Wealth Rules the World (Is There Really Any Doubt Anymore?)

by Hendrik Van den Berg, UNL Economics Professor

We like to believe that we have a democracy and that our votes ultimately decide important social and economic issues. People in other so-called democracies like to think the same thing. But, increasingly, observant citizens of Greece, France, Holland, the United States and elsewhere are beginning to see their democracies as little more than shams to keep citizens occupied and quiet while the real rulers consolidate their power. Who are these ‘rulers’? Here are several recent developments that clearly expose their identity.

Greeks vote for change, but they end up with more of the same

When the U.S. subprime loan bubble collapsed, the globalization of our economies (which no one voted for) quickly spread the effects and caused financial crises in most other countries of the world. In 2009, the first actual decline in worldwide production since the end of World War II hit the Greek economy especially hard. With falling demand for Greek exports, the Greek balance of trade worsened and its economy was suddenly deprived of the customary inflows of foreign loans and investment. Although Greece’s foreign debt in 2009 was not all that much higher, relative to its GDP (Gross Domestic Product) than many other similar countries, its debt began to grow rapidly, especially as its GDP declined when the global recession set in.

Greece was in a difficult situation because it had abandoned its own money for the euro—the new European money managed by the “European Central Bank” (ECB). In accordance with the “Maastricht Treaty” of 1992 that paved the way for European Union countries to create and implement the single currency, Greece was required to borrow from banks or in the privately manipulated ‘open markets’ every single euro it needed to balance its budget. Without its own money, Greece could not directly supply money to its banking system to finance domestic private investment, nor could it directly provide money for its government to boost employment or pay for employment-generating projects.

In 2010, the center-right government of Greece sought the help of the ECB and the “European Commission” (the executive branch of the European Union). These two European institutions brought in the International Monetary Fund (IMF) to oversee the ‘aid’ to Greece, and this ‘troika’ agreed to provide lower-interest loans to replace the private loans. But, as always, these loans were conditional on Greece undertaking neoliberal ‘economic reforms’ such as privatizing government assets (the commons), strengthening private property, reducing government expenditures, deregulating labor markets, and replacing regulatory structures with ‘free markets.’ These reforms were, allegedly, to make Greece better able to reduce its overall debt. Instead, these austerity reforms drove the Greek economy further into recession, and Greek debt actually rose from just over 100 percent of GDP in 2009 to over 180 percent today. The recession reduced GDP by about 25 percent, which by itself raised the debt to GDP ratio by a third. And, the depression also decreased government revenues more rapidly than the mandated expenditure cuts that pushed the economy into depression in the first place. The ‘reforms’ thus did not reduce the debt. Instead, after six years, they have destroyed the Greek standard of living, with purchasing power reduced by more than 30 percent and unemployment approaching 30 percent (nearly 60 percent for the 16-25 age group).

Given these economic results, many Greeks protested. But to no avail. In 2010, the two large centrist political parties appointed a new prime minister, an international banker (I am not making this up!), all without holding a new election. Soon, reform agreements between the Greek government and the troika were signed and, as stated above, the government debt grew faster and incomes fell and unemployment rose. Finally, at the beginning of 2015, the voters got the opportunity to vote. The left-wing “Syriza” party in coalition with a small libertarian party won a majority of seats in Parliament, and they defiantly formed a government pledged to undo austerity. Most popular among Greek voters was the promise that Greece would no longer negotiate with the troika; it would simply change its policies regardless of what the troika demanded to keep the ever more burdensome loans flowing.

Since the election two months ago, however, the enthusiasm is beginning to turn into indignation as people suspect they have been had once more. The new president, Alexis Tsipras, is no longer talking about major changes in the mandated ‘reform’ program. He has now even called for ‘temporary’ continuation of the austerity measures while negotiations continue with the very same three members of the troika he had promised to never ever negotiate with again. Even the popular finance minister, Yanis Varoufakis, has changed his tune: before the election, he claimed he would fire the Finance Ministry’s foreign consultants, but he has now hired the same financial firm (“Lazard”) that advised the previous centrist/right-wing government on the privatization of government assets.

Arguably, Greece has few choices but to do what the troika tells it to do. Without further lending from the IMF, the European Central Bank and other official European assistance, the Greek government would have to default on its loans and it would be without money to spend. Its budget deficits require it to find money to borrow. The leaders of other European Union countries—especially Germany—have aggressively stated that Greece must follow the agreed austerity program; there is no permissible alternative. To force the Greek government to stop its opposition to the imposed austerity program, the ECB stopped taking Greek government bonds as collateral for borrowing by Greek private banks from the ECB—even though such ‘lender-of-last-resort’ lending is standard practice by every central bank in the world. But now this standard lending facility has been replaced by an “Emergency Liquidity Assistance” program just for Greece that is also run by the European Central Bank, but is no longer automatic as the lender-of-last-resort central bank lending always has been. Greek President Tsipiras opined the ECB was “holding a noose around Greece’s neck.” It appears that Greece has no choice, however, but to continue with the same policies that were already strangling its economy for years to come.

Greece does have other choices, of course. For example, it could simply unilaterally refuse to pay its debt to the European Central Bank, the European Stabilization Fund and the IMF. It would obviously have to abandon the euro, since there would not be enough euros in circulation in Greece to support normal economic activity. Greece would have to go back to issuing its own money (the drachma), but in this case, it would never run out of money to fund government spending. Obviously, the drachma would be valued very lowly in the foreign exchange markets, but that would actually greatly help Greek exports and limit imports, thus correcting the large trade deficit that Greece had to finance by means of foreign borrowing of euros.

This is essentially what Argentina did in 2002. After linking its currency 1 to 1 to the U.S. dollar and running up extraordinary dollar debt, Argentina first negotiated an IMF loan with a mandated austerity program. Just as with Greece, the economy only sank deeper into debt. Then, after civil unrest caused three changes in presidents in two weeks at the end of 2001, Argentina unilaterally decided to use its remaining dollar reserves to offer 30 cents on each dollar of debt held by private creditors, and it paid back all IMF debt outright to get out from under IMF supervision. It established a new domestic money, and it let the exchange rate decline. The immediate effect was an increase in inflation, frozen bank accounts, cancelled loans, and a sharp fall in output. Soon, however, Argentina restored its trade balance with its depreciated currency. And, with the power to print its own money, it was able to increase government expenditures that directly benefited unemployed workers while also stimulating domestic demand, unemployment soon fell back to normal, and the poverty rate was cut by two-thirds in just three years. These things would never have happened if Argentina had continued with austerity programs mandated by the IMF.

Why does Greece not make the same decision and go back to the drachma? Why are the so-called radical left Syriza Party and the Greek voters so constrained that they cannot even begin to think about making such a decision?

Obama promised to “renegotiate” NAFTA, but now we only get more of the same

During the 2008 presidential campaign, candidate Obama promised to “renegotiate NAFTA.” However, once in office there was no ‘renegotiation’; rather, we got more agreements just like NAFTA. The Obama Administration pushed through a new CAFTA (“Central American Free Trade Agreement”), followed by new agreements with Colombia and South Korea.

Unknown to most people, these trade agreements did much more than eliminate trade barriers. They also liberalized international banking and introduced unprecedented protections for foreign investment. In the latter case, they established “investor-state dispute settlement” (ISDS) procedures when private foreign investors felt they had been hurt by any change in domestic laws that diminish the value of their investment. ISDS rules mandate compensation for such policy shifts, and the size of the compensation is determined by a designated private arbitration process to which governments have no recourse. At the insistence of a foreign investor who alleges to have been disadvantaged, a private panel would be set up to decide whether, say, a new Guatemalan law banning the use of cyanide in gold mining requires the Guatemalan government and its taxpayers to compensate a Canadian gold mining firm operating in Guatemala for the higher costs associated with a less environmentally damaging production method. The purpose of such rules is, of course, to discourage new environmental laws in the first place. Also, note how much power this gives private corporations over public policy in other countries. Simply put, such rules imply a huge loss of national sovereignty and a huge gain in corporate power.

Now, the Obama Administration that was going to renegotiate NAFTA is asking for authority from Congress to complete negotiations for two new regional trade agreements: the “Trans-Pacific Partnership” (TPP) between the U.S. and a number of other countries surrounding the Pacific Basin including Japan and South Korea, and the “Transatlantic Trade and Investment Partnership” (T-TIP) between the U.S. and the European Union countries. Since these countries already largely trade freely with each other, obviously there are other things in these agreements that are driving corporations and financial firms to push for these agreements. Both of these agreements contain ISDS procedures. Leaked excerpts of these secretly negotiated agreements show that they have little to do with free trade and much to do with expanding corporate power over individual governments. President Obama is not just going along with this, but he has been leading the way in pushing the negotiations forward. We were lucky that Harry Reid, the former Senate majority leader, heeded the wishes of labor unions and refused to bring the matter up for a vote in the Senate. But now the Republican leadership can count on all Republican and, yes, many Democrats to vote for finalizing these secret negotiations. Hopefully, some of the foreign countries will ultimately object and stop the negotiations. Don’t hold your breath, though, as the Socialist president of France is quietly leading the way to promote the T-TIP in Europe.

The French vote for change, and they get more of the same

Speaking of France, the Socialist French government has introduced a new labor law that rolls back restrictions on work hours and Sunday labor, eliminates regulations on many professions, and cuts retirement benefits for many workers. Furthermore, the Socialist government has increased its overseas military involvement as well as arms sales to many less-than-democratic regimes, and it has reached an extensive agreement with the national business employers association to cut business taxes and reduce business regulation. At the same time, the Socialist Party leadership has rammed through sharp decreases in government expenditures across the budget in order to meet European Union budgetary guidelines. There will be further privatization, public transportation will be cut, education is being cut, retirement benefits are being cut, and unemployment benefits are being limited in time. Incredibly, the Socialist government is drastically consolidating the country’s political units by, for example, abolishing the local ‘departments’ that date back to the French Revolution and creating ‘more efficient’ larger units; this will, of course, effectively make it easier for corporate lobbyists to control the political system in this country renowned for its citizen political engagement. The news media spent most of their time arguing about how to redraw the map, while avoiding the issue of what regional consolidation really means.

The French Socialist Party candidates in 2012 captured the Presidency, ample majorities in both the National Assembly and the Senate, and the majority of local offices. The voters had tired of the center-right party of President Nicolas Sarkozy, which had pushed through various unpopular privatization and deregulation measures. Sarkozy had also taken a leadership role in the NATO attack on Libya that has thrown that country into chaos and ISIS’ hands. But the wholesale shift of the government to the Socialist Party has produced much of the same right-wing policy.

Allegedly, France had no other choices under the euro. Since France did not have its own money and it could not let its money depreciate to maintain its trade balance, the only way for the country to remain competitive was to lower business taxes, deregulate labor markets and lower real wages. This is what ‘socialism’ is about?

Voters are demoralized and corporate-financial power rules

These examples demonstrate how the majority of the public have been ignored in one democracy after another. We repeatedly see candidates from progressive political parties being enthusiastically elected, only to end up furthering mostly the same right-wing policies that voters rejected. More sinister is the tendency for precisely those candidates and parties that traditionally represent labor and the working class to lead the way in defying the popular vote.

The examples above make it clear who is driving policy: international private business and finance. Right-wing interests are not only rewriting laws and regulations in the United States; they are doing exactly the same things in Europe. Money buys a huge number of politicians, most of the media, and nearly all national and international institutions such as central banks, the IMF and the European Commission. By controlling the political process, it does not matter that we are allowed to vote every so often. Antonio Gramsci, the Italian socialist who died in one of Mussolini’s prisons in the 1930s, famously pointed out that democracy of itself does not cut the power of the wealthy because they still control the culture and the political rhetoric. In short, democracy is no barrier to the continued rule of the wealthy. Because the wealthy have more money, they also have more political and cultural power.

It is really uncomfortable to have to face the fact that our society is under the complete control of a wealthy elite that does not care about the well-being of all of its citizens. And, there appears to be no easy solution. Yes, we can lobby for a constitutional amendment to overturn the Supreme Court’s “Citizens United” decision. But remember that much of Obama’s backsliding on foreign wars, drone assassinations, foreign trade policy and bank bailouts happened before the Supreme Court decision. The political money is already so well entrenched that there are multiple ways for it to influence and shape political decisions.

A tempting alternative strategy might be to stop supporting major parties dominated by corporate money. To some extent people are already doing this. In France, the “National Front Party” attracts nationalists fed up with the two traditional parties, and the “Front de Gauche” (Left Front) attracts disillusioned socialists for the same reason. In the Netherlands, polls show that the two non-traditional parties that in 2012 formed the ruling government coalition with 55 percent of the seats in parliament would only control 14 percent of the seats if a vote were held today. The problem is that new parties do not always imply more democracy. A fragmented political system can break down into permanent conflict, effectively giving wealth even more opportunity to further its interests. More worrisome are the apparent gains by extreme right parties throughout Europe—not to mention our own ultra-right tendencies here in the U.S. Remember that Adolph Hitler first rose to power in the Weimar Republic through normal democratic procedures. Equally worrisome is the Tea Party in the U.S.—a party actually organized by certain corporate interests (specifically the Koch brothers) to take advantage of the dissatisfaction with a political system that, ironically, has been taken over by those self-same corporate interests…

And so human beings all go on with life as it is being shaped in our autocratic plutocracy. On a certain level, we are all complicit as we help generate the profits of our employers, spend our incomes on the stuff that our manipulated culture tells us we should want, salute the flag that far too often is cynically waved to justify the violence and terror needed to protect and further the interests of the wealthy, trust in ideologies and creeds that assure us everything will work out all right in the end in ways not unlike the ‘invisible hand’ of the mythical market system, and vote in our democratic elections thinking that this will somehow make things different. Political scientist Rosa Luxemburg pointed out that the business and financial elite have institutional and cultural ‘hangers on’ (from government to law enforcement, religion to education) to advance their interests. In my own field of economics, for example, professors routinely promote the idea that in a market system the pursuit of profit ends up benefitting everyone. We all know that markets do not really work all that well, or that markets actually do not even exist for most of the important decisions we have to make, but the myth sounds nice. And almost no one in academia will stand up and admit this is what we professors are doing.

Our political, social and economic systems are being hi-jacked before our eyes and most people, tragically, either do not understand what is really happening, or find it too discouraging to cope with. So we go out and buy what the advertising industry tells us we should want this year, and we take on debt to buy what we cannot afford. But we are not confronting the reality that international financial and business interests (the “Global 1%”) are now controlling the world—maximizing profits to the exclusion of all else. In this world, profit isn’t everything—it’s the only thing. And labor unions, environmentalists, regulators, moralists, socialists and anyone else with a broader social perspective are viewed as barriers to profits. Things have gotten so bad in our political discourse, today, that to even suggest opposing this corporate and financial domination is viewed as downright un-American.

So long as we permit the Global 1% to dictate the economic terms and define our cultural values, however, our slide into planetary despotism is only going to accelerate. We are at a crossroads. Economically. Environmentally. Socially. Culturally. And there isn’t much time. We must open our eyes and face the reality of what is happening—or we will never be able to reverse this slide. “Oh, say, can you see?” begins the National Anthem. It’s the question for our age.

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