ratio of benefits per retiree to GDP per capita and the ratio of payroll taxesper worker to GDP per capita remain at 2002 levels. Thus, in the absence ofincreased payroll taxes or reduced benefits, the assets of the social security trustfund will begin to decline around 2020, leveling out at a deficit of about twopercent of GDP.

The Medicare program provides health care for the elderly. Cutler and Sheinerproject that the total cost of Medicare will increase from its current level of about2,5 percent of GDP to 6 percent of GDP in 2040. In this same period, total healthcosts in the U.S. will rise from their current level of 15 percent of GDP to morethan 20 percent, and by some estimates as high as 40 percent of GDP.

Figure 7Social Security

Income, Expenditure, and Surplus

Perc

ent o

f GD

P

10 %

5 %

0 %

-5 %1970 1980 1990 2000 2010 2020 2030 2040

IncomeExpenditure

Surplus

22

Figure 8 gives my own estimates of Medicare income and expenditures, basedon regressions of the growth rate of dollars per eligible person on the growth rateof GDP per capita and a trend. These regressions show the program going intocurrent account deficit in 2012, and the deficit widening to more than 4 percent ofGDP by 2040.

Figure 8Medicare

Income, Expenditure, and Surplus

Perc

ent o

f GD

P

15 %

10 %

5 %

0 %

-5 %

1970 1980 1990 2000 2010 2020 2030 2040

Expenditure

Income

Surplus

Figure 9Medicaid, Medicare, and Social Securityare expected to rise rapidly (2000-2045)

Perc

ent o

f GD

P

20%18%16%14%12%10%

8%6%4%2%0%

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

Social SecurityMedicaid

Medicare (including a Rx Drug Benefit)

23

Figure 9 is a summary chart from the Concord Coalition, their Figure 10, thatprojects entitlement programs for the elderly, the Social Security and Medicareprograms we have just discussed, and Medicaid, which provides medical care forthe indigent. Their simulations indicate that these programs will expand from 8percent to more than 17 percent of GDP as the baby boomers retire. As theprevious detailed figures show, current tax rates on the relatively small numbersof future workers will fall far short of covering these government obligations.

The combined effect of the projected deficits in Social Security and Medicare,added to the on-budget deficit which has little prospect of imp ro vi ng f rom itsintermediate-term range of 3 to 5 percent of GDP, imply future government budgetdeficits that are clearly not sustainable. Simulations by the Concord Coalition,shown in figure 10, project a government deficit rising to 10 percent of GDP by2025, and continuing to explode thereafter. These projections must be over-statedin the long term, as major changes in government fiscal policy, in tax rates, and inthese entitlement programs to accommodate the demographic tide are inevitable.The current administration in Washington is making no serious effort to deal with

5

0

-5

-10

-15

-20

-252000 2010 2020 2030 2040

YearSource: Concord Coalition

Perc

ent

Figure 10Projected U.S. Governement Deficit

As a Percent of CDP

24

the looming failure of these entitlement programs, or to minimize the disruptionsto its own economy and those of other nations. There is a high risk that social andfinancial turmoil will result, threatening the continued prosperity of the UnitedStates economy, and the stability of the globalized markets in which it is a keyplayer. Every emerging economy should consider carefully its positioning in glo-bal markets, its exposure to risk from dollar volatility, and its dependence onexports to the United States, for protection from the tusumi that could come froma major upheaval in the U.S. economy in the next twenty years.

Further, these actions should be started now, because even though the mostserious problems in the U.S. economy are still more than a decade away, financialmarkets are likely to trigger a crisis at the first evidence that the problems will notbe worked out domestically.

The current management of the U.S. economy, and failure to plan for thelooming generational crisis, provide a case study for every developing nation.This is how not to operate your economy if you seek the benefits of globalizationwhile limiting the risks of financial crises and the resulting turmoil.

5. Risk management

The third broad area in which emerging economies can take actions that provideprotection from financial crises is risk management. There need to be effectiveinstitutions to allow pooling of risks, both within and across borders. These mighttake the form of private or government insurance programs, designed with adequatecontrols to minimize moral hazard, tax policies that make speculative capitalmovements costly, or regional cooperative agreements on stabilization andexchange rate coordination.

Some of the things that can be done to reduce exchange rate risk are torequire dollar-denominated loans to be linked to dollar revenue sources, to requirea diversified portfolio of foreign-denominated debt, to match debt maturities torevenues for income-producing projects, and to require foreign lenders to assumesome exchange-rate risk. The international market for finance will not offer theseoptions for free, but a reasoned policy for an emerging economy is to pass up thecheapest and most risky financing in favor of alternatives with safeguards thatlower the risk of future financial crises.

An important aspect of modern finance is the use of various financialinstruments, including derivatives, to pool and hedge risks. Employment of theseinstruments is not for the unwary, but with due diligence, they provide ways toprice out and pool risks. An example in the U.S. is the practice by Fannie Mae

25

and Freddy Mac, two government-chartered companies, of aggregating andreselling diversified portfolios of mortgages with specified risk attributes. Thishas greatly facilitated management of default risk in mortgage loans, and greatlyexpanded the size and reach of the market for owner-occupied homes. Theoperations of these companies are a model for how a government can design anIndependent Debt Agency that has well-defined performance standards andprovides qualification and monitoring of borrowers, risk pooling and diversificationto manage currency and maturity risk, and concentration of resources and expertisein dealing with foreign lenders. An example is Irelands National TreasuryManagement Agency.

It is also possible for governments to provide or organize the provision ofmore conventional insurance, such as deposit insurance. Careful design is neededto avoid two pitfalls, the moral hazard attached to being and insurer of last resort,when the insured may use the shelter of deposit insurance to engage in riskylending, without driving away depositors who are protected by the insurance, andthe exposure problem that the insurer of last resort has unlimited liability.

Finally, it is possible for a government to use tax policy and direct capitalregulation and control to manage the riskiness of foreign loan portfolios. Priorapproval may be required for some forms of foreign borrowing, with qualificationof lenders as well as borrowers, and restrictions on maturity and denomination ofloans. Malaysia and the Philippines are economies that have used such controls.Taxes can be used to discourage short-term capital movements. Chile is anexample. Capital controls have a down side, which is that they may reduce lenderinterest and interfere with efficient and timely investment. For a capital control ordebt management board to work most effectively, it needs to function as an agentfor borrowers, independent of government control except for well-defined per-formance standards for the risk characteristics of the loan portfolio it supervises.

6. Improving international credit arrangements

I have now discussed a variety of steps an emerging economy can take initiateon its own to protect itself against some of the increased risks that globalizationbrings. In addition, there are policies that countries can pursue jointly. First, majortrading partners need to coordinate exchange rate policy, cooperating to resistspeculative attacks and protect the reserve positions of the individual countries,avoiding unilateral or duelling devaluations or interest rate adjustments, andavoiding unilateral imposition of trade quotas or tariffs. In short, there needs tobe a greater spirit of cooperation between government on trade matters. It is true

26

that trade is competitive, and everyone has their own interests. It is also true thatthere is great mutual benefit from commercial harmony.

Second, it is useful for countries to monitor international capital flows andutilize early warning systems to detect potential financial problems before theysteamroll. The international community should require the same kind oftransparency, consistency, and timeliness in public release of national accountand banking information that it does in the operation of its stock exchanges. Suchrules do not work perfectly, and stock market scandals occur. However, they areeffective in discouraging many abuses, and forcing others into sight where theycan be corrected.

Third, countries should be self-protective in their exchange rate policy, avoidtaking risky positions for temporary advantage, and position themselves to weatherspeculative attacks. Managed floats invite speculative interest. Super-fixedexchange rates (dollarization or currency unions) across disparate countries arerisky without strong authority at the currency union level to modulate cyclicalfluctuations. For example, if the United States had supported the Argentineanpeso in 2000-2001, as it did the Mexican peso in 1998, it is just possible thatspeculative capital flows could have been delayed long enough for the country toget its fiscal policy under control without the huge crisis it has encountered.Committing to a free float of ones currency, maintaining tight money to keepinflation under control, and maintaining adequate reserves to discourage tests ofthe commitment, has the best track record in terms of avoiding speculative attacksand crises. The small cuts and exchange rate risks associated with a floatingexchange rate seem to be a reasonable price to pay to avoid major crises.

7. Conclusions

I have now completed my list of policies that emerging economies can take,individually, or with major trading partners, to protect themselves from risk offinancial crises while taking advantage of the benefits of globalization, includingtrade promotion and liberalization of its financial markets. Inevitably, even withmany protections in place, poor management or bad luck are going to sometimesget countries into trouble. My closing comments are on what the community ofnations, and the international institutions they have established, can and should doto help out countries in trouble. The question is how to work out problems withthe least damage possible to economies in crisis. Currently, international lenderstreat crisis countries harshly, making them examples to discourage future defaults,and paying scant attention to the plight of their citizens. Often, the most intrasigent

27

lender can block restructurings that offer these economies reasonable workouts.The support provided by the IMF is often cold comfort, imposing crushing austerityas the price of a bailout. There seems to be some consensus that major changesin the practices of industrialized countries and international organizations mightbe desirable, but are unlikely to happen without concerted and continuing pressurefrom the emerging economies. These include conditions on the loan portfolios ofprivate lenders requiring them to assume some exchange rate risk, accept buyin provisions, and diversity foreign loans by maturity and currency as well asdestination. They also include reforms to introduce international depositorinsurance, an international lender of last resort, or a global bankruptcy court.There need to be more ways than the IMF currently provides for countries towork their way out of crises. IMF policies are too much influenced by the UnitedStates government and the interests of the large international banks, and too littleinfluenced by the collective interests of the emerging economies. The IMF shouldbe reformed, and new institutions designed to help countries manage crises shouldbe considered. I favor more open evaluation and forecasting of financial problemsby international agencies, and due diligence requirements for private lenders.Better diagnostics may increase the number of problems detected, but forcethem to be corrected when they are still small. Regions such as Asia and LatinAmerica should consider forming their own institutions to cooperatively insuretheir members. In the design of such institutions, either a revamped IMF or anew regional organization such as a Latin American Monetary Fund, the issue ofmoral hazard should be a major consideration. It is critical that the existence ofinsurance not be used to promote more risky investment programs, and this requiresthat any such organization participate effectively in prudential supervision of thefinancial institutions it insures.

In conclusion, I would point out that the design of resource allocationmechanisms always creates a tension between full decentralization that puts theincentives for productive behavior squarely on the participants, and marketregulation to manage risk, control opportunistic behavior, and insure adequateoutcomes for all participants. International capital markets currently exhibit someof the adverse consequences of insufficient regulation, and it is in the interest ofall nations, industrialized and emerging, to redress the balance.

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Nota

1 The first version of this paper was presented at the Pacific Rim Economic Conference, Beijing, June2001. The current Version was presented at the ANEC Conference on lobalization and Development,Havana, February 2004, and will be presented at the Westminister Development Conference, London,June 2004. This research was supported by the E. Morris Cox endowment. Research assistance wasprovided by Hui Tong.

References

A. Auerbach and R. Lee (eds): Demographic Change and Fiscal Policy.Cambridge University Press, 2001.

Concord Coalition: Mid-Term and Long-Term Debt Projections, 2003.D. Cutler and L. Sheiner: Demographics and Medical Care Spending: Standard

and Non-standard Effects, in Auerbach and Lee: Demographic Changeand Fiscal Policy. 2001.

M. Feinstein (ed): Economic and Financial Crises in Emerging MarketEconomies. National Bureau of Economic Research, forthcoming, 2002.

R. Eckaus, G. Feder, V. Hajivassiliou, D. McFadden, and S. OConnell: Is ThereLife After Debt? An Econometric Analysis of the Creditworthiness ofDeveloping Countries, in J. Cuddington and G. Smith: International Debtand the Developing Countries. International Bank for Reconstructionand Development/The World Bank: Washington, D.C., 1985.

V. Hajivassiliou and D. McFadden: The Method of Simulated Scores for theEstimation of LDV Models, Econometrica. Vol. 66, No. 4, July, 1998.

G. Kaufman: Banking and Currency Crises and Systemic Risk: Lessons fromRecent Events, Federal Reserve Bank of Chicago, 2000.

L. Kotlikoff: The Coming Generational Storm. MIT Press, 2004.R. Lee and S. Puliapurkar: Population Forecasting for Fiscal Planning: Issues

and Innovations, in Auerbach and Lee: Demographic Change andFiscal Policy. 2001.

D. McFadden: Population Forecasting for Fiscal Planning: Issues and Innovations:Comment, in Auerbach and Lee: Demographic Change and FiscalPolicy. 2001.

M. Muhleisen and C. Towe (ed): U.S. Fiscal Policies and Priorities for Long-Run Sustainability. International Monetary Fund, 2004.

R. Rubin, P. Orszag, A. Sinai: Sustained Budget Deficits: Longer-Run U.S. EconomicPerformance and the Risk of Financial and Fiscal Disarray. 2004.

29

Economics, ideologyand the possibility

of endogenous development

Michael A. Lebowitz *

ECONOMIC theory is not neutral, and the results when it is followed owe muchto the implicit and explicit assumptions embedded in particular theories. Thatsuch assumptions reflect specific ideologies is most obvious in the case of theneoclassical economics that underlies neo-liberal economic policies.

The Magic of Neoclassical Economics

Neoclassical economics begins from the premise of private property and self-interest. Whatever the structure and distribution of property rights, it assumes theright of the owners whether they are the owners of land, means of productionor capacity to perform labour--- to follow their self-interest. In short, neither theinterests of the community as such nor the development of human potentialare the subject matter for neoclassical economics; its focus, rather, is upon theeffects of decisions made by individuals with respect to their property.

No. 1 / Vol. 135 / Ene-Jun. / 2004

Economa y Desarrollo

* Simon Friser University, Canada. Paper for the Sixth International Meeting of Economists onGlobalization and Development Problems.

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Logically, then, the basic unit of analysis for this theory is the individual(Himmelweit, 1977). This individual (whether consumer, employer or worker) isassumed to be a rational computer or automaton maximising mechanically on thebasis of given data. Change the data and this lightning calculator of pleasuresand pains (in the words of the American economist Thorstein Veblen) quicklyselects a new optimum position (Veblen, 1969:73).

Raise the price of a commodity, and the computer as consumer choosesless of it. Raise the wage, and the computer as capitalist chooses to substitutemachinery for workers. Raise unemployment or welfare benefits, and thecomputer as worker chooses to stop working or to remain unemployed longer.Increase taxes on profits, and the computer as capitalist chooses to investelsewhere. In every case, the question asked is how will that individual, therational calculator of pleasure and pain, react to a change in the data? And, theanswer is always self-evident avoid pain, seek pleasure. Also self-evidentare the inferences to be drawn from this simple theory if you want to haveless unemployment, you should lower wages, reduce unemployment and welfarebenefits, and cut taxes on capital.

But, how does this theory move from its basic unit of the isolated, atomisticcomputer to draw inferences for society as a whole? The essential proposition ofthe theory is that the whole is the sum of the individual isolated parts. So, if weknow how individuals respond to various stimuli, we know how the societycomposed of those individuals will respond. (In the words of Margaret Thatcher,there is no such thing as society just individuals.) What is true for the individualis true for the economy as a whole. Further, since each economy can be consideredas an individual one who can compete and prosper internationally by drivingdown wages, intensifying work, removing social benefits that reduce the intensityof job search, lowering the costs of government, cutting taxes it also followsthat all economies can.

To move from the individual to the whole in this manner, though, involves abasic assumption. After all, those individual atomistic computers may work atcross-purposes; i.e., the result of individual rationality may be collective irrationality.Why isnt that the conclusion of neoclassical economics? Faith. The belief thatwhen those automatons are moved in one direction or another by the change ingiven data, they necessarily find the most efficient solution for all. In its earlyversions the religious aspect was quite explicit that instantaneous calculatorof individual pleasure and pain was understood to be led by an invisible hand

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to promote an end which was no part of his intention. For Adam Smith (1937:423) , it was clear whose hand that was Nature, Providence, God just ashis Physiocratic contemporary, Francois Quesnay, knew that the SupremeBeing was the source of this principle of economic harmony, this magicbeing such that each man works for others, while believing that he is workingfor himself (Meek, 1963:70).

But the Supreme Being is no longer acknowledged as the author of this magic.In his place stands the Market, whose commandments all must follow or face thewrath of the Market. The unfettered Market, we are told, ensures that everyonebenefits from a free exchange (or it would not occur) and that those tradeschosen by rational individuals (from all possible exchanges) will produce the bestpossible outcomes. Accordingly, it follows that interference with the perfect marketby the State must produce disaster a negative-sum result in which the lossesexceed the gains. So, the answer for all right-thinking people must be removethese interferences. Remove the interference of the State. In Galbraiths well-chosen words, the position of the fundamentalist preachers is that in a state ofbliss, there is no need for a Ministry of Bliss (Galbraith, 1952: 28).

And, if force and compulsion are necessary to bring about that world ofbliss (i.e., to make the world conform to the theory), this will simply be shortterm pain for long-term gain. As Friedrich Hayek explained in an interview (12April 1981) in Chiles El Mercurio in 1981, dictatorship may be a necessarysystem for a transition period. At times it is necessary for a country that there issome form of dictatorial power. When you have the invisible hand on your side,destroying obstacles to the market is just helping Nature (in Adam Smiths words)to remedy the bad effects of the folly and injustice of man (Smith, 1937: 638).

So, remove all restrictions on the movement of capital, remove all lawswhich strengthen workers, consumers and citizens against capital, reduce thepower of the State to check capital (while increasing the power of the State topolice on behalf of capital). In the end, the simple message of neoclassicaleconomics (and the neo-liberal policy it supports) is Let Capital Be Free!

Of course, it can be said (and, indeed, was said by George Stiglitz at thesemeetings two years ago) that nobody believes this simple message anymore.After all, economists have demonstrated the very strict (and impossible) conditionsnecessary for this theory to be logically supportable, have exposed the simplistictheory of information it contains, and have revealed the many cases of marketfailure that call for an ameliorating role for government. Not the least of thesecommon critiques stresses the interdependencies and externalities that areminimised by neoclassical theorists and which lead them often to commit fallacies

32

of composition (the assumption that what is true for one is necessarily true forall). And, yet, as the close fit between the simple neoclassical model andneo-liberal policies demonstrates, all these sophisticated partial critiquesof the simple message dont count for very much; in fact, that message (evenif defunct) continues to be believed, and it functions as a weapon to beused on behalf of capital.

The Keynesian Alternative

The only successful challenge from within this basic model focused on theproblem of the fallacy of composition and, accordingly, the need to consider theimportance of the whole. Rejecting the familiar neoclassical argument offeredduring the Depression of the 1930s that generalised wage cuts will lead to risingemployment, Keynes stressed the interdependency of wages, consumptionspending, aggregate demand and thus the general level of output and employment.(The neoclassical movement from the part to the whole in this case, he held,depended upon the assumption that aggregate demand was constant i.e.,unaffected by wage cuts.) What neoclassical theory had ignored was the linkbetween individual decisions and the whole. Since it did not understand how theinteraction of individual capitals could produce a state of low investment by thosecapitals, it failed to recognise the potential role of government in remedying thisparticular market failure.

With his emphasis upon the whole or macro-picture, Keynes theoreticalperspective provided support for a set of policies less directly based upon theimmediate interests of individual capitals. Keynes himself advanced his argumentsas critical to the interests of capital as a whole the crisis of the 30s for him wassimply a crisis of intelligence (Lebowitz, 1990); however, his framework becamethe basis for social-democratic policy arguments.

Characteristic of the use of the Keynesian macro-framework was the fami-liar argument by trade unionists that increased wages would increase aggregatedemand, stimulate job creation and new investment. The importance of increasedconsumption became the focus of what is now described as the Fordist model ofdevelopment mass consumption, it was argued, is necessary for massproduction. (In Post-Keynesian variants, increased effective demand was seenas the condition for realisation of potential productivity increases imbedded inexisting technology.) However, to realise these benefits, in direct contrast to theneoclassical argument, the market by itself could not suffice state policies andmacro-management were seen as critical. What marked this as social democratic

33

in essence was the consistent theme is that workers can gain without capitallosing i.e., the positive-sum characteristics of the Fordist model. And this iswhat the case for endogenous economic development has shared in its stressupon the importance of domestic demand as the foundation for the developmentof nationally-based industry.

During the so-called Golden Age between the end of World War II and theearly 1970s, these theories which challenged the neoclassical wisdom enjoyed aperiod of grace. It was an unusual period: the United States had emerged fromthe war with no real capitalist competitors the economies of Germany andJapan were basket-cases, and the industries of France, England and Italy couldnot compete with those of the U.S. Further, in the U.S. and elsewhere, there wasconsiderable pent-up demand both from households and firms. Although it waswidely predicted that the end of the war would bring a relapse into the Depression,in fact the conditions were ripe for a substantial increase in consumption andinvestment (the latter drawing upon a large pool of technological advances madein the 30s and 40s). Added to that (and supporting industrial profits) were fallingterms of trade for primary product prices as the result of increased supplies. Inthe U.S., oligopolistic industries were able to engage in target pricing to achievedesired profit rates and could yield wage increases without fear of beinguncompetitive; elsewhere, the economies of scale available from new investmentsmade the growth of consumption as the result of wage increases a net benefitrather a challenge to profitability.

Here was the setting in which the virtuous circle of the Fordist modelcould flourish: output increases stimulating consumption gains and vice ver-sa in both developed countries and in developing countries which decidedto industrialise on the basis of import-substitution rather than to rely on thefortunes of primary product exports. But, the rapid growth of productivecapacity in many places in this period portended a point when capital wouldface a problem of over-accumulation.

Already, by the late 1950s there were signs that competitors were emergingto challenge U.S. economic hegemony. 1 Further, by the mid-60s, terms of tradefor primary products (dominated by oil) stopped falling, soon to begin an upwardmovement. Increasingly, it was the companies outside the U.S. that were growingmore rapidly, and by the early 70s, with falling profit rates spreading, that GoldenAge of capitalism is generally conceded to have come to an end.

The increasing intensity of capitalist competition which now became apparentreflected the over-accumulation of capital. In this context, transnational firmsreduced their production costs either by shutting down (relatively inefficient)

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branch plants that had been established to serve particular national markets or byturning them into exporters as part of a global production strategy. Production fornational markets and, thus, the import-substitution strategy for industrialisation nowno longer was seen as credible because relative costs became the focus in thecompetition of capitals. In general, the virtuous circle of Fordism had been broken,and a premium was placed instead on driving down wages and other costs for capital.

This new reality is the context in which Keynesianism was rejected. Theneoclassical wisdom which identified high wages and social programmes as asource of disaster once again dominated. Neo-liberalism (supported by internationalfinancial institutions) became the weapon of choice of capital, leading to ageneralised assault on social programmes, wages and working conditions in thedeveloped world and the use of a strong state in developing countries to ensuretheir access to the comparative advantage of repression.

But, why were Keynesianism and the Fordist model so easily discredited?Basically, Keynesianism as transmitted was always a theory of aggregate demandbut not of supply. Its premise was that the level of output is constrained by demandin the economy in question; and if that demand was forthcoming, capital wouldprovide the supply. Since the assumption was that capital would supply theconsumption and investment goods if government created the appropriateenvironment, the governments role was to stimulate the economy in those caseswhere the interaction of individual capitals in its absence was such as to lead tolow investment. Its assigned task in the theory was to create the environment forinvestment when the market failed.

What happened, though, as aggregate demand rose and domestic supply didnot respond appropriately? Inflation, trade deficits. Accordingly, in the new reality,the environment that government sought to create became one which wouldinduce investment in the local economy rather than investment elsewhere itsfocus, thus, became to lower taxes and wages. The neoclassical and Keynesianquestion, in short, had remained the same: what can the state do to make capitalhappy to invest? What was consistent was the role envisioned forgovernment support capitals requirements.

The Failure of Social DemocracyThere should be no surprise, then, that capital abandoned the tool of Keynesian

theory for one more suited to its needs under the new conditions. But, how dowe explain the failure of social democracy to find an alternative? After all,social democracy has always presented itself as proceeding from a logic in which

35

the needs and potentialities of human beings take priority over the needs of capi-tal. Even limited measures such as the exclusion of medical and educationalservices from the market, the provision of income maintenance programmes andsocial services, and the advocacy of everyones right to a decent and well-paying job suggest an implicit conception of wealth as the satisfaction of humanneeds rather than one of capitalist wealth.

In fact, the failure of Keynesianism as theory was really the failure of anideology social democracy. Within the Keynesian structure, there was alwaysan alternative. The basic Keynesian equations in themselves say nothing aboutthe structure of the economy: they dont distinguish between burying money andgovernment investment, between activity which leads to the expansion of capitalistenterprises and activity which leads to the expansion of state enterprises. Althoughfor Keynes the appropriate engine for growth was the capitalist one, a policy ofexpanding a state productive sector (i.e., its expanded reproduction) was alwaysa theoretical option in order to drive the economy.

If the capitalist sector is the only sector identified for accumulation, however,then in theory and practice the implication is self-evident: a capital-strike (thecontracted reproduction of capital) is a crisis for the economy. All other thingsequal, a government cannot encroach upon capital without negative-sum results.This has always been the wisdom of conservative economists.

Yet, it is essential to understand that the conclusions of the neoclassicaleconomists are embedded in their assumptions and particularly relevant hereis the assumption that all other things are equal. Consider two simple examples.2

Rent control: the conservative economist will tell us that if you do introducerent controls (at an effective level), the supply of rental housing will dry up anda housing shortage will emerge. Mineral Royalties: the conservative economistwill tell us that if you do attempt to tax resource rents (notoriously difficult toestimate), investment and production in these sectors will decline, generatingunemployment, etc. Both those propositions can be easily demonstrated andthey can also easily be demonstrated to be entirely fallacious with respect tothe necessary conclusion.

Assumed constant in both cases is the character and level of governmentactivity. Clearly, rent controls may reduce private rental construction but if thegovernment simultaneously engages in the development of social housingprogrammes (e.g., the fostering of co-operatives and other forms of non-profithousing), there is no necessary emergence of a housing shortage. Similarly, taxingresource revenues may dry up private investment in mineral exploration but agovernment corporation established for exploration and production in this sector

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can counteract the effects of a capital strike. Obviously, all other things are notnecessarily equal. Why should all other things be equal if a social democraticgovernment rejects the logic of capital?

Thus, we need to be aware of the limits of the conservative economists logic.However, that does not at all mean that these arguments can be ignored! Becausewhat the conservative economist does quite well is indicate what capital will doin response to particular measures. It is an economics of capital. And, nothing ismore naive than to assume that you can undertake certain measures of economicpolicy without a response from capital; nothing is more certain to backfire if youintroduce measures that serve peoples needs without anticipating in advancecapitals response.3 Those who do not respect the conservative economists logic,which is the logic of capital, and incorporate it into their strategy are doomed toconstant surprises and disappointments.

Understanding the responses of capital means that a capital-strike can be anopportunity rather than a crisis. If you reject dependence upon capital, the logicof capital can be revealed clearly as contrary to the needs and interests of people.When capital goes on strike, there are two choices: give in or move in.Unfortunately, social democracy in practice has demonstrated that it is limited bythe same things that limit Keynesianism in theory the givens of the structureand distribution of ownership and the priority of self-interest by the owners. Asthe result, when capital has gone on strike, its response has been to give in.

Thus, rather than maintaining its focus on human needs and challenging thelogic of capital, social democracy has proceeded to enforce that logic. The resultwas the discrediting of Keynesianism and the ideological disarming of peoplewho had looked upon it as an alternative to the neoclassical wisdom. The onlyalternative to barbarism on offer became barbarism with a human face. With thisacquiescence to the logic of capital, its hold over people was reinforced; and thepolitical result was the popular conclusion either that it really doesnt matter whoyou elect or that the real solution is to be found in a government unequivocallycommitted to the logic of capital.

So it was that the new wisdom became TINAthere is no alternative. Noalternative to neo-liberalism, which is simply neoclassical economics enforced byfinance capital and imperialist power. Yet, as occurred after the Golden Age,concrete conditions have a way of undermining accepted truths and nowherehas this been truer than in less developed countries. The fallacy of assuming thatevery country could become the Promised Land by surrendering completely tocapital became clear; and, as the evidence of the failures of the external orientationimposed by generalised neo-liberalism has accumulated, interest in an internal

37

solution, the endogenous model of development, has grown again especially inLatin America. Yet, how credible is such an option in the current conjuncturewhere intense capitalist competition continues and the power of internationalcapital in fact (if not ideology) has not declined?

The Possibility of Endogenous Development

Removing the strait-jacket placed upon economic development by neo-liberalism will not be an easy matter. A true focus upon endogenous developmentcan not simply be an orientation to the limited markets which characterisedprevious import-substitution efforts (even with a superficial regional integrationwhich permits various forms of sub-imperialism to develop); rather, it calls forincorporating the mass of the population which has been excluded from theirshare of the achievements of modern civilisation. In short, real endogenousdevelopment means making real the preferential option for the poor. And, thatmeans making enemies enemies domestically (both those who monopolise theland and the wealth as well as those who are content with the status quo) andenemies externally.

Any country that would challenge neo-liberalism by seriously attempting tofoster endogenous development will face the assorted weapons of internationalcapital foremost among them the IMF, the World Bank, finance capital andimperialist power (including in forms such as the U.S. National Endowment forDemocracy and other faces of subversion). These are, of course, formidablefoes. Since no government by itself can hope to succeed in this struggle againstsuch external and internal enemies, the central question will be whether thegovernment is willing to mobilise its people on behalf of the policies that meet theneeds of people. Here, the essential matter is the extent to which the governmenthas freed itself from the ideological domination of capital.

This unshackling implies more than simply a return to the old idea of import-substitute-industrialisation even if accompanied this time by the massive landreform that would create the potential for a much larger home market. Newmodels of Keynesianism even dressed up as the Fordist positive-sum solutionwill not move those whose active support will be necessary to strengthen theresolve of a government which will find itself constantly pressured by capital tosue for peace. Theories which continue to be rooted in existing patterns ofownership, in the dominating principle of self-interest and in the belief that (outsideof a few exceptions) the market knows best cannot support a successful challengeto the logic of capital because they are an organic part of that logic.The central

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flaw in social democratic proposals for endogenous development is that theybreak neither ideologically nor politically with dependence upon capital. If a modelof endogenous development is to be successful, it must base itself upon a theorywhich places the goal of human development first. More than the consumptionstressed by neoclassicals and Keynesians alike, it must focus on investment in(and the development of) human capacities. This means not only the investmentsin human beings that come from the direction of expenditures and human activityto the critical areas of education and health but also from the real development ofhuman potential which occurs as the result of human activity i.e., therevolutionary practice that Marx described, that simultaneous changing ofcircumstances and human activity or self-change (c.f., Lebowitz, 2003: Ch. 10).In contrast to a populism which merely promises new consumption, this alternativemodel focuses upon new production the transformation of people through theirown activity, the building of human capacities.

A development theory which begins from the recognition of human beingsas productive forces points in quite a different direction to that of the economicsof capital. Where are the measures in traditional theory for the self-confidence inpeople that is created through the conscious development of cooperation anddemocratic problem-solving in communities and workplaces? Where is the focusupon the potential efficiency gains of unleashing these human productive forces,whose creativity and tacit knowledge cannot be produced by directives fromcapital? By stimulating the solidarity that comes from a focus upon the interestsof the community rather than self-interest, a model based upon this supply-sidetheory rooted in human development will allow a government to move furtherwith the support of the community. Within such a framework, the growth of non-capitalist sectors oriented to meeting peoples needs are not merely a defenceagainst a capital strike; rather, they emerge as an organic development. Theneeds of human beings rather than the needs of capital, in short, here become theengine that drives the economy.

Endogenous development is possible but only if a government is preparedto break ideologically and politically with capital, only if it is prepared to makesocial movements actors in the realisation of an economic theory based upon theconcept of human capacities. In the absence of such a rupture, economically, thegovernment will constantly find it necessary to stress the importance of providingincentives to private capital; and, politically, its central fear will be that of thecapital-strike. The policies of such a government inevitably will disappoint anddemobilise all those looking for an alternative to neo-liberalism; and, once again,its immediate product will be the conclusion that there is no alternative.

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Notas

1 This was very apparent to me as an economic analyst in the electrical products industry in the U.S.Increasingly, the trade journals were filled with fears about emerging European competitors and aboutthe need to stress Buy American policies when it came to contract awards by the local, state andfederal governments.

2 These examples come from the 1972-5 period when the New Democratic Party (Canadas social-democratic party) governed British Columbia, Canada.

3 This, unfortunately, was the experience in British Columbia in 1972-5.

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References

Galbraith, John Kenneth: American Capitalism. Boston: Houghton Mifflin, 1952.

Himmelweit, Sue: The Individual as Basic Unit of Analysis, in Francis Greenand Petter Nore: Economics: An Anti-Text. London: MacMillan, 1977.

Lebowitz, Michael A.: Paul M. Sweezy in Maxine Berg: Political Economy inthe Twentieth Century. Oxford: Philip Allan, 1990.

Lebowitz, Michael A.: Beyond Capital: Marxs Political Economy of theWorking Class. London: Palgrave Macmillan, 2003.

Meek, Ronald: Economics of Physiocracy: Essays and Translations.Cambridge: Harvard, 1963.

Smith, Adam: The Wealth of Nations. New York: Modern Library, 1937.

Veblen, Thorstein: Why is Economics Not an Evolutionary Science? in Veblen.The Place of Science In Modern Civilization and Other Essays. (1919)republished as Veblen on Marx, Race, Science and Economics. NewYork: Capricorn, 1969.

41

Guerra globaly guerra de dinero:

El futuro del mundoa corto y mediano plazo

Wim Dierckxsens *

I- Una alternativa al capitalismo:una perspectiva a mediano plazo

1- La racionalidad capitalista agotada

LA RACIONALIDAD del capital es acumular a partir de beneficios. Solo lopodr hacer bajo dos modalidades y ambas se estn agotando hoy en da enforma simultnea. Del agotamiento de la racionalidad capitalista brota una nuevaracionalidad econmica. Vislumbrar el ocaso del capitalismo permite vislumbrara la vez la racionalidad alternativa poscapitalista as como las lneas de resisten-cia efectiva. El capital o acumula a partir de inversiones productivas que contri-buyen al crecimiento de la economa en su conjunto, es decir aumentando el PIB,o ms bien acumula de manera improductiva, es decir, sin contribuir al crecimiento

* Wim Dierckxsens es coordinador de investigaciones del Foro Mundial de Alternativas (FMA) einvestigador del Departamento Ecumnico de Investigaciones (DEI).

No. 1 / Vol. 135 / Ene-Jun. / 2004

Economa y Desarrollo

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econmico. En el ltimo caso acumula a partir de la obtencin de un trozo cre-ciente del mercado y de la riqueza existente.

La primera modalidad se dio durante los aos cincuenta y sesenta del siglopasado. Surgi despus de medio siglo de guerras mundiales por el reparto delmundo. En vez de ampliar el mercado a favor de una potencia triunfante, laaparicin del socialismo real en la Primera Guerra Mundial fraccion al merca-do mundial. La segunda guerra lo fraccion an ms con el avance del socialis-mo hacia el Este y el Oeste. Con el colapso del bloque sovitico en los aosnoventa, el reparto del mundo se da en todo el globo. A finales de los aosnoventa las transnacionales absorban el 50 % del mercado mundial contra el25 % dos dcadas antes. A partir de la expansin transnacional rpida se acen-tan las apuestas a estos ganadores en el mercado burstil. La inversin espe-culativa dispar a la bolsa de valores en el mundo y desequilibr las monedasde los pases perdedores en el Sur.

Hacia finales de los aos noventa las dos modalidades de acumulacin real seagotan. La inversin improductiva resta fuerza al crecimiento mundial y se anun-cia la recesin. El reparto del mercado mundial, o sea, conseguir un pedazocreciente del pastel existente supone acuerdos entre las potencias. Mientras esereparto solo afectaba al Sur, predominaban los acuerdos. Los desacuerdos entrelas potencias surgen cuando afecta tambin a ellas (AMI en 1998, OMC enSeattle 1999, OMC en Cancn 2003). Sin reparto ni crecimiento se secan lasganancias reales corporativas y el mercado burstil, el mercado burstil se des-ploma. Muchas empresas y personas se endeudaron para especular. Las deudasresultaron ser reales, las ganancias se tornaron virtuales. Enormes han resultadolas prdidas. La crisis financiera conlleva a la quiebra de grandes empresastransnacionales. Las primeras grandes empresas transnacionales se desploma-ron con sendos fraudes financieros en el 2001 en EEUU (World Com y Enron).Despus siguieron en Europa (Ahold de Holanda y Parmalat de Italia).

2- La guerra global por el reparto del mundo

Ante una crisis del capital hay dos opciones: o se torna ms agresivo el repar-to del mundo o se cambia de rumbo. Lo segundo sera lo ms sensato, lo primerolo esperable. El reparto agresivo es la respuesta de la principal potencia que creepoder salir adelante en forma unilateral. Los desacuerdos entre las potencias sehacen ms patentes en el seno de la OMC. El reparto se estanc. A partir de ello,la ley del ms fuerte se impone entre las potencias. En esta guerra comercialentre potencias se manifiesta la crisis de la ideologa nica. Surgen voces crticas

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en el seno de la lite de poder como Soros y Stiglitz. A partir de esas contradic-ciones abiertas surge el espacio para reivindicar otro mundo posible. El movi-miento social contra la globalizacin y a favor de otro mundo posible surge enmedio de la batalla por el mercado. En escasos aos el movimiento se mundializa.Las manifestaciones se multiplican y aparecen en todas partes. En enero de1999 aparece el Otro Davos reivindicando una alternativa al neoliberalismo.Esta iniciativa en menos de dos aos desemboca en el multitudinario Foro SocialMundial que se realiza anualmente desde enero de 2001.

En el 2001 la expansin del mercado mundial se ve estancada. No hay nicrecimiento econmico ni se observan avances en el reparto del mercado mun-dial existente. Las ganancias transnacionales flaquean y el mercado burstil sedesploma. Un nuevo reparto supone un reparto del mundo a la fuerza en benefi-cio de una potencia y a costa de todos. A partir de setiembre de 2001 entramosen una guerra global por el reparto del mundo. El atentado del 11 sirvi detrampoln para iniciar un reparto mediante la guerra. Si no hay lugar para todoslo habr para la cultura elegida. Occidente y Oriente se enfrentan en unabatalla de civilizaciones. Occidente, sin embargo, no se recupera a partir de lainvasin en Afganistn. La guerra ha de tener un carcter ms global. Lalectura es que no hay lugar ni siquiera para todas las transnacionales occiden-tales. Con la guerra en Irak se inicia una guerra de EEUU contra el mundoentero en beneficio de la nacin elegida. Se anuncia un slvase quien pue-da no importa cmo ni a costa de quin.

Emerge un neofascismo en funcin de un reparto violento del mundo. Estapoltica unilateral y a la fuerza aumenta la crisis de legitimidad del sistema. Los15 millones de ciudadanos que se manifestaron contra la guerra el 15 de febre-ro de 2003 son testimonio de esta crisis de legitimidad. La lucha social por otromundo posible triunfar conforme se evidencia que nadie se beneficiar con laguerra, ni siquiera el propio capital imperial. Con la guerra global por el repartodel mercado mundial en beneficio de una sola nacin, este mercado se encogean ms todava como veremos en el apartado II. Al encogerse el mercadomundial, la reparticin blica puede tornarse ms cruda, pero la crisis del pro-pio capital es inevitable.

El neoliberalismo a ultranza conlleva a un proteccionismo creciente acompa-ado de nacionalismo y neofascismo. En la batalla por el reparto del mundo, elmercado mundial no solo se encoger, sino adems se fraccionar. Los actoresms dependientes del comercio internacional son las propias transnacionales. Elproteccionismo y nacionalismo implicarn la muerte de muchas transnacionales. Alhaber acaparado ms del 50 % del mercado mundial, la expansin de las transnacionales

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dependa del comercio internacional. El colapso del comercio mundial implica elderrumbe de las transnacionales y el capital financiero vinculado con esas. Lastransnacionales triunfantes de la poca neoliberal corren precisamente un peligro demuerte financiero. En medio de este colapso, se desarrollar la conciencia y accinque en este slvese quien pueda, nadie se salvar. La deslegitimacin ser total y lalucha social que conlleva alcanzar una dimensin global sin precedente.

3- Hacia un control ciudadano y mundial sobre los medios de produccin

A partir de una crisis profunda del capital transnacional y el colapso financie-ro en medio de la manifestacin de una corrupcin a gran escala tipo Enron yParmalat, inevitablemente se demandar una intervencin ciudadana en el con-trol y manejo de los medios de produccin. As como se nacionaliz en muchospases capitalistas la banca, el ferrocarril o los servicios pblicos despus de laSegunda Guerra por el reparto mundial en el siglo pasado, estaremos pronto anteun nuevo reto de control ciudadano no solo sobre los servicios pblicos actual-mente privatizados en cada nacin, sino sobre centenares de empresastransnacionales en quiebra. No valdr la pena salvar a unas pero otras en cambios. Un benchmarking de lo local hacia lo global en esta materia ser uno de losretos para una participacin ciudadana radical hacia una economa en funcin dela vida misma. Un control ciudadano sobre el manejo y orientacin de los mediosde produccin a nivel local, nacional y mundial es inevitable para desarrollar unaeconoma en funcin de la vida misma. Para lograr esta meta, el principio ha deser que se defina localmente, lo que puede hacerse localmente. Mucho no sepodr hacer localmente y a partir de ah se definen los compromisos a nivelregional y nacional, y desde ah a nivel mundial. La planificacin, en otras pala-bras no ser vertical o top down sino radicalmente democrtico, o sea bottomup Lo anterior implica la muerte del capital transnacional que impuls la planifi-cacin privada a nivel mundial desde arriba. La muerte general de lastransnacionales no significa an la de la economa de mercado.

4- Un neo-keynesianismoa escala mundial sin perspectiva

Resta preguntar si es posible que el capital sale una vez ms con la suya,aunque admite una intervencin ciudadana? Es decir: es posible un keynesianismoms participativo a escala mundial? Para contestar esa pregunta veamos loque en esencia implica. Despus del fracaso del reparto del mercado mundial,

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la salvacin keynesiana desde 1945 fue acumular a partir de la inversin produc-tiva en cada nacin. Una especie de proceso de engorde en cada pas antes depoder iniciar otro reparto. El crecimiento fue ms fuerte que nunca en la historiadel capitalismo. Sin embargo, para que la inversin retorne al mbito productivose requiere un realce en la tasa de beneficio. Este realce se logr en la segundaposguerra precisamente al acortar la vida media de la tecnologa y de los bienesde consumo duradero. Con la moda, publicidad, falta de repuestos, etc., se au-ment la velocidad con que se realizan las ventas y ganancias. Con ello se acele-r la acumulacin de capital. En sntesis, hay acumulacin a partir del crecimien-to de la riqueza en dinero, al tiempo que la vida de la riqueza material se acorta.Es una economa insostenible para la naturaleza, con derroche de recursos yamenazas de contaminacin.

La acumulacin en los pases perifricos se desarroll a partir de bienes deconsumo no duraderos y materias primas. La vida media de productos agrcolasno puede acortarse. La expansin del producto en el mercado depende ms de latalla de la poblacin que de otra cosa. La vida media de las materias primasdepende de su uso en el producto final. Al realizar los productos finales conmateriales desechables y ms livianos, su demanda no guarda relacin con la delos productos finales. La exportacin de productos agrcolas y materias primasal Norte crece con menos velocidad que la importacin de tecnologa. Al acortar-se la vida media de la tecnologa se disparan las importaciones en el Sur y quedansus exportaciones cada vez ms atrs. Las exportaciones alcanzan pagar cadavez menos las importaciones. La deuda externa crece sin cesar y con ello est ala vista una crisis de la deuda. Con ello, el llamado modelo de sustitucin deimportaciones se agot en el Sur.

Al acortarse la vida media de la tecnologa, con el tiempo tambin se agota elmodelo keynesiano en el Norte. La explicacin es otra. Mientras el costo de lareposicin tecnolgica aumentaba a menor velocidad de lo que bajaba el costolaboral que resulte de la innovacin, suba la tasa de beneficio. Esta situacin fuela tendencia hasta finales de los aos sesenta. A partir de entonces, se vio unproceso invertido. Los costos de innovacin se alzaron ms de prisa de lo que loscostos de trabajo bajaron gracias a la innovacin tecnolgica. Como resultado, latasa de ganancia tendi a bajar y la inversin huy del mbito productivo. La inver-sin retorn al reparto del mercado mundial. Eso se llam globalizacin neoliberal.

El neoliberalismo no resuelve el problema sino lo rehuye. Una realza de latasa de ganancia en el mbito productivo exigira una prolongacin de la vidamedia de la tecnologa. El reparto del mercado mundial en beneficio de lastransnacionales brinda una ganancia temporal al gran capital mientras haya

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mercado que acaparar. Acaparado el mercado entre grandes transnacionales, ose desemboca en una guerra global por el re-reparto del mercado, o se retorna almbito productivo. El primer escenario conduce a la guerra pero a mediano plazono dar salida para nadie. El fracaso inevitable del reparto del mundo a partir dela guerra global obligar a que la inversin, tarde o temprano, retorne al mbito deproduccin. Ser un retorno sin salida para el capital ya que acortar la vida mediade la tecnologa an ms todava hace bajar la tasa de ganancia y prolongarlatambin. La nueva economa de comunicacin y computacin acort la vidamedia de la tecnologa empleada como nunca, al introducirse en los otros secto-res de la economa. Con ello, la tasa de beneficio se desplom en todos lossectores y con ello y sobre todo en el propio sector de la nueva economa.

5- El conocimiento patrimonio comn de la humanidadEl retorno de la inversin al sector productivo solo es posible si se alarga la

vida media de los productos en general y de la tecnologa en particular. Al au-mentar la vida media, sin embargo, las ventas bajarn en el sector y con ello latasa de ganancia disminuye. Ante este callejn sin salida, la tendencia actual es laprolongacin regulada de la vida media de las cosas a partir de patentes. Laproteccin de beneficios transnacionales mediante patentes en todos los campospuede dar beneficios improductivos a sus dueos, pero no es salida a medianoplazo. Actualmente, productos sin patente