Volume 8

Number 3

May 2000

Main Contents

1

Michael Rowbotham in Canada

Ann Emmett

2

When Theft is Legal!

David j. Weston

3

WHOSE WORLD ORDER? — CONFLICTING VIEWS

Noam Chomsky

4

The poor are increasingly facing … Financial Exclusion

Nick S.

5

Time Money

William Gleeson

6

German Tax Big Bang

William Krehm

7

The fisherman and the banker

Ben Edwards

8

Are Central Banks Becoming Paper Tigers?

wk

9

Report of the Monetary Reform Workshop at Spring Conference, 16 March 2000

 

10

European Union Takes a Realistic View on Mergers

COMER, April 2000

11

The Destruction of Money

David Gracey

12

Money Above the Clouds

COMER, April 2000

13

The Worgl Schillings

David Weston

14

What Is "Efficiency"?

John McMurtry

15

The internationalisation of capital requires an equivalent internationalisation of labour, so why …

Battling for Britain?

Nick S.

Index

Editorial:

The last issue of this appeared on the Web only at the end of March, because of the learning process for it, and domestic problems. The printed issue was out late, as usual for the May one, because of my participation in local elections. This explains the late appearance of this web version.

This website address is www.sus-tec.freeserve.co.uk; alternatively, it can be viewed at:

www.greenparty.org.uk/economics

At the Green Party's Spring Conference, it was decided that the former "Economics" group should become the "Monetary Reform" group, with me as contact, and as a sub-section of a new "Economics" group, yet to be established. "SustEc" will be the official organ for this group. I will continue to produce it.

The booklet, "Where's the money to come from?", which formed part of the last issue, has been generally well received, but so far I have not had much feedback on suggestions for improvement/expansion.

The Policy Committee reported at its last meeting that:

"E-Commerce

At the request of our MEPs, Policy Committee would like to start a discussion on e-commerce - its implications for green economic ideas and vice-versa.

Will e-commerce hinder efforts to build strong sustainable local and regional economies, or could it be used to help?

Does e-commerce inevitably contribute to globalisation?

What is a green response to e-commerce?

etc."

E-commerce is a major issue in terms of its effect on the rest of the economy as well as in its own prospects.

MV has contacts through her employment and in Germany. JN has written on the effects on the rest of the economy. Agreed a team effort. JD to bring in the Economics group in the process of formation, DW to launch a discussion with a notice on the GP-Policy list, with JN forwarding material to MV, and MV to co-ordinate the production of a discussion paper."

This should lead to something worth reporting in a future "SustEc"

Please note that it also reported that:

" MONETARY POLICY–contact Brian Leslie, shadow DW

The difficulty here is that views are polarised around particular theories, and the time allowed by the enabling motion is running out. If a different approach to the paper were not adopted by the group, the committee would have to advise SOC that there was insufficient consensus for a Voting Paper. DW to indicate the problem to the group without recommending any particular solution.

The group need to come up with that themselves."

See also the report on the workshop at Conference, on page 65.

Action???

Other points of interest:

"TAXATION

contact Jonathan Dixon, shadow DW

Mostly ready to be a Voting Paper. Concern about the Citzen's Income had been settled with a wording on meeting basic needs from JD/JN. A few points remain to be settled.

May mailing would seek suggested amendments. Need to address points on Corporation Tax with Malcolm Powell. Emphasise that resources and carbon taxation is not to raise revenue but change behaviour. Suggested that points on capital flight and Tobin tax be "repatriated" from the existing policy for Europe, as our policy is that tax should dealt with at national level. Need to consider Excise duties, on which a request had been received from Jean Lambert MEP."

Also:

REGIONS

The regional economic differentiation being promoted by the EU would make regional economies more specialised and interdependent rather than self-reliant as we advocate.

This is being considered by the Industry & Employment group, following a request from Caroline Lucas MEP. A second issue is regional government, where we need more detailed policies as the prospect approaches.

DW to facilitate work on these, seeking to involve other groups (Economics, Science & Technology) in the first and to ask Nic Best, active in the campaign for regional government in the North, to co-ordinate the second.

 

Index

1: Michael Rowbotham in Canada

—from COMER, Jan. 2000

On learning that the Parkland Institute of Edmonton was bringing Michael Rowbotham to their conference at the University of Alberta, the COMER Board unanimously agreed that we should undertake to build on this initiative, and that we should attempt to involve other organizations in the enterprise.

In little more than a month, meetings were arranged in Vancouver, Vernon, Winnipeg, Toronto, Peterborough, Ontario, Ottawa, and Montreal, spanning the ten days that Michael was able to be here.

Teacher, writer and scholar, Michael Rowbotham has provided monetary reformers with an invaluable resource in his book, The Grip of Death: a Study of Modern Money, Debt Slavery and Destructive Economics. In his enthusiastic review of this work, William Krehm has praised it for the quality of research and writing it reflects, and for "its compelling vision." (Economic Reform,18 October 1999)

Michael’s tour was the result of a co-operative effort that crossed political party lines, and included a wide variety of progressive organizations: Citizens Concerned About Free Trade, Canada’s National Interest Council, COMER, The Defence of Canadian Liberty Committee, The Canadian Action Party, The New Democratic Party, and too many others to list here. It was unique in the spectrum of issues that it lasered into a single focus the debt-money system as a unifying root cause. As David Creighton of Ottawa pointed out, "some of these groups had probably never sat in the same space together before." And many who attended Rowbotham’s seminars and forums had never heard of debt money or monetary reform before.

Audiences ranging from 100 to 300 attended public forums west to east. Alas, we were unable, in the time available, to mount a meeting in Halifax, despite our efforts to do so. It is an encouraging sign, that we have been criticized for excluding the Maritimes.

For me, the highlight was an event at Peterborough Collegiate and Vocational School, where students belonging to OXFAM had organized a lunch-hour meeting that was held in the school library. About 50 students, there because they had chosen to come, filled the space available. Also present were the principal, the librarian, and a school trustee, all of them highly supportive of the venture and extremely impressed by Michael’s presentation. In one hour, he explained the money system and its impact, connecting it clearly to specific issues that concerned them all, ending with the WTO and what was then going on in Seattle. The students were rapt throughout! They took notes because they wanted to. They understood it. They appreciated it. The first word of the girl who thanked him was an explosive, "WOW!"

Besides public meetings, Michael participated in numerous radio and television opportunities, including a one-hour interview on Vision TV, that will be shown early in the new year. Many copies of his book have been sold or ordered through a special deal with his publisher, Jon Carpenter, whose generous discount made it possible for us to distribute them at almost half of what they would otherwise cost.

The spinoff has included a request from someone who attended one of two meetings in Montreal, and who wants to bring Michael back to Canada. And, who knows? Maybe some of the politicians who heard him will come out converts!

Michael has given our cause a great boost. It remains for us to make the most of that.

Ann Emmett

You can read the first chapter of The Grip of Death at the Claire Foss Political Journal Web site: http://cfoss.com. To order a copy while the discount is still available, phone:

(416) 654-3499. Tapes of Michael\’d5s presentations will also be available. His latest book, A Lasting Jubilee, is now available. It is an analysis of third world debt that argues the case for complete and immediate cancellation of all third-world debts and revision of the terms of international lending and investment.

COMER expresses thanks and appreciation to Ann and all those who assisted her for their tireless work at organising and coordinating Michael’s tour.

 

Index

2: When Theft is Legal!

David j. Weston

Theft type No.1.

Take a coin out of your pocket.

Look at it carefully.

You will see that it probably has little ridges around the edge.

This is called ‘milling’.

Why do you think it is there?

Well, it doesn’t serve any purpose now, but it used to.

In fact, it was put there to protect you and thousands of others from a special and very clever kind of theft called ‘coin clipping’.

Very simply, when coins were made of silver and gold, and before they had ‘milling’, people used to slice, oh but the tiniest sliver of silver or gold, off the edge of the coin that was passing through their hands in the course of daily trading.

Then, as they gathered up all those tiny slices, they were able to melt them down into silver or gold bullion. Over time, many became very rich as a result of that form of theft.

Was it really theft? Well, the creator of the coins, the Royal Mint, thought so. Thats why they re-designed coins with ‘milling’, so that it would be very difficult, if not impossible, for anyone to clip coins ever again.

Theft type No.2.

But clip thieves are very ingenious. More recently in history, a number of clippers have been caught clipping, not coins, but bank accounts. One bank clerk was discovered, after some years, to have been clipping a penny a month off each of the bank’s customer’s accounts. Doesn’t sound like much, but actually he had gathered up a handsome sum. Yes, he was brought before the courts and did time.

Theft type No.3.

So, has ‘coin clipping’ or something akin to that, actually been halted? Has the theft been stopped?

The evidence is that it hasn’t. It has just taken another form.

Today, a practise, equivalent to ‘coin clipping’, is taking place daily. It’s called the currency market.

By buying and selling currency on the electronic market, modern day thieves are able to slice, oh but the tiniest sliver of value off the edge of each of the currency exchanges they transact.

Some have become very rich, creaming off as much as 100,000 to 250,000 per year.

Theft type No.4.

And, oh yes, there’s yet another form of ‘coin clipping’ going on.

When governments need to borrow money to pay the interest on existing debt, they borrow from financial institutions such as banks.

The banks create the money by the stroke of a pen, or the press of a few computer buttons, and skim off (coin clip) interest charges - on money they don’t even own!

Time for a change.

Now, if it was illegal to clip coins, and clip bank accounts, then why is it not illegal today to clip currency markets, and clip the public purse with illegitimate interest charges?

The explanation is quite simple. The people who are coin clipping today have ‘bought’ the politicians they wanted, who have, in turn, passed laws making electronic coin clipping, and electronic creation of non-existent money, legal.

Just look at how politicians and political parties are funded and supported by the large corporations, especially the private corporate banks and financiers.

It’s time to change the rules so that all forms of currency clipping is banned, and that can only be ensured if politicians are funded at, and between, elections, out of the public domain.

 

Index

3: WHOSE WORLD ORDER? — CONFLICTING VIEWS

Noam Chomsky

Noam Chomsky is a world-renowned professor of linguistics and philosophy at MIT. He is an outspoken critic of US foreign policy especially the role of the US. in the genocide of the East Timorese people. His overviews of what’s going on in the world today are not only thought-provoking but also highly critical of the elitist agenda that is being followed by most world leaders.

This article1 is drawn from a transcript of Noam Chomsky ‘s speech given at Massey Hall in Toronto on March 22, 1998. Reprinted with perm ission from Roy Thomson Hall / Massey Hall and Noam Chomsky.

What I would like to speak about are actually some age-old questions. They keep coming up throughout history. They constantly take new forms. They reduce, basically, to two simple words — "Who decides ?"

Thomas Jefferson put the matter very plainly in his later years when he was rather concerned about the fate of the democratic experiment that he had helped to craft. He made a distinction between what he called ‘aristocrats’ and ‘democrats.’ "The ‘aristo-crats’," he said, "are those who fear and distrust the people and wish, to draw all powers from them, into the hands of the higher classes. The ‘democrats’ are those who identify with the people, have confidence in them, cherish and consider them as the most honest and safe depository of the public interest even if it’s not always the most wise.

The aristocrats of his day were the advocates of the rising industrial capitalist state. He only saw the early stages of it but enough to regard it with considerable dismay because of the rather clear contradiction between democracy and capitalism; particularly with new corporate forms beginning to emerge, what he called "the banking institutions" and "moneyed incorporations" were just beginning to appear in his day which he regarded, as did de Tocqueville and other classical liberals, as a serious threat to the existence of democracy in any meaningful sense. I’ll come back to that.

The rascal multitude

The democrats have always been found almost entirely among the people themselves. In the modern era, we can trace that back to what one contemporary historian, Margaret Judson, calls the first great outburst of democratic thought in history. It was inspired by democrats who scandalized the ‘respectable’ people. The reason was that they were calling for universal education, guaranteed health care, democratization of the law.

As one outraged contemporary intellectual put it, "they are making the people so curious and arrogant that they will never find humility enough to submit to the natural rulers. Their seditious doctrine is aimed to raise "the rascal multitude" against all men of best quality in the kingdom, to draw them into associations and combinations with one another against all lords and gentry and ministers and lawyers, of rich and peaceable men. The worst of all of them were the agitators, itinerant workers and itinerant preachers whose pamphlets proclaimed that the people did not want to be ruled by king or parliament, (they were the two official contestants in the civil war — excluding most of the population who didn’t want either of them) but rather, "by countrymen like ourselves, that know our wants. It will never be a good world," they said, "while knights and gentlemen make us laws that are chosen for fear and do but oppress us and do not know the people’s sores Those are sentiments that translate quite easily into the day’s more prosaic rhetoric.

Well it’s small wonder that those seditious thoughts of "the rascal multitude" terrified the "men of best quality" as they called themselves. They recognized, as one put it, that "it is dangerous to have the people know their strength." And it still is. The people have to be made to feel helpless, victims of mysterious laws. In fact, a good deal of contemporary ideology is devoted to that purpose. After the defeat of the democrats in the 17th century, John Locke commented that "day laborers and tradesmen, spinsters and dairy maids must be told what to believe. The greatest part cannot know and must believe." That’s the authentic voice of the aristocrats whose inheritors in the west are those called "public intellectuals," who call themselves "responsible men," including those who helped design and create the huge public relations industry, corporate media and other institutions to control the public mind as they put it.

Self-Rule

There are plenty of inheritors of the early democrats too. They’re found overwhelmingly in popular movements; for example, among the artisans and the so-called factory girls in the mid- 19th century in eastern Massachusetts, where I live, whose position was that those who work in the mills ought to own them. They’re found in those who created democratic self-governing working class communities in western Pennsylvania — until they were crushed by a force mobilized by the noted pacifist, Andrew Carnegie, who went on to form the first billion dollar corporation over the wreckage. And they’re found in those who’ve struggled for years to build the labour movements, to construct some sort of meaningful social contract, to struggle against racism, for women’s rights, for the rights of future generations, the environmental movement and, quite generally, for self-rule — for the principle that the "rascal multitude" should have the right to rule themselves and not submit to the rule of others.

The others [the aristocrats] also had their inheritance from kings and princes and gentry, priests, to commissars, political and corporate managers or those called the "responsible intellectuals" who gained that status by their service to objective power. Actually, a good deal of modern history takes shape within these kinds of guidelines, raising fundamental questions about the nature of the social order. It’s all being played out in a very dramatic form right now. The consequences are certainly significant, they could be ominous, they could be liberating. Those are outcomes that are never foreordained, they remain choices as they’ve always been.

I’m going to say something about all of these topics. But I’m going to restrict it somewhat, by keeping it almost entirely to the United States, the richest and most powerful country in the world. It also has the longest and most stable democratic institutions — that is as good a model of a capitalist democracy as one can find in the contemporary world. I’m going to look at the conflicting visions as they’ve arisen there. That’s not the whole spectrum by any means but it’s a sufficiently rich part of it to provide us, I think, with a good deal of insight into today’s world and tomorrow’s.

Democracy

So let’s begin by looking at the concept of democracy which is a very old one. There’s a classic formulation of the notion of democracy in the first work of political theory in the west; Aristotle’s ‘Politics’. He discusses various forms of social and political organization and he prefers democracy. Democracy for Aristotle is "a community of equals who are dedicated to the best possible life for all" — what he called "the common good". It’s a community of free men who are equal participants." Notice the term, "free men." That’s to be taken literally. It excludes, it’s limited; it excludes women; it excludes slaves; it excludes servants. (Servants were not really distinguished from wage-earners until recently; as late as John Locke and Adam Smith they were more or less out of the social order because they weren’t "true men". They were "men with masters.") It’s a little hard to fault Aristotle for this limitation because it hasn’t really begun to be addressed seriously until this century. Recognizing that rather radical restriction, democracy is to be a community of free men who are equal participants.

Aristotle goes into how to realize the democracy at some length. He recognizes that a democracy would just have to be what we call a welfare state but that’s misleading because he meant a much more extreme version of a welfare state. A democracy would have to guarantee, in his words, "lasting prosperity for the poor by distribution of public revenues" in ways which he discusses. The goal of that would be equality, complete equality — equality of condition, not of opportunity — in his words, "moderate and sufficient means for everyone with no significant differences." There are two basic reasons for this minimal requirement for democracy: one is that relative equality is a condition of free and equal participation in a democratic order. He doesn’t go into a big discussion about that. He thinks it’s obvious as, indeed, it is obvious.

The second argument, a little more complex, is that if you can imagine a democracy with radical inequality (which is hypothetical because it wouldn’t be a democracy), then in that society, the poor being the great majority, would use their voting power for their own interests and not for the common good of all. They would interfere with the interests of the wealthy minority. But the goal of a democracy is to work for the common good of all. So there’s a secondary reason why a democracy has to be a super welfare state. I’ll put those arguments aside and come back to them in a moment in the form they take in the modern period.

The vile maxim: All for ourselves and nothing for anyone else.

Similar ideas run through the Enlightenment and classical liberalism. So, for example, take Adam Smith, who is often seriously misread. He believed, that under conditions of perfect liberty, markets would lead to perfect equality which he took to be a good thing, an obvious desideratum. We read or are taught the first paragraph of Wealth of Nations in which Adam Smith talks about the wonderful things that happen from the division of labour but not many people go, 400 pages later, where he condemns bitterly the notion of division of labour and says that in any civilized society, the government will have to intervene to prevent it because division of labour is dehumanizing. It will turn human beings into creatures as stupid and as ignorant as it’s possible for a human being to be. He generally held that, in his words, ‘‘government regulation in favour of the workman is always just and equitable but never for the masters" who follow what he called, "the vile maxim: all for ourselves and nothing for anyone else."

Another major figure of classical liberalism, de Tocqueville, in his discussion of early America of the 1830’s, came to pretty much the same conclusions. He called for equality and he thought that one of the virtues of America (although he misread the facts), was a relative equality of condition and he warned that there might be a permanent inequality of condition, hence the end of democracy, if the manufacturing aristocracy in the United States, one of the harshest that has ever existed, escapes it bounds — as, of course, it did beyond his worst nightmare. Those are the banking institutions and the moneyed incorporations that Jefferson warned about.

Other classical liberals went considerably further. The founders of classical liberalism also opposed wage labour. The reason, as expressed by one of the leading figures who inspired John Stuart Mill, is that if an artisan creates something beautiful on command, we may admire what he does but we will despise what he is because he’s not a human being, he’s a tool in the hands of someone else. As de Tocqueville put it, "the art advances but the artisan declines." Adam Smith’s critique of the division of labour is based on similar principles. All of this became major tendencies, major dominant tendencies, in 19th century thought and practice in the United States. Abraham Lincoln famously argued that it was wrong for capital to be able to buy labour. Less well known is the fact that he held that it is equally wrong for capital to be able to hire labour except as a temporary expedient on the way to freedom.

The Republican Party defined itself as not only the anti-slavery party but the party of free labour. Free labour then, meant free from masters and so, labour under self-rule. After the Civil War, the New York Times, in an editorial it would be happy to forget, wrote that "the growth of wage labour amounts to a system of slavery as absolute, if not as degrading, as what lately prevailed in the south~ Not too long afterwards, that turned into quite an accurate prediction. There was a southern industrial revolution at the turn of the century which was based on slave labour — they called it, convict labour. The convicts were black, of course. It essentially re-instituted the framework of the plantation system but in industry and it had many advantages as the owners pointed out. The convict laborers are more reliable and productive than wage labour. And it removed all danger of strikes and other conflicts, very serious problems.

It’s entirely natural that today, with huge masses of the population being driven into prisons, overwhelmingly black, that this system is being reconstituted. Convict labour is coming back again with all the advantages over independent labour that were noticed earlier and that in more civilized days, were denounced. This is all part of the neo-liberal principles being applied to the rich countries in the usual form, the form that neo-liberalism has taken through the ages. It’s neither new nor liberalism. And it’s always had the same double-edged character, market discipline is really good for the poor but the rich need a powerful state to protect them, subsidize them and socialize risks and costs. That’s today’s United States, Canada, the Third World and so on.

Going back to wage labour, not just Abraham Lincoln, the Republican Party and the New York Times, but of course, the labour movement was strongly opposed to it from its origins. From the 1830’s it held that those who worked in the mills should own them. Workers in eastern Massachusetts were quite scornful of the elite Boston abolitionists who, as they put it, "are making slaves at home." And they called for "abolishing wage slavery before we meddle with chattel slavery". In the Civil War, northern workers fought against chattel slavery and wage slavery. Even as late as the 1890’s, leading voices in the quite conservative American Federation of Labour took the position that the mission of the labour movement is to overcome the sins of the market and defend democracy by workers’ control, by workers controlling the mills where they worked.

Big Business

These currents run right into 20th century thought. The two leading philosophers in the English-speaking world, or in the world, in my opinion — Bertrand Russell and John Dewey —took very much the same view. In the United States, John Dewey, a social philosopher, held throughout his life that talk of democracy is idle, as he put it, when big business rules the life of the country, controlling production, exchange, commerce, the press, finance —casting over society the shadow that we call politics. In order to even talk seriously about democracy, we first have to have a transition from a feudalistic to a democratic industrial order in which workers are masters of their own industrial fate. All of this, I should say, is American as apple pie.

It’s right out of mainstream thought and action in the United States, no outside agitators, nothing like that. These are core elements of the American tradition right through the 19th century and well into the 20th Century.

Now there were countercurrents all the way through, so there are conflicting visions. The most dramatic and important countercurrent is the constitutional system of the United States, forged by James Madison primarily, who was a very lucid and penetrating political thinker who dominated the constitutional convention. Madison recognized exactly what Aristotle recognized. He recognized that inequality was inconsistent with democracy and he also recognized Aristotle’s second argument, that the poor might use their voting power for their own interests. He brought these issues up in the debates at the constitutional convention. He expected that inequality would increase dramatically in the United States over the years. He pointed out in the constitutional debates that if in England, which was the model then, the poor had a right to vote in a meaningful way (they didn’t vote at all, in fact), they would use that power to attack the concentration of land in the hands of a few people. They would demand what we in these days would call "agrarian reform" — the same argument as Aristotle.

Aristotle’s conclusion from those two arguments was that we should end poverty so we’d get a democracy. Madison’s conclusion was the opposite. We should end democracy so that we can have inequality. In his words, the goal of government is "to protect the minority of the opulent from the majority. Power," he said, "must be in the hands of the wealthy. The more capable set of men are those who sympathize with property and its rights." Those were views that he held until the end of his days. I should add that he’s one of the more libertarian among the so-called founding fathers. This is not what you study at school, this is what’s there, if you go into the records to find it. But that’s the framework for the constitution. It was designed to realize Madison’s goals for his reasons.

I don’t mean to be too critical of Madison. One has to bear in mind that Madison was pre-capitalist and anti-capitalist, basically pretty much like Adam Smith or even David Ricardo to a certain extent. Madison’s view was that the more capable class of men, the wealth of the nation, would be, as he put it, enlightened gentlemen and benevolent philosophers who would work for the common good of all, not for themselves. That’s a pre-capitalist view.

Adam Smith, actually, was smarter. He knew that they would follow the "vile maxim." And Madison soon learned the same. By 1792, only a few years after the Constitution was established, he wrote, rather despairingly, about what he called "the daring depravity of the times as the rising business classes are becoming the pretorian band of the government, at once its tools and its tyrants, bribed by its largesses and overawing it by their clamors and combinations. Substituting the motive of private interest in place of public duty, leading to a real domination of the few under an apparent domination of the many." In other words, Madison was describing capitalism, and not a bad description of today’s world, 200 years later.

Well, all of these conceptions of democracy, all of these conflicting visions, collapsed towards the end of the century, with the corporatization of America, that’s roughly in the period 1890 to 1920. That established a completely new system, new hierarchies and new institutions. The labour movement was crushed largely by violence. The United States has an unusually violent labour history. The leading academic labour historian, David Montgomery, has a book called The Fall of the House of Labor. He’s referring to the 1920’s. He writes there that "modern America was created over its workers’ protests. By the 1920’s, labour had to make its peace with a most undemocratic America." It had no voice during the period of mass production in the 1920’s. And that, incidentally, was one of the several moments that have been proudly called "the end of history" in a utopia of the masters, something that periodically is proclaimed and equally regularly turns out to be false because "the rascal multitude" won’t accept it. There’s no reason to think things are any different now.

Corporate Elites

Woodrow Wilson, a leading progressive president, and before that a leading intellectual and historian, pointed out that, in discussing 20th century America, "most men are the servants of corporations which now play the chief part in the economy. America," he said, "has become a different country, a very different country. It’s no longer the scene of individual enterprise, of individual opportunity and individual achievement. In the new America," he said, "small groups of men are in control of great corporations, wield power and control over the wealth and the business operations of the country so that they seem to be rivals of government itself." Or, more accurately, "they cast over society the shadow called politics," as Dewey put it. Wilson recognized that as well. He pointed out that "the problem of statesmen and thinkers is to translate law and morality into the terms of modern business." So their job is to adapt law and morality to the needs of business and also to impose some kind of control so that the public interest isn’t completely sacrificed to the private tyrannies.

Well some of the progressives like Walter Lipmann or Harold Laswell, one of the founders of modern academic political science and many others proceeded to translate all of this into modern political ideology — the doctrine that "the people are ignorant and meddlesome outsiders". They have a function because it’s a democracy, not a tyranny. Their function is to be spectators not participants in action. Power is to be in the hands of the responsible men who are insulated from what Lipmann called "the rage and trampling of the bewildered herd." Lipmann was the dean of American journalism, the progressive intellectual of the early part of the century. That remains the core of democratic theory and it’s quite natural under the conditions that Wilson, quite accurately, described. These are the translations into mid-2Oth century terms of what I was quoting from the reactions to the 17th century democratic revolution.

Meanwhile, major institutions arose to implement these conceptions which were also initiated and guided, quite largely, by progressives. The most important one is the enormous public relations industry. It was inspired by the triumphs of Wilson’s propaganda agency — actually the British and the American propaganda agencies — during the First World War which were extremely effective and taught a lot of lessons. One person they inspired, in fact, was Lippmann who was in the state propaganda agency. Another was Edward Bernese, one of the founders of the modern public relations industry. Incidentally, he was a good Wilsonian liberal, later a Roosevelt-Kennedy intellectual, highly respected in liberal circles.

The major founding document manual of the PR industry back in the 20’s was called, honestly, ‘Propaganda’. The term was used honestly in those days. It got kind of bad connotations when the Nazis came along and people started using other terms. But he called this book 6j3ropaganda~ He said that "it is the duty of the intelligent minority to regiment the minds of men just as armies regiment their bodies." So that those who cast the shadow called politics can rule without being troubled. As the London Economist put it not long ago, "You can insulate policy from politics". Policy will go on and whatever happens with the "rascal mult-itude", the responsible men can work in "technocratic insulation" to borrow some World Bank lingo. That’s modern democratic theory.

Corporate America

This corporatization of America, about a century ago, reflected significant changes in the economy — that is, these things were really happening. Woodrow Wilson was describing what was going on. It was a big change. The era of self-rule was over. This was now an era of what used to be called wage slavery. It’s now taken for granted as the subordination of the "rascal multitude" in a feudalistic industrial and marginalized political order. This was all accompanied by quite significant changes in the law. These changes were not made by legislation. Rather, mostly by judges and by legal theorists. Business was very much in favour of, what’s nowadays called "judicial activism" — that is, judges intervening to change the law. The traditional view was that judges discover the law. But the judicial activists held that the judges craft the law. And that was going on right through the 19th century.

Judicial activism was designing a new legal system in the quite self-conscious purpose of fostering a certain kind of economic development — the kind that has ended up being the governed ruled by concentrations of capital. These concentrations, internally, are totalitarian, or about as close to the totalitarian ideals as anything humans have constructed. They are insulated. They have been given the rights of persons, meaning they’re free from search and seizure. They have the same rights you have in your home in a democratic society, that means they were unaccountable to the public. And, of course, they exert enormous influence over the domestic economy and society and increasingly the international community, the world society, basing themselves and relying very heavily on powerful states. We should bear that in mind. When they talk about minimizing the state, that’s for the poor. In the rich countries, the state isn’t being minimized.

The World Bank just came out with its latest world development report and buried in it are statistics on the scale of the state relative to the economy, relative to gross domestic product. It turns out that in the rich countries, the OECD countries, the state is far larger relative to the economy than in the poorer countries and, in fact, is going up, while in Latin America and sub-Saharan Africa, it’s going down. And internally, the functions of the state have changed as well in many ways.

Going back to the corporations, they did exist even in Madison’s day. In Madison’s day, the typical corporation was a municipality, what standard legal history calls a public body charged with carrying out public functions. Through the 19th century in American law, corporations were considered partnerships. They had no existence apart from their members. They were artifacts. The association was granted a charter by one of the states. The state charter gave it the right to carry out certain specific functions for the public welfare. You could form a corporation to build a bridge across the river or something like that. Nothing else. The legal doctrine was that the association was strictly bound by that condition.

Charters could be revoked at any time. And indeed, they were revoked as late as the 1880’s and 1890’s. By the turn of the century, the beginning of this century, all of that had been very radically changed, primarily by radical judicial activism and a new legal doctrine had been crafted which was built on a totally different conception of rights and actually the whole framework of law and morality was turned upside down. The new doctrines were what are called an organicist philosophy. It was derived very largely from German theorists, of neo-Hegelian flavour. The basic idea was that [these corporate] organic entities are not artificial, they’re real, they have a natural existence and they have rights. The organic entities have rights, rights over and above individuals. Incidentally, similar ideas underlie bolshevism and fascism, the other two major forms of totalitarianism. (This has not been investigated, I should say, but there’s a very interesting PhD thesis there for some aspiring graduate student, one who aspires to end up as a taxicab driver. Intellectually, at least, it’s a very interesting topic.)

Well, these organicist philosophies are the core of modern totalitarianism. They were pressed very hard by the business world. It demanded these changes, primarily because of the huge market failures of the late 19th century which were repeated catastrophically. And business actually called for a change which did take place. They cast the shadow that we call politics and what they want comes about. They wanted a change from what’s called proprietary capitalism, entrepreneurial capitalism, to administered markets. The only question is who administers them? Well the business class, of course, wanted to administer them itself. They wanted the markets administered by corporations, mergers, alliances, cartels, strategic alliances among mega-corporations of the kind that are taking place now and so on, all in association with a very powerful state that has to regulate all of this and make sure it doesn’t blow up. And particularly, in the last half century, the participation has to extend radically to massive subsidy, also protection from risks and costs.

Now you take a look at any dynamic part of the U.S. economy in the last half century, just about, and you’ll find that overwhelmingly, it’s the result of public initiative, public spending handed over as a gift to folks like Bill Gates whose achievements, as he puts it rather frankly, are based on "embracing and extending" the ideas of others — that’s pretty accurate. He only has to add that the ideas and the technology and the innovations and the infrastructure are paid for by the taxpayer and then handed over to the so-called entrepreneurs. Well that’s modern state capitalism.

Around the turn of the century, all of this was hailed by not only the business classes but also by progressives including Marxists who opposed the individualist conceptions of rights which underlie laissez faire doctrines as well. And they favored these new collectivist legal institutions as they were called. They were granted the rights of persons, immortal persons of course, with the right of freedom of speech so it’s now taken for granted that they have the right to advertise, tax-free, so you’re paying for the privilege of being propagandized. They can operate in secrecy and so on. Unaccountable secret totalitarian institutions. That’s the modern world.

Another major change was initiated when the State of New Jersey dropped the requirement that corporations should be restricted to the operations specified in the state charter, with obvious consequences. Corporations began flocking to New Jersey. That’s why you have things like Standard Oil of New Jersey. The other states more or less had to go along. That’s the classic race to the bottom. It’s very similar to the modern world.

The courts then determined that the corporations are not bound by the state charter, contrary to earlier law, and they can acquire property; they have individual rights and so on; furthermore, the corporations were more and more identified, in law, not with the participants, not with the stockholders, but with the directors. To the extent that there were human beings in the corporation, over and above the collective legal entity, they were the directors. (That’s also, for that imaginary graduate student, a topic that could be looked at, because the same transition took place in the Bolshevik system. As Rosa Luxembourg was one of the first to point out —also Trotsky, before he joined in — there was a transition from the conception of dictatorship of the proletariat — whatever that meant — to dictatorship of the party, to dictatorship of the ultimate leader. Well there’s a counterpart in the changes of corporate law.)

Conservatives opposed

Not surprisingly, conservatives were strongly opposed to all of this. They condemned these new collectivist institutions as "a form of communism". A return to the absolutism of Kings and Princes. They recognized and condemned the fact that the new organicist philosophies, the new collective legal institutions and the rights that they were given, were demolishing traditional natural rights doctrine which is based on the idea that rights inhere in persons, meaning flesh and blood persons, not organic entities — that they derived from the nature of human beings in the classical view. And all of that was thrown out. Conservatives also recognized accurately that these new organic entities were an attack on markets, as, of course, they were intended to be. They were a move to an era of administered markets. But this new absolutism prevailed.

Let’s fast forward to just after World War Two when a new world order was established. The world obviously went through chaotic changes during the war and what emerged was that the U.S. had overwhelming power, more than any country had ever had before. Britain ruefully described itself, at least in internal records, as the junior partner of the United States. Like a different phrase in public, it’s called "a special relationship", or something like that. I should add that in private, American leaders were a little more cruel. They described Britain as "our lieutenant: the fashionable term is partner".

The big guy and the junior partner crafted a new world order which is sometimes called a "liberal international order" but that’s not quite accurate. It’s only partially accurate. They did intend to liberalize trade but the system that was constructed, the so-called Bretton Woods system, was not only intended to liberalize trade but to regulate finance through the control of capital movements. They were to be put in the hands of states and that was crucial. Those two moves were interconnected [for the following reasons]:

One was what is sometimes called the ‘‘incompatibility thesis" — the belief that the liberalization of trade and of finance are inconsistent, they are at cross purposes. If you liberalize finance you’re going to cut back on free trade. That, incidentally, has been well supported by what’s happened in the last 25 years.

The second reason, even more powerful, is that liberalization of finance is a very powerful weapon against democracy and against the welfare state. The welfare state had enormous public appeal at the time. That’s the reason for the immense propaganda campaigns of the last 50 years to drive these ideas out of people’s heads or at least make them have their aspirations diminished and make them feel helpless. It was well understood that if finance was liberalized that’s a blow against the welfare state and against democracy.

Governments, however much you criticize them, are arenas of public participation. However, they will lose their capacity to govern. Roosevelt’s representative in the Bretton Woods negotiations, Harry Dexter White, pointed out that capital controls (i.e. the ability of the government to control financial movements in and out of the country) will allow governments to carry out monetary and tax policies and to sustain a level of social welfare without fear of capital flight, which, if permitted, will at once compel the government to raise interest rates, cut back social policies and so on.

Virtual Senate

The freedom of financial flows creates what some international economists now call a "virtual senate". Just as the senate was supposed to be the wealthy of the nation and the more capable group of men who governed the country, to protect the minority of the opulent, international investors, international finance is now a "virtual senate" for the world. They carry out the same role for the world in the interests of guess who? — those with highly concentrated financial capital which includes multinational corporations which are increasingly devoting themselves to speculation and attacks on currencies rather than to production. Highly concentrated financial capital can be its own kind of a virtual senate relying always — and this is crucial — on the increasingly powerful states over which it casts the shadow of politics.

Well, the Bretton Woods system lasted for about 25 years. That’s the period that’s commonly called the golden age of capitalism: the period of rapid growth, increases in social welfare, improvement in the social contract, increasing wages, decreasing inequality and so on. It lasted until around 1970. The Bretton Woods system was dismantled around that time, not in one stroke but the most significant move was made by Richard Nixon in the early 70’s when he simply took it apart and said good-bye. The United States is the most powerful nation in world affairs and it does what it feels like, independently of any rules or treaties or anything else. So Nixon effectively dismantled the Bretton Woods system.

Other major powers joined in, notably Canada and England. The financial controls of the Bretton Wood system were based on cooperation among states. If one big state breaks out of the system it’s basically dead. That’s basically what happened. By the 1980’s the other major economies, despite a lot of objections, also liberalized capital flows and the consequences that were expected took place as foretold by the framers of the Bretton Woods system, namely John Maynard Keynes and Harry Dexter White. This was a period of a major attack on the social contract. Those who have suffered the most are the Third World as well as the weakest in the richest societies —the poor, the disabled, and those who need help. In fact, working people have also suffered.

So, in the United States, about two-thirds of the working population actually still have average income, wages, lower than they had about 25 years ago despite the mostly fraudulent economic miracle that’s supposed to have taken place and it is, indeed, a fraud. Some have gained. There’s huge profits. Profits have gone out of sight. The inequality in the United States is back to what it was in the 1920’s.

England is not very different. There’s been an increase in poverty and an increase in hunger, pretty much as predicted. It was predicted, right at the same time as some of these capital restraints were lifted, that we would be moving to a period of low wages, low growth of output, also low growth of productivity and lessening of trade relative to the economy. All of that has happened, along with the increasing volatility of markets and an increasing number of financial crises which are having major effects on social policy.

Let me quote the chief economist of the head of economic research of the World Trade Organization in a major book on the period. It’s been a period of what he calls a "sustained assault against free trade". That’s true. It was led primarily by the Reaganites who very much believed in market discipline for seven-year-old children but not for rich folk. They were the most protectionist government in post-war American history. They roughly doubled one or another forms of protection for American industry, meanwhile pouring huge funds into it to enable it to reconstitute itself from management failures of the 1970’s. If they’d been left to market principles, the steel industry, the American automotive industry, semi-conductors, electronics, you name it, all would have disappeared. But it was reconstituted primarily through protection and state public funding. And the rest of the world went along.

The growth of trade relative to the growth of the economy has declined during this period. And what’s called ‘trade’ is a very ideological notion. We don’t really know the details,

remember, because we’re talking about totalitarian institutions that don’t tell us what they’re doing. But the best estimates by international economists, are that roughly 40% of what’s called trade in the United States is internal to particular firms. So it’s something we move across the border inside a firm — parts being moved to Mexico to be assembled and sent back here, exports and imports — that’s roughly 40%. It’s higher for Japan and probably more or less comparable in other major industrial countries. Of all world trade — even counting that, if you count that as trade — about 15% maybe qualifies as ‘free’ in some significant meaningful sense. Meanwhile the attack on democracy continues.

Democracy under attack

I’ll illustrate that with examples drawn from the current trade agreements. I won’t talk about the free trade agreement between Canada and the United States. I don’t want to be insulting but — well, I’ll tell you a story. During the late 1980’s I was giving the Massey lectures and that was right in the middle of negotiations about the free trade agreement. So once a week I was flying from Boston to Toronto to give these talks. And the first question that was asked by everybody was, "Now what are people saying about the free trade agreement in the States?" It was a huge issue in Canada. Unfortunately, I had to say that nobody was saying anything, because nobody even knew that it was taking place. Canada was regarded as so insignificant that it was in our pocket anyway and if it was pushed in a little further nobody cared. If you read the business pages of the Wall Street Journal, you might find a little item about the free trade agreement but, basically the attitude was "Who cares?" Sorry. I guess honesty is more important than politeness.

NAFTA

On the other hand, NAFTA [the North American Free Trade Agreement] did become an issue. Now those of you whose memories are long enough, like three or four years ago, will remember that NAFTA was going to do all sorts of fantastic things. All sorts of leading economists and big thinkers were predicting these. The headlines were full of all the marvelous things that NAFTA was going to do.

The wondrous tales have all been abandoned. Nobody claims them anymore. In fact, now it’s been replaced by a different line. What’s called "expert opinion —also the opinion of the Clinton administration —is that NAFTA had "no significant effect". So that’s the line of defence at the moment. And when you read the Wall Street Journal and so on, they bewail the fact that all these crazed lunatics who live on the Internet and hang around left wing organizations are claiming that NAFTA had harmful effects but, in fact, it had no effect, so there’s nothing to be worried about. At least no effect of the kind they measure, which is not entirely false. In fact, if you look at the increase in trade it continues past trend lines. But, of course, those aren’t the only effects. Those are the effects that they measure.

If you look at the effects that they don’t count, there are significant effects. For example, there’s been a very sharp increase in illegal strikebreaking by threats to transfer production. Actually that was documented in a study that was done under NAFTA rules at Cornell University, by a labour historian, Kate Bronfenbrenner — but the Clinton administration didn’t allow it to be made public. It was made public in Canada and Mexico but never made the papers. She just did an analysis of strikes and found that in mobile industries, the number of strikes that were broken simply by the threat to transfer production, like big signs outside saying "If you go on strike then we go to Mexico" — that increased very sharply. That is, of course, illegal. But the Reagan administration had already made it very clear and explicit to the business world that it was not going to enforce the laws.

So the number of illegal firings of workers who were attempting to organize shot way up. They also weren’t going to enforce the health and safety standards, so accidents shot up and so on. But, among other things, the Clinton administration is continuing the same policies. It doesn’t enforce these laws and there’s been a significant effect of NAFTA, that’s one of the reasons for, what Alan Greenspan calls, the very significant wage restraint. You know, there’s this very odd thing going on, a lot of people are supposed to have jobs but they’re not asking for higher wages and the reason, as Greenspan and others have said, is because they’re just plain scared — they’re intimidated.

So we now have [what they call] a really "functioning" democracy. People are too scared to ask for a living wage because we have a more flexible labour market. Flexible labour market is a technical term that means, in English, that when you go to sleep at night you don’t know if you have a job tomorrow. And if you talk too much — you won’t. That’s supposed to be good for the health of the economy. And we now have this good situation, so inflation is low and so on. Well the threats of illegal strike-breaking are things that don’t count.

Mexico

Going back to what is talked about, it’s now conceded, publicly, that the critics of NAFTA who were kept out of the debate, were correct all along. The purpose, as is now publicly conceded, in fact claimed, is "to lock Mexico into the reforms of the 1980’s". When you see the word "reforms~~~ you~ ye gotto be wary. We don’t call what Pol Pot did in the countryside, "reforms". Reforms are changes that you’re supposed to like. So the reforms of the 1980’s in Mexico were, indeed, great for foreign investors and a very small sector of the Mexican population, the Mexican rich, including many new billionaires, but they were a total disaster for the overwhelming majority of the population.

That’s what is called an "economic miracle", another technical term. So we want to lock Mexico into those reforms. Well, you could actually read about that during the period when NAFTA was being discussed, you could read it in journals such as Z Magazine and other marginal journals but now you can read it in Foreign Affairs and Newsweek. So now really the goal is to lock Mexico into these reforms. Yet to be conceded is the rather interesting background of all of this. Maybe that will reach the public record in a century or two.

There was a Latin American strategy development workshop in Washington, at the Pentagon in 1990, bringing all sorts of Latin American hot shots together discussing relations between the United States and Latin America. They concluded that relations between the United States and Mexico, the Mexican dictatorship, were fine, completely untroubled by a 50% decline in wages, by torture, by state control of unions and so on. That was okay, everything was fine, except that there was one cloud on the horizon that they were concerned about. That was the following: "a democracy opening in Mexico might bring into office a government more interested in challenging the United States on economic and nationalist grounds." In other words, you can never tell, the "rascal multitude" might force through a democracy opening and actually have a government that cares for them and their concerns rather than for U.S. investors and the tiny Mexican elite. So that’s a threat but the fear is overcome because now Mexico is locked into the reforms so even if the disaster of a democracy opening takes place, nothing much can happen.

Investor rights agreement

NAFTA stands for "North American Free Trade Agreement" as you know. The only accurate part of that phrase is "North American". It’s certainly not an "agreement", that’s for sure. Canadians were strongly opposed. In the United States, judging by the polls at least, people were strongly opposed to it from the beginning and remained that way until the end which is kind of surprising because they were bombarded by all sorts of pro-NAFTA propaganda.

In Mexico, you really can’t be sure because it’s a dictatorship but there were huge popular demonstrations. The Bishops were opposed, a large part of the business community was opposed, the middle-sized business recognizing that they were going to be wiped out were opposed and so on.

In any event, it wasn’t an agreement and it certainly wasn’t "free trade". It was highly protectionist like all the agreements. So it’s basically an "investor rights agreement" where "investor" doesn’t mean a guy working on a shop floor — it means a big corporation — it means General Electric or something like that. That’s what it is. It is a mixture of liberalization and protectionism designed to ensure the rights of the people that count.

Intellectual Property Rights

To mention one important part, the so-called "intellectual property rights" agreements, which are highly protectionist, have just been built into the recent trade agreements including NAFTA. They impose protectionist rights in favour of corporations of an extreme kind. They were never accepted by the rich countries during their own period of development. They’re new. They effectively grant a pharmaceutical corporation the right to control a product for about forty years.

The new patent regime bars other countries, like India or Brazil, from finding a smarter way to make the same product which was permitted under earlier patent rules. There were process patents not product patents. But that’s barred in the interests of preventing economic growth and technological development and instead increasing profits and power. And that’s having its effect. It’s having dramatic effects right in the United States in fact.

For example, the health care system was handed over to the insurance companies a couple of years ago and with effects that you can well imagine. But one of the problems that it’s facing is that costs for drugs are getting out of hand for the insurance companies. They don’t want to pay for them anymore. Well the simple way to solve that problem is just don’t allow doctors to prescribe any drugs. But then the "rascal multitude" would start getting agitated. So they’re trying to figure out some other method. Why are the drug prices going up so high? Well, as they explain to you, it’s because the drug companies can charge anything they feel like thanks to the very high level of protectionism which essentially grants them monopoly rights over whatever they produce.

Now there is, to my knowledge, only one serious study of this topic by a professional economist, Dean Baker. He points out that if patent rules for pharmaceuticals, say, were dropped totally — no patents at all — the benefits to consumers would be around 50 times the predicted gains from all of the trade agreements. Well, of course, the drug companies say they can’t do that because then they won’t have the incentive to carry out research and development. But the same economist quotes the Office of Technology Assessment, a government Congressional Research Agency study, which pointed out that already about half of the research and development is paid for by the public anyway. And he points out if you doubled that and made it all paid for, it would be trivial as compared with the huge costs to the consumer or the public, that come from these monopolized rights that follow from the protectionist regimes.

Canada has suffered from this too. Under the threat of the Free Trade Agreement, Canada was compelled to drop production of generic drugs, thereby harming the Canadian economy and the health care system. In the Third World, this policy is devastating and now it’s even hitting the United States, the richest country. Well these are some of the effects of one of the protectionist elements built into NAFTA and the Uruguay Round leading up to the formation of the World Trade Organization.

In the United States, the original idea of NAFTA was to ram it through in secret. That’s pretty clear. The NAFTA agreement was signed in August of 1992 right in the middle of the presidential campaign. All eyes were focused on the election. It was barely even reported. But there was a lot of grassroots opposition and it did break into the public arena. In fact, there was a kind of a debate but it was a very curious debate. Opponents were excluded — literally.

The main opponents of the NAFTA agreement was the labour movement. There happens to be a law in the United States, the Trade Act of 1974, which requires that the labour movement be consulted and that they participate in any trade agreement. Well that was totally violated. They weren’t even told about it until September 8th, 1992. The Labour Advisory Committee, the relevant group, was informed on September 8th that they were to submit their reaction to NAFTA on September 9th. That is within one day and that’s a month after it had been initialed by the President, almost in secret. The idea was that the Committee wouldn’t be able to meet. Well, they did meet. They actually produced a long and interesting report in which they supported a North American Free Trade Agreement but not this version which they called an "investor rights agreement". They gave detailed and constructive proposals about alternatives that might serve the interests of Mexicans and Canadians and the citizens of the United States, not just a small category of investors.

Actually, their detailed analyses were very close to those that had been already proposed by the Office of Technology Assessment. Remember, that’s Congress’ own research agency. It’s now been eliminated but it existed then. They did an independent analysis of NAFTA and came up with pretty much the same conclusions. Well, what’s interesting is that those two parties were totally excluded from the debate. Meanwhile, the media were denouncing the labour movement for "its crude, backward, threatening tactics and narrow nationalism" — all false, but completely unchallengeable in the corporate media. Actually, I happen to be quoting from the extreme left, from Anthony Lewis of The New York Times. The dissidents are particularly valuable because of the services they perform: in effect, they say "thus far and no further", while tacitly adopting the basic framework of the doctrinal system.

Well, interestingly, despite the huge propaganda effort, the public as I mentioned, remained opposed. It was all corporate propaganda, like 100%, with a total silencing of the opposition. About the only person they let in was Ross Perot. He was allowed in, if only because he was a billionaire, but for another thing, because he’s kind of a funny-looking guy and he was saying some pretty dumb things, so you could make fun of it. But the serious proposals were cut out, including the ones required, by law, from the labour movement and the Congressional research bureau and, of course, all the grassroots organizations, which goes without saying. It was passed despite the enormous public opposition. Some things were just too important to be left to ignorant meddlesome outsiders.

Fast Track

Well we’ve just passed through another similar experience in the last few months. Here the "rascal multitude" couldn’t be shut up and it finally wasn’t passed but it was very interesting to look at. It tells you a lot about democracy. That’s the "fast track" discussion. The principle of "fast track" is that the President, the Executive of the White House, should negotiate trade agreements without any Congressional participation. Later, Congress can get the chance to say ‘Yes’ or ‘No’. That’s "fast track". Well, they don’t have the fast track authorization now. The claim about fast track both from the government and the media was that only one person should negotiate for the United States — the President — and therefore, if we don’t have fast track, we won’t be able to have free trade.

There was a lot of debate. But if you look at the debate, you’ll notice that every one of those claims is false. For one thing, it is not true, in principle, that only one person can negotiate for the United States, namely the President. That’s supposed to be true for trade. Well, if so, let’s take something else. Take human rights. The United States has one of the worst records in the world in ratifying human rights conventions, and the enabling conventions that give some teeth to the Universal Declaration of Human Rights. One of the reasons is that the White House won’t sign them. But another is that if it does, then Congress debates endlessly and it votes them down. Or else Congress puts in such extensive restrictions that they’re inapplicable. So for human rights, it’s not true that only one person can negotiate —Congress has to negotiate it. But, after all, there’s a difference between trade and torture. There are some things that are serious and other things that don’t count. On trade, we have to have the principle that only one person can negotiate, and that’s because that person is sure to serve the interests of the major power groupings. So the major claim is just flatly false.

What about the rest, the Free Trade argument? Well, obviously, it’s not true. For one thing, because the agreements that they’re talking about have very strong protectionist elements, as I mentioned. For another reason, because the whole discussion wasn’t about trade at all. It was about democracy. The question is, does the public have a right to know what’s being done to it by the state and the corporate sector? That’s the issue. You can be a passionate advocate of free trade and still be opposed to fast track because if you have the odd belief that the public should know what’s going on, even though you think free trade is great, you’re againstfast track. So it had nothing to do with free trade, it was about democracy.

The MAI

But the most striking thing was that the most important issue that lay behind the whole fast track discussion was literally never mentioned. The fundamental issue was surely the Multilateral Agreement on Investment, the MAI. That’s a very significant free trade agreement — a huge investor rights agreement that gives the virtual senate extraordinary rights over countries, over people and over communities. It’s a very important agreement coming up. It’s been negotiated in secret since May 1995, due to be ratified in April 1998. [Editor’s note: they didn‘t sign it in April because of grassroots pressure — a really remarkable victory of popular forces.] They may not make it. What’s interesting in this connection is the secrecy.

In Canada, it hasn’t been total secrecy. There’s been a lot of grassroots activism. The news did break through into the national media in 1997. In fact there are newspaper articles in Toronto last week and elsewhere. In Britain, there’s been a couple of articles here and there. In Australia, it was kept secret totally until January ‘98 when it was discussed in the financial press and then the dam broke. Since then there’s been a huge number of attacks on it. In the United States, the secrecy has been incredible.

Remember, this has been going on since May 1995 and whether or not you are for it or against it, no one doubts that it’s very significant. Incidentally, there’s no doubt that if the public knew about it, they’d be in an uproar and would hate it.

But nevertheless, the secrecy has been sustained since May 1995. I checked the data carefully in the U.S. Outside the trade journals, one of the first newsbreaks was in Chicago Tribune, a good—but quite right wing—business newspaper. The newspaper of record, The New York Times allowed it to break through on February 13th of this year [1998] ... in the way of a paid advertisement which gave a pretty accurate description of the MAI. That's essentially the story and that’s pretty impressive tried to drive the MAI through the Wold Trade Organization but it didn't work because the Third World countries have a voice there and they blocked it. India and Malasia and others just didn’t want to be turned into fully-owned subsidiaries of foreign corporations. So it was moved over to the OECD, the rich countries, which is where the people in power, at least— if not their population—are in favour of it. And there it’s been moving along in secret.

Miracles in the White House

Last November [1997], 25 members of Congress wrote a letter to the White House which said, "It has come to our attention [mainly through the efforts of activist groups and grassroots organizations] that intensive negotiations have been going on over the Multilateral Agreement on Investment since May 1995." And they politely ask the President for an explanation of two miraculous facts. One fact is that right at that time, during all the fuss about fast track, it was being claimed that without fast track authorization, the President cannot get involved in negotiations over trade but here they’ve been involved in the world’s greatest trade negotiations for three years, intensively, without fast track. So question one is, can you please explain that miracle to us?

The second was that Congress, as they said, "has not been informed although Congress has exclusive constitutional authority to regulate international commerce." So there is this odd thing about the Constitution which says that Congress is supposed to have responsibility for international commerce but we haven’t been informed for almost three years, so could you please explain that miracle.

Domestic constituencies

Well, as far as I can make out, there’s been no explanation, at least, nothing that has reached the public. But there was an oblique response—an interesting statement by the government —Under Secretary of State Stuart Eizenstat and Deputy US Trade Representative Jeffrey Lang made a statement on February 17th. The statement said that the United States has taken the lead in getting all states to agree on "the importance of working closely with their domestic constituencies to build a consensus" on the MAI, and ensuring that they join Washington in recognizing "that it is important for domestic consti tuencies to have a stake in this process."

OK then—who are the domestic constituencies? Well, we know who they aren’t. They aren't Congress. They aren’t the public. Those who don't have a stake, so they’re not domestic constituencies. We also know who they are. The business community has been involved in this right from the beginning. For example, there is a U.S. Council for International Business which is the main business organization involved in international affairs. They've known about it so fully that they published a pamphlet in January 1996 explaining the details and discussing the importance of this for business. So they played a very active role. And the same is true in other countries. So— a short exercise in logic — we understand who the domestic constituencies are for a liberal democratic government. The domestic constituencies are those who cast over society the shadow called politics. The public doesn’t count, doesn’t know. Congress doesn’t know, isn’t supposed to care. Democracy is working in the sense demanded by the aristocrats and, in fact, by tyrants through the ages.

Well, to finish, the current goal is pretty obvious to anybody with eyes opened. It’s an international political economy which is not geared to growth, is not geared to technological progress, it is not geared to human welfare, but it is going to be more geared to the interests of the powerful elites — elites who control the international economy, administering markets through various kinds of complicated administrative arrangements like strategic alliances among unaccountable institutions. They have to be protected from potential openings in democracy by powerful states which also have to mobilize public funds to subsidize them and protect them from costs and risks. That’s the shape of the rising international system.

Now the scale of all this is not as great as is often claimed in an effort to make people feel hopeless. In fact, in many ways, it’s back to what things were like earlier in this century. There’s no reason at all to believe that it can’t be controlled and changed in the most important countries — the richest and most powerful ones like ours. It can all be controlled and changed even within existing formal institutions of parliamentary democracy.

The decisions that are made will doubtless be of great significance but they aren’t economic laws. They can be changed simply by decision without even institutional change. Beyond that, the institutions themselves, including the totalitarian institutions which have been handed control over international society, have to face the test of legitimacy just like all other human institutions. If they can’t meet that test, then they can be eliminated as has often happened in the past.

—from Monetary Reform, No. 10

(Monetary Reform is a Canadian periodical @ $20 Cdn for 2 issues (overseas rate), from RR2, Shanty Bay, Ontario, L0L 2L0 www.monetary-reform.on.ca)

Index

4: The poor are increasingly facing … Financial Exclusion

Nick S.

"Banking establishments are moral and religious institutions" — G.M. Bell, nineteenth century banker

Barclays Bank has moved to close a tenth of its branches — 172 outlets, most of them in rural areas. At the same time, it has been revealed that Barclays CEO Matthew Barrett will collect a 30.5 billion bonus for his efforts at restoring Barclays’ profitability. Banking is engaged in what it terms a flight to quality’ — a withdrawal of banking services from the poor. From the point of view of the financial services industry, this is simply a matter of risk avoidance. Financial exclusion, we should note, takes two forms in that it can be seen in both the wholesale withdrawal of banking facilities from poor areas and in the denial of financial services to the poor as individuals. As Andrew Leyshon and Nigel Thrift have noted: "It is becoming increasingly difficult for many citizens of developed countries to gain access to the financial system.

Without access, the conduct of everyday life within a contemporary capitalist society can become extremely problematic. One reason for this has been the growth of non-cash financial transactions, both in Britain and in the United States. Employees may find it more difficult to get paid unless they have a bank account, as employers prefer to pay wages and salaries via direct credit transfer for reasons of efficiency and security. For similar reasons governments also attempt to use non-cash financial transmission wherever possible. An increasing number of pensions and benefits are paid by credit transfer or crossed cheque in Britain, despite the fact that as many as 35% of people who receive benefits are not in possession of either a bank or a building society account. It is also far more difficult to pay bills without the intermediation of a financial institutions while it is all but impossible to obtain credit from a hank or building society without evidence of a history of personal banking" (quote from ‘Geographies of Financial Exclusion’ in Mon eySpace, Routledge, 1997).

Between 1982 and 1992, 17% of bank branches, in Britain were closed. A 1992 Euromonitor survey found that 81% of adults in the UK had a bank account. Only 70% of adults had a cheque book, 60% had a cash card and 58% a cheque guarantee card. Broken down by social class, the nature of financial exclusion becomes clearer. Adults without a current bank account in the UK, mid ‘80s (figures taken from J. Ford, Consuming Credit: Debt and Poverty in the UK, Child Poverty Action Group, 1991):

By social class %

E .58.7

D 43.7

C2 30.8

CI 18.2

AR 11.8

Save for rhetorical denunciations from New Labour, there has been little constructive opposition to this process. Writing in The Observer of 9th April 2000, Gregory Palast observed that "America’s Community Reinvestment Act (CRA) bars closing a branch unless the bank can prove to the satisfaction of the Federal Reserve or the courts that it will continue to look after the community’s banking needs. NatWest executives might provide the Blair govern-ment with some experienced advice on this matter. While its new owner, Royal Bank of Scotland, has and will close scores of branches in the UK with impunity, the acquirer of NatWest’s US operations, Fleet Bank, had to pony up several hundred million dollars to fund low income, rural and small business lending programmes to maintain and expand financial services to American customers it hoped to dump".

All this is true up to a point. The 1977 Community Reinvestment Act was introduced "to encourage regulated financial institutions to fulfil their continuing and affirmative obligation to meet the credit needs of their communities, including low and moderate income neighbourhoods, consistent with safe and sound operation of such institutions" (Federal Register, 1978: 47, 144). In some states, smaller financial institutions that are state-chartered are covered by additional state-level community reinvestment legislation. The CRA has forced banks to enter into ‘negotiated restructuring’ with poor communities over closure plans, such that, as Palast points out, "banks seeking merger approvals or branch relocations have been forced to commit over $4 trillion to not-for-profit loan funds". The CRA was introduced in part as a response to inner city social decay, in part out of fear of urban rebellion if the destruction caused by disinvestment was not addressed. The CRA is effective where community organisation is strongest. The financial services industry has consistently lobbied for the relaxation of the CRA, and the effectiveness of such lobbying, and, indeed, the effectiveness of the CRA as a regulatory device, is determined by the balance of power in practice between the demands of community as against the demands of the financial services industry.

Other voices have called for the building of an alternative financial infrastructure as the only effective response to financial exclusion. The Birmingham Settlement has provided a concrete example of how this might be achieved. Over a decade ago, the Birmingham Settlement helped initiate a campaign with the Birmingham Credit Union Development Agency to establish credit unions across the city. There are now thirty credit unions in Birmingham. Birmingham Settlement has also initiated the formation of the Aston Reinvestment Trust, acting as an investment broker for loans to small businesses and start-up enterprises in the Aston area, with a view further to developing ethical investment projects for housing associations and inner city energy efficiency projects. It is certainly the case that the self-help and community enterprise embodied in the work of the Birmingham’s settlement is a better option than reliance on pawnbrokers and money lenders. (Research by the Birmingham Settlement found that low income households pay interest rates ranging from 65% a year for a small secured loan with a pawn broker to 500% for a similar loan with a money lender. The average cost of credit for the poor in Britain is approximately 250%.)

The problem, though, with trying to build alternatives to capitalism without addressing the social relationships inherent to capitalism itself, is that, inevitably, those social relationships manifest themselves somewhere within the utopian project conceived as alternative. Research from the Policy Studies Institute suggests that credit unions may, by default, substitute one type of financial exploitation for another. In the mainstream financial services system, those on low incomes tend to have borrowings in excess of savings, while those on high incomes tend to have savings in excess of borrowings. The savings of those on high incomes are in effect recycled in the form of loans to those on low incomes, at market rates of interest. Within a credit union, this relationship is inverted. Those on low incomes tend to have savings in excess of borrowings, while those on higher incomes tend to have borrowings in excess of savings. Thus, the savings of those on low incomes goes to meet the loan requirements of those on higher incomes, but at levels of interest well below the market rate (R. Berthoud and E. Kempson, Credit and Debt. The PSI Report, 1993). Within the context of a system founded on relationships of inequality, those institutions built as part of an attempt to found a ‘social economy’ are tainted by the inequalities they seek to replace.

The Brazilian sociologist Roberto Unger has remarked that we often seem torn between dreams that seem unrealisable and prospects that hardly seem to matter. Such is the case when it comes to the weakness or Opposition to the process of financial exclusion. Missing entirely from the debate is any awareness, or explication, of the role of money within capitalist society per se.

Money under capitalism acts as the universal equivalent between commodities, the univer-sal facilitator of exchange. But money, as Marx made clear, is a social creation. "Nature does not produce money any more than it produces a rate of exchange or a banker" (Grundrisse, Penguin, 1973). Money exists as universal equivalent and as wage-form, but in both these contexts it serves to disguise the relation-ship of inequality upon which capitalism is founded. Money, as wage, is the reward for labour which allows the labourer to buy back the commodities produced by his labour, as subsistence or as luxury items. That money acts as means of circulation, and as such allows the realisation of profit for the capitalist as surplus value. Money as capital represents the wealth produced by the worker and stolen from him. To quote Marx again: "The individual carries his social power, as well as his bond with society, in his pocket". Money then, is the symbolic representation of the alienation of the working class from its own social power. Wealth is produced by labour, but money, as the Italian autonomist Toni Negri puts it, "has only one face, that of the boss". The wealth the likes of Barclays CEO Matthew Barrett seek to protect from us is ours, produced by our labour, our blood, our sweat.

The process of financial exclusion represents the financial services industry’s response to the debt crisis of the early 1990s. As such, it is connected directly to the process of deregulation of financial services which took place in the credit boom of the ‘80s. That credit boom was predicated upon deregulation of access to credit. In 1982 state control of terms for consumer credit lending was abandoned. Building societies were allowed to provide a wider range of financial services and increase the proportion of funds raised from non-investment sources. Along with this went the implementation of the ‘Right to Buy’ scheme and access to purportedly low cost mortgages.

More people than ever before accessed financial services. The level of outstanding personal debt increased from 9.8 billion in 1980 to 52.5 billion in 1993. Within the industry, deregulation led to intensified competition. The combination of this competition, high operational costs, and the level of bad debt which was the end product of the lending explosion of the ‘80s has triggered the retreat to the middle class heartland which is the hallmark of the process of financial exclusion. Combined with this is a move away from credit to investment related products (aided, as Leyshon and Thrift make clear, "by the progressive dismantling of what remains of the Keynesian welfare state, which is effectively forcing individuals to make their own provision ... through the purchase of health insurance, investment in a personal pension or ... building up savings for the future"). As the economists Werner Bonefeld and John Holloway make clear, none of this happened by accident. "The monetary de-composition of class relations through the encouragement of private ownership involved, as its presupposition, the equally individualising enforcement of debt in the courts.

The disciplining power of debt ... cannot be over-estimated. The incentive not to endanger the bases of life, such as housing, education, health, clothing, heating and so forth under-mined solidarity" (quote from Global Capital, National State and the Politics of Money, Macmillan, 1995).

The manufacture of personal debt and the withdrawal of financial services to areas of ‘quality’ serve the interests of capital by keeping the poor as they should be — poor, and allowing the fear of debt and enforcement to destabilise traditions of solidarity within working class communities. To rebuild that solidarity requires, then, an organised response to the question of debt. In the anti poll tax struggle, local anti po11 tax unions showed great imagination and expertise in collecting information on bailiffs (monitoring offices, checking car registration numbers, physically preventing bailiffs from distraining goods, doorstepping bailiffs at their homes to give them a taste of what life was like for those usually on the receiving end), providing advice and representation as to legal aspects of non-payment and disrupting court enforce-ment proceedings. There is no practical obstacle to rchuilding such structures and methods in relation to the wider issue of working class debt.

Gregory Palast refers to the story of Father Jack Kennington who organised an immigrant community to take over a closing bank branch on Lower East Side New York. Similar community organisation needs to be built here, to look to occupy bank property to force withdrawing banks to pay compensation to local communities for relocation, and thus free up funds for community redevelopment. Bakunin once contended that "wealth always has been and still is the indispensable condition for the realisation of everything human". The wealth that dominates every aspect of our lives is produced by our labour. Time, then, that we claimed that wealth as our own.

—from Freedom, 22 April 2000

 

Index

5: Time Money

William Gleeson

Governments are increasingly finding it difficult to fund the ever growing demands on social services such as old age care, nursery care, health car and educational provision. These growing demands consist of a family/gift economy being out sourced and commercialised and of remedial requirements of a society polluting the environment (disease control), polluting the mind with avarice, lust and covetousness (crime control) and suppressing the depressed longings of the soul (drug control and media entertainment). The conceptual framework of services such as health and education may well be flawed (many sick are not cured and much youth is miseducated unable to decipher the mess we re in), nevertheless, basic security, health and education are needs to be met in a civilised society.

Finding the money from income tax to finance these burgeoning needs will become more difficult. In the war to reduce business costs inevitably automation will lay off workers with their tax base; compensatory low paid, part time service jobs will fall short of reaching the tax threshold and those left in well paid employment will resent the social claims of the financially disenfranchised. The introduction of tax self-assessment heralds the advance of an expenditure taxation system: the burden of taxation will fall heavier on lower incomes and reduce the buying power of state benefits—a clandestine cut.

That’s all that’s needed: the money. The bricks and equipment for the hospital and school, the vegetables and tinned food for the dinners, the televisions and radios for the old age pensioners, they are already stockpiled in. their warehouses, cost effectively produced by inherited, developed technology, waiting to be distributed by able hands waiting for a wage. Tickets of exchange are lent out, digits created in bank accounts, but as many have to be returned with the hire charge, so there is a shortage of vouchers/money to move the televisions off the shelf. Monetary reform advocates that the state creates its own supply of tickets which can be equitably distributed through the Basic Income. Finding monetary reform in the book ‘Earth at a Crossroads’ by Hartmut Bossel, is like looking for a needle in a haystack. However, in this rich systems analysis approach on sustainability another credit currency is introduced—time money.

With increasing automation and the emerging trend towards sufficiency (down shifting), less labour time will be required in the production of goods and services. Loss of earnings will be offset by a fantastic asset—time. It takes time to teach, to listen to patients, to love a baby, to clean the floor and toilets. This time is finite and integral to wealth as energy, materials and intelligence, and like them can be monetarised. It can be used as units of exchange. One hour teaching someone the piano can be credited to one and later exchanged for 1 hour of another mending one’s puncture. This already happens in local exchange trading schemes (LETS).

In meeting social needs, units of time service can be earned and credited (created), and used as entitlement in having social needs met, time units of service received. Such a public service club (NETS), national exchange time service, where contributions

are given for benefits received, is the essence of taxation, thus aptly run by the Treasury. Such a system of service exchange in unit time, can supplant the scurrying for short-lived, digit tickets: the shortage of money. By public service, the citizen would create his own tickets of exchange, credited and banked by the state, money created and backed by social benefit. The citizen would pay into the social service scheme labour time and would when needed, have labour time paid out. In a stroke, with the institution of crediting, the bulk of money squeezed out for social need is superseded by payment in kind.

Time credit, time service measured in hours, can be used as a supplementary taxation currency. Those earning below the tax threshold or subsisting on benefits or Basic Income, and are rich in the resource of unused time, can be taxed with time credit. Similar to the power sought by monetary reform, the Treasury can convert time credit into digit money (*hours times average pay rate) so that those without conventional money, can through time credit, pay for education/training courses or other socially fruitful needs. Thus a so called ‘waster and layabout’ (on benefits or Basic Income, after having time credit deducted for tax, (say a day’s work each week) can save for a medical practitioner's course by working extra days each week (increasing his time credit) in the old peoples' home. Time credit work would require employment in the public sector to avoid private profiteering from service contributions.

If the doctor paid tax as time credit working a day a week in the old peoples home, surely his contribution would be excessive compared to the so called ‘layabout’s’ labour. Not if the principle of progressive taxation is in place and the equity of uniqueness. The assistant (former burglar, drug abuser and idler) may show a light on things the doctor never dreamed of (burglar proofing) and be some sunshine. Depending on qualifications, experience, aptitude and personal considerations, roles such as doctor, teacher, clerical assistant, gardener, cleaner, can be allocated for earning time credit, and as a consequence the whole public sector is supported. The institution of time credit can be introduced as a complimentary form of taxation (spent as collected): not as workfare, a component of wage slavery. The pecuniary poor and unwaged being within the tax bracket, scapegoats outside will be harder to find.

Throughout adult life time credit, after tax and miscellaneous deductions, can be accumulated and by retirement age, enough saved for old age insurance. Job sharing, sabbaticals, subsisting on Basic Income, shorter and less employment, these will allow more time to build up personal accounts of time credit, and those who earn well in excess of credits required for old age cover, by doing voluntary work in the public sector or with affiliated charities, they can be given recognition with life—time service awards. Unlike monies, stocks and shares) whose value ebb and flow with the tide of confidence, and are vunerable to collapse, time credit invests in the immutable service of humanity. Because time credit is erased with the decease of the holder, its total claim is finite and redeemable.

Having to work to meet tax liability is an imposition, but like the compulsory monetary extraction at present, it will be regarded as a customary way of meeting social need. Care and recognition of the needs of the citizen is reciprocated with disposition for public service and partnership, just as an unfriendly environment breeds hostile competiveness and non cooperation. Twenty four hour nursery and infant care, and care for infirm or ill relatives, gives exemption from liability and can be awarded with some time credit to recognise their social value. Time credit for tax liability can be converted into cash and deducted from the Basic Income or held in arrears, but fines and imprisonment for evasion are unproductive. Non compliance would jeopardize automatic entitlement to old age care.

The police, health, education and social services, and the environmental work of the municipalities, require literacy, numeric, communicative and initiative skills which a liberal education can provide for their time credit servers, and specific skills too, on a foundation of general knowledge, learning and life skills, can be expeditiously acquired. Professionals can designate a number of hours in their work as time credit. The diversity of work in public service requires a flexible, broadly educated citizenry.

The more the public services are supported by people earning time credit, and motivated to do so in exchange for recreational, educational and health—enhancing services, the bigger the public sector becomes in proportion and direction according to the expressed needs of the participants. The more they put their tome into the system, the greater their entitlement to receive its services, and the greater the capacity created. Here is an embryo for a great socialist domain, founded on a basic income from ecological providence taxed at source, where life—time given is not differentiated by ability or skill and where provision is on request, not auctioned in the marketplace.

Time credit earned through NETS can be tendered in another state that has a similar arrangement and reciprocal migration, and with balancing settlement between the regions of a state, time credit can cross between regional governments and allow them their own tax resource. Non governmental time exchange systems can exist (like LETS), but for them to flourish, governments have to move away from taxing remuneration. For simplicity’s sake, it would be wise to limit them, for each exchange scheme creates a currency.

As mentioned, time credit can be earned within the family sector by caring for an infant or invalid, but caution should be heeded not to monetarise the family/gift economy, for its integrity of love and custom would be corrupted. Time is what the domestic economy thrives on, but this time is eaten away by the expansionist cash economy, the ever growing need to earn tickets forever flowing back to the bank. So much family time is sold that childcare and old age care has to be bought. With time credit family time doesn’t have to be commercialised to provide a tax revenue, for with social responsibilities permitting, a modest contribution of time service can be made. The need to create sales and jobs, so called wealth creation that funds the public sector, is redundant with NETS directly resourcing labour, and because far less is earned and purchased in cash, the opportunity for profiteering is reduced, and by the public sector and family/gift economies enlarged, labour is needs directed. Care and attention in the family, diligence in the public sector, all of which require time, if these are applied with respect for the environment, then wholesome citizens would emerge taxing less the state.

 

Index

6: German Tax Big Bang

William Krehm

Rather than having been shaped in heaven, money is a very human artifact contrived to the needs of society as seen by those in power. That explains why the control over many of Germany's great industrial companies has been tightly held by its leading banks. Only around 65% of the shares German public companies are in the hands of non-corporate shareholders compared with some 90% in the UK and the US. That arrangement arose in response to Germany's not only after WWII but after WWI.

The Dawes Plan of 1924 put the question of German war reparations in the background and helped equip Germany with a new currency after the 1923 hyperinflation. However, the influx of American capital into the country, went primarily for the renewal of its industrial plant. For operating capital it was dependent largely on short-term loans from abroad. And when Wall Street boomed on its way to the 1929 crash and was paying 12% and more to finance margin purchases, it sucked in a crippling part of Germany's operating capital. That led to the bankruptcy of German and Austrian banks that triggered the worst phase of the world crisis in 1931.

Mindful of that experience, after World War II Germany designed its tax system to avoid landing in that pitfall again. Instead of making loans to the industries for their operating capital, the banks were encouraged to buy or foreclose their shares put up as collateral for loans. And to make sure that they did not treat their stock holdings as a speculation, a 60% capital gains was slapped on capital gains from the sale by one corporation of another's stock. As a by-product this created long-term commitments between employers and employees.

In this way the Dresdner Bank has in its portfolio 10% of Allianz which in turn owns 21.4 % of the Dresdner Bank. Deutsche Bank owns another 7.3% of the shares of Allianz as well as 12% of Daimler-Chrysler. That pattern extends to many other large banks and corporations. However, it has stood in the way of the short-term stock market plays which in the name of "enhancing shareholder values" has taken over in the US. It also constrains the American stock market in its need to put every capital accumulation throughout the world into a format that will help the world stock orgy continue a while longer.

The pressure from the US on Germany to remedy this situation has been growing. Ironically, it is on the verge of achieving its goal under a government headed by socialists -- a recurrent situation throughout the world, since socialist heads of state feel the need to work a bit harder than other parties at convincing the financial community of their correct thinking.

'I was not expecting this at all,' says Hilmar Kopper, chairman of the supervisory board of Deutsche Bank. 'I've been talking about this for the last five years and there's been no reaction.' WSJ 31/01/2000)

"The government may not have realised the full implications of what it proposed in late December. Hans Eichel, the finance minister and Chancellor Gerhardt Schroeder were briefed on the plan only a few days before it was announced, according to a Finance Ministry Official who helped design the tax change. Mr. Eichel didn't even mention the proposal in his press conference announcing his package of corporate-tax reforms shortly before Christmas. 'I thought we'd hear a flute and maybe a trumpet, but not the whole orchestra,' says Gerhard Juchim, the Finance Ministry's director general for tax affairs."

In short it was the state bureaucracy that called the shot and treated the Socialist head of state as just another duffer to be led by the nose. Canadians have recently observed the might of their financial bureaucracy in an opposite situation. When it came to implementing the act of parliament that called for the introduction of accrual accountancy (capital budgeting), the Auditor General reports that the Finance Ministry bureaucracy is dragging its legs. (See Economic Reform, January 2000, lead article.)

"If Germany's Parliament passes the proposals -- and politicians say that is likely in some form -- it would put more than 15% of the $1.5 trillion country's stock market capitalization in play. 'Companies will be able to redesign their portfolios from scratch,' says Ernst Fassbinder, a Frankfurt investment banker with Merrill Lynch of New York." (WSJ 31/01/00)

What can be expected is an increase in sales of non-core production, mergers, and a flood of lucrative deals for transnational financial companies. For theirs is the greatest expertise in managing the "American Consensus." There will be a jump in the number of small shareholders and the constituency for running huge corporations with an eye to short-term stock market winnings. Buybacks of their shares -- legalised in Germany only in 1998 -- will enhance the role of rewarding top executives with options rather than fabulous salaries. These are all devices proven in the US as means.

The German stock market took off on the heels of the announcement. The DAX index has climbed about 10% with the Deutsche Bank, Dresdner Bank AG, Allianz AG, and Munich RE in the fore. "Leveraged buyout firms, particularly from the US, are eying German prey."

Their shopping list may eventually strengthen the euro. That scarcely bids well for a country that is already suffering from 11% unemployment. Particularly since leveraged buyouts and mergers are the prelude to massive layoffs. In the eastern part of the country there are regions where unemployment is over 20%. However, it will prolong the highwire act of Wall Street for a while. And little else seems to count in the world these days.

—from Economic Reform via e-mail

mailto:[email protected]

 

Index

7: The fisherman and the banker

From: Ben Edwards <[email protected]

[This really sums it up, enjoy]

The American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large yellow fin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.

The Mexican replied, only a little while.

The American then asked why didn't he stay out longer and catch more fish? The Mexican said that, as two of the fish were for sale and two for his family to eat, he had enough to support his family's immediate needs.

The American then asked, "but what do you do with the rest of your time?"

The Mexican fisherman said "I sleep late, fish a little, play with my children, take siesta with my wife Marta, stroll in the village each evening where I sip wine and play guitar with my amigos, I have a full and busy life."

The American scoffed, "I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds buy a bigger boat, with the proceeds from the bigger boat you could buy several boats, eventually you would have a fleet of fishing boats.

Instead of selling your catch to middlemen you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA."

"But then what?"

"Then you would diversify, develop interests in IT, financial services and then eventually move to Geneva where you will run your expanding enterprise."

The Mexican fisherman asked, "But how long will this all take?"

To which the American replied, "15 - 20 years"

"But then what?"

The American laughed and said that's the best part.

"When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions."

"Millions. Then what?"

The American said, "then you would retire. Move to a small coastal village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll in the village in the evenings where you could sip wine and play your guitar with your amigos."

 

Index

8: Are Central Banks Becoming Paper Tigers?

wk

As our commercial banks have changed their food chain from traditional banking to high speculation, the preoccupation of central banks is shifting from keeping an eye on what they are engaged in to covering up for them. This has been achieved by assigning them more of their own powers of money creation, Obviously, along with the complicity involved, this has seriously cut into central banks’ own powers. Despite the proverbial wisdom and might attributed to the Federal Reserve chairman, Alan Greenspan, the truth is that he is well on the way to becoming a paper tiger. Further evidence of this comes from an unusual source. In The Financial Times of London(17/Ol), Michael Klein, chief economist of the Royal Dutch/Shell group, writes:

"Talk of an international financial ‘architecture’ reveals a belief that clever humans can construct an orderly global financial system. However, what really determines the future may turn out to be a wave of technology-driven change in the world of money." But such an impression may be an astigmatism in the eye of the observer. As immense as the influence of technology undoubtedly is, human decisions determine its uses.

"First, monetary policy and central banks may become irrelevant. The growth of real-time settlement systems promises to reduce the need for some form of "financial settlement money." In addition, private settlement systems such as Chips may come to accept private means of settlement of payment including, for example, company shares. In a world of private money, the fate of central banks is privatisation, or maybe transformation into a regulatory body."

It is a fact that options on company stock are playing an ever greater role not only in rewarding executive staff, but in shaping firms’ bottom lines more alluringly. The cost of stock options to executives turns up only when they come to be exercised. But since the "new economy" lives increasingly in an unascertainable future, it is hardly forthcoming for firms to ignore costs that must arise unless the glowing prospectuses dismally fail to be realised.

Asia is at an early stage of recovery from its 1997-98 meltdown. And it is discovering the thrills of using company shares validated by frequent IPOs (Initial Public Offerings) as money. The legendary achievements of the North American stock market in this respect owes much to the gap between the "old economy" kept in a state of imminent or actual deflation by Asian competition and the "new economy" which exploits the marvels of technology to turn its back on conventional accountancy.

Now Asian Internet entrepreneurs are entering that field on their own behalf.. They are exploiting the potential immensity of local markets, the gap between living standards of the masses and the financial elite, the well-established circuits of nepotism and corruption, and even the collaboration of the governments for the purpose, capitalist or communist. The beauty of the "new economy" is that it appears to wipe out the constraints of time—the future is notionally achieved in the twinkle of an eye and validated as cash.

In an article in The Wall Street Journal (15/02) ‘Family Ties Live in Asia’s New Economy,’ Jon E. Hilsenrath and Richard Borsuk give us a glimpse of this magic:

"At its core, the high-stakes courtship of Cable & Wireless HKT Ltd. has all the earmarks of American-style capitalism hitting Asia with full force. First, two telephone companies—HKT and Singapore Telecommunications Ltd.— look to reinvent themselves in an age of deregulation by merger. Then an aggressive new-economy suitor, Pacific Century Cyber Works Ltd., barges into the merger talks, armed with a lofty share price, and looks to gobble up an old economy emblem—Hong Kong’s former monopoly phone outfit.

"But also at its core, this unfolding drama has a particularly Asian characteristic: Its central figures come from two of the region’s most powerful families, Li Ka-shing’s in Hong Kong and Lee Kuan Yew’s in Singapore. Their role in this megamerger is a reminder that many of Asia’s influential families have emerged from the 1997-8 crisis as healthy as ever and ready to take a leading role as Asia hurtles into the "new economy.

"At the helm of PCCW, Hong Kong’s leading Internet company, is Richard Li, son of Li Ka-shing. The elder Li holds commanding positions in Hong Kong ranging from property and ports to telecommunications and drug stores. The younger Li, 33 years old, built a regional satellite-television network, Star TV, before he was 30, and sold it to Rupert Murdoch for $950 million." The Li family, of course are well represented in Canadian real estate and other investments, particularly on the West Coast.

"Richard Li’s interest in HKT flies in the face of SingTel, which is in talks about a friendly merger with HKT. Standing at the helm of Sing Tel is Lee Hsien Yang, 42, senior minister of Singapore who transformed the city-state from a colonial outpost."

"PCCW is a fast-rising Internet stock, and is ready to use its pricey shares to finance a deal for HKT. Since early May, when it went public, its shares have risen more than fourfold. SingTel is an oldguard telecom company, flush with cash that it has been slow to spend. Its shares have fallen 15% since May.

"PCCW has powerful investors such as CMGI Inc., Intel, and Microsoft. SingTel has a powerful investor, too, the government of Singapore which controls 76% of the shares, through Temasek, a state investment company.

"PCCW must convince HKT’s parent, Cable & Wireless PLC of the UK, that its remarkably high valuation is justified. With a market capitalisation of nearly $30 billion, PCCW’s value exceeds that of Internet retailer Amazoncom." Asian operators are already creating sharemoney on a scale approaching that in North America.

But let us get back to the Michael Klein piece in The Financial Times.

"Second, national and private currencies may compete effectively with each other, rendering exchange-rate policy and balance-of-payment concerns obsolete.

Smart payment cards and wireless communication devices are spreading across the world, even to the poorest countries, and costs continue to fall dramatically. The spread of the Internet allows each financial transaction to be settled 100 times more cheaply than manual settlement via bank branches. .Once the demand for privacy, security, and trust is met via encryption, regulation and branding, we may see a new world of financial settlement." The weakness in Mr. Klein’s insights is that sitting where he sits, he accepts the power element that clutches these new technologies as just part of the landscape.

"This is a world of ‘capital flight for all.’ People choose which currency bloc to belong to. There is no longer a match between geographical entities and the money used to settle transactions conducted on their territories. Governments lose the tool of nominal exchange-rate depreciation. National current-account deficits would be as meaningless as in currency unions."

"Thirdly, more flexible forms of denominating wages may act as a substitute for the loss of exchange-rate flexibility. Wage contracts are usually inflexible (‘sticky’) because people will not agree easily to a cut in their remunerations agree to in their contract. But in future, wages could, for example, be denominated in shares of the employer. But re-denominating contracts, society would create new "units of account. In fact, one cannot have both price flexibility for contracts with ‘sticky’ prices and a unique unit of account."

"In a world of private money competition, the state would no longer be able to provide open-ended deposit insurance or liquidity support by printing money. Overall, the disciplines on financial institutions would come to resemble the ones under the free-banking systems of the 18th and 19th centuries. Without regulatory prompting banks would typically carry capital in the order of 20% of assets or more, a bit like today under currency systems. They would advertise with hard numbers on their financial health."

"Beyond private insurance schemes, the residual burden to provide liquidity support for banks would fall on fiscal policy. This would require strong underlying fiscal positions, so that governments could borrow in times of crisis. Macroeconomic policy as we know it would be at an end.

"Finally, 19th-century-style deflation and financial crises may become more likely, at least during the transition to this new world of money."

The last three paragraphs give us a franker view of where we are headed. Particularly notable are the references to the banking system. Compare the 20% reserves that Klein foresees as compared with the less than .33 of a single percent reserves—the ratio of legal tender to bank assets of Canadian chartered banks when last reported. And the suggestion of the disciplines on our financial institutions coming to resemble those of the 18th and 19th century is chilling. Such a prediction could come to pass only after our highflying financial institutions had lost their capital many times over, and ended up bankrupting not only themselves but the governments left with the task of bailing them out.

We agree with Mr. Klein on the danger of such a state of affairs coming to pass. The main difference between us is that we warn against such a prospect, and Mr. Klein somehow blames the leverage and deregulation allowed our banks onto technology. No improved chip, no matter how smart and fast, could possibly lead society to such a plight. But powerful humans, mad with greed, are well on the way to doing so.

wk

 

Index

9: Report of the Monetary Reform Workshop at Spring Conference, 16 March 2000

There seemed to be general agreement on the following:

Our present global and national financial systems give unwarranted benefit to rich people, countries and institutions, and not enough to the poor. They also fuel resource depletion.

The DVP says that usury should be banned. However, in countries where it is banned, the problems are as great as where it is not.

There were three or four cases where the expressed viewpoints showed enormous differences in knowledge, understanding and approach.

If we are to get a good, workable policy in this field, I believe that the people who hold these differing viewpoints need to educate each other and then work to a consensus.

Below is a summary of points raised:

Though there was general agreement that the present financial set-up is pretty awful, there was much disagreement on which parts of it are causing the trouble, and what the remedies should be.

With global financial systems changing so fast—including internet trading—we should be thinking beyond the present systems, to how we could affect the new ones.

Debt is not equivalent to money supply.

Banks and other financial institutions don't take on any of the risks of running the businesses they lend to—just take the money back in cases of failure.

Where usury is forbidden, money is lent, but on terms where the lender gets a share of any profits.

No-interest loans from community banks would eventually force interest-taking banks out of existence.

There would always be people who did not like the terms of community banks, who would be willing to pay interest.

The DVP maintained that usury is a major problem, and that its abolition would bring great benefits. The contrary view was that without interest, there would be no reward or incentive to save.

Cash is a loan system. A gives cash to B in return for goods or service. Cash is worthless until exchanged again for goods or service.Would a stable money supply reduce long-term demand? It was said that money supply reflects short-term fluctuations, not long-term ones.

*******************

The above report was sent to me after the conference. I thank the sender, but have to apologise that I cannot recall who sent it, and it was unsigned.

For me, a clear point of difficulty for some lay in the concept of "debt-free" money, because, as they point out, in a sense correctly, all money is "debt"; that is, it represents a claim on real wealth. This is quite different from the sense in which the debt in "debt-free" is used. In the '30s, Professor Frederick Soddy introduced the term "virtual wealth" to describe money in its function as a medium of exchange, and it is in this sense that those people above are calling it "debt". If they can regard it instead as "virtual wealth", then a purchase is an equal exchange of real wealth for virtual wealth, with no debt involved. This then should leave them free to realise that money brought into existence as an (interest-bearing) loan ("credit") carries a burden of debt not borne be money spent into existence. The one is being chased for repayment, while the other is free to circulate indefinitely—while the growing burden of interest charged on the former results in the exponential growth of debt which is distorting and crippling modern society.

Brian Leslie

 

Index

10: European Union Takes a Realistic View on Mergers

Something significant seems underway in the European Union’s department for the vetting of megamergers. Just as the number of such unions is really picking up momentum—with American financial houses the leading matchmakers—the EU’s regulators are showing an independence that contrasts with what has gone on in North America. In rapid succession they have turned thumbs down on three such mega-deals, compared to only twelve stopped in their tracks since the introduction of the present merger regulations in 1990. The exceptional size of the three splicings disallowed underlines the trend.

Though hardly noticed in the media, an important decision of the European Court of Justice set the stage for these events. This redefined the criteria for the approval of such applications. In the past what was targeted was monopoly or duopoly situations. But the Court’s recent ruling has broadened the grounds for objections to "collective dominance" by any oligopoly.

But something deeper is at work. A new regime at the European Commission’s antitrust department headed by Competition Commissioner Mario Monti no longer accepts size and "enhanced shareholder value" as a revealed religion. Instead he has veered towards assessing proposed unions by their effects on social and national interests. Nor are decisions reached exclusively on legal grounds.

Contrast this with President Clinton’s revivalist efforts to bring China into the WTO based on the faith that more trade means more gentlemanly behaviour abroad and greater social justice at home. This at a time when Beijing’s guns and rhetoric are focussed on Taiwan again.

Emerging and Third World countries are reduced to the tender mercies of the IMF that dictates the surrender of control of domestic firms through sale or merger because of the desperate need for foreign currencies. It would be a euphemism to describe their plight as just victims of monopoly or duopoly. Inmost such mega-mergers the defences of the passive partner have been stripped in advance by the intervention of the IMF for the bailout of international banks. The IMF must be replaced by an international agency that will implement the professed intentions of the Bretton Woods Conference rather than act as the arm-breaking collection agency for international banks.

"The case that turned the tide was the commission’s 1996 decision to prohibit a merger between Gencor Ltd. of South Africa and Lonrho PLC of the UK, two companies in the closely contested platinum business. The companies already had close links, but the merger would have given Gencor even greater influence over Lonrho and had an immediate, substantial and foreseeable effect in the EU market for platinum, the commission argued. The Luxembourg-based European Court of Justice handed the commission a clear victory." (Wall Street Journal, 9/03)

"According to the commission’s working definition, collective or oligopolistic dominance arises in markets where competition is muted to such an extent that the market outcome could be the same as if there was a single dominant firm. The biggest danger in such cases is always outright collusion between companies. But one person familiar with the commission’s thinking says a certain amount of coordination is implicit in any market with only a handful of major players—’there is always a certain reduction in competition.’

—from COMER, April 2000

Index

11: The Destruction of Money

David Gracey

Most readers of ER are familiar with the process of money creation by banks and other financial institutions. As Graham Towers, the first Bank of Canada governor succinctly put it: "Each and every time a bank makes a loan, new bank credit is created—brand new money. This money instantly becomes a deposit and as it is spent, the money is added to other deposits, so that the total of all deposits is increased by the amount of the original loan. It is often said that the process of money destruction is the reverse of money creation. In other words the repayment of a loan destroys the money that was created when the loan was granted. However it has been pointed out that the money created by the original loan is still in circulation. Quite true. However in order for the loan to be paid off, money from other deposits must be applied against the loan, and hence removed from circulation.

Michael Rowbotham writes that, when a loan is repaid, "the bank cancels the debt, but the money is not cancelled or destroyed... .and that money is accounted an asset of the bank." However in the strict sense, this asset of the bank is not money,’ as it cannot circulate. The bank’s intent, of course, is to loan it out again as soon as possible. When that happens, a deposit is created, and it becomes ‘money’ again.

But there are times when the money supply falls. The most recent occurred during the recession of 1990-92. More dramatic was the period 1930-33, when the money supply fell by over 30%, causing a serious deflation and a severe decline in economic activity. How exactly, does this decline occur? Such periods are marked by a high rate of loan defaults i.e. failure to repay. The usual cause is high interest rates, themselves a consequence (given our current monetary regime) of rising inflation due to excessive bank lending!

Suppose Ms. X encounters business difficulties and is unable to repay her loan. This act will not in itself destroy any

money, because the deposit created by the original loan has been spent, added to other deposits and cannot be recovered by the lender. However a process has been set in motion that will lead to a reduction in the money supply.

Those who receive cheques written on the original deposit have a claim in the issuing bank that must be honoured regardless of the status of the original borrower. The normal cheque clearing mechanism will result in the issuing bank losing money to other banks. To pay the bill, the bank will have to use some portion of its capital. That will force it to reduce its lending.

More serious is an economic crisis which causes a loss of confidence and a demand for liquidity (cash). Then depositors demand payment in legal tender. That’s what happened in 1930-33 and, here in Canada, prior to the collapse of the Canadian Commercial and Northern Banks in the 1980s. Such a ‘run on the bank’ forces the bank to call its existing loans in order to obtain legal tender. As other banks are doing the same, the effort becomes self-defeating and the number of deposits falls rapidly.

In the thirties, the ratio of legal tender to deposits was 1 to 5, yet hundreds of banks in the US failed. Today in Canada it is 1 to 350! Even given the capacity of central banks to inject liquidity into the financial system as has occurred frequently of late, the potential for a collapse of bank credit is very real.

That is the reason it is so important to have non-debt money be a greater component of the money supply. Legal tender and Bank of Canada ‘credit’ do not vanish in a financial crisis. Last fall, in preparation for a possible Y-2K crisis, the BoC printed over $1 billion in legal tender. Hopefully it is being held in reserve in case of a stock market crash. The larger lesson—that ephemeral money can quickly disappear—has long since been forgotten.

 

David Gracey is a former secondary school economics teacher and principal, now retired.

—from COMER, April 2000

Index

12: Money Above the Clouds

Gone are the days when banks cultivated the image of Greek temples. Now they have traded their solid real estate image for airy and eery imagery having to do with cybernetics. The Economist (19/02) mused what this might do to the very concept of cash. In money creation banks have long cultivated a not dissimilar alchemy about which the public have been largely kept in the dark. In its review The Economist touches, without really exploring, what might happen when these two mystiques collide.

‘Futurologists have predicted a cashless society ever since the invention of ‘plastic money.’ It is exactly 50 years since Diners Club introduced the world’s first charge card. But now Alan Greenspan, Federal Reserve Chairman, recently joked, ‘children, dogs, cats and moose are getting credit cards.’ Yet people seem unaccountably fond of cash. In America, Germany and Japan the value of notes and coin in circulation has risen faster than the value of GDP over the past 30 years. This implies that the average person is carrying more, not less, cash than he used to.

"Part of the reason is that a growing chunk of American and German bank notes circulate outside these countries, in such places as Russia where the local currency is not trusted. A second factor is that tax evasion and illegal activities such as drug trafficking have increased. A third, more prosaic reason is that an expansion of the number of cash machines has increased the convenience of using the stuff."

"Could e-cash become a serious rival? With a prepaid card, where money is stored on a computer chip, you need never be short of the right change for a ticket machine or parking meter. And the explosion in Internet commerce could give a boost to privately issued digital cash that can be used to make payments over computer networks."

"The biggest advantage of cash over cheques, credit cards and most current forms of e-cash is, indeed, its anonymity. In theory, digital cash could be designed to offer the same privacy—a fact that worries governments. [ForJ this would increase the scope for tax evasion and money laundering. It is largely thanks to government pressure that most versions of e-money deny users the anonymity of old-fashioned cash. Without such privacy, e-money will never eliminate cash. . . If cash provides a safety value that makes it possible for some firms to escape overly burdensome taxes and regulations, long live cash Remember that the enemy of oppressive governments is often the friend of the people."

The final sentence of the quote is intriguing. For in our "New Economy" there has been a notorious detachment between enterprise and all recognised principles of accountancy. Thus acquisitions of "market share" even if achieved by giving product away gratis are capitalised into market valuations, and Internet companies have shifted their food chain from bottom line earnings to the proceeds of Initial Public Offerings of shares. This is based on the assumption that all competitors will be competed dead. However, all competitors play at this game.

The Economist believes that the increase in white-collar crime is due to oppressive governments. However, other causes might claim that honour. For example, suspending some crucial rules of accountancy as has been done in the world of dot-coins. The allegedly oppressive governments, moreover, are exempting the dot-coins from taxes that their earth-bound competitors have to pay. To a significant extent municipalities rely upon such taxes to cover the cost of their services. As earthbound shops shut down, a gaping hole is left in municipalities’ revenues just when the cost of many social services have been downloaded on them.

In addition to oppressive governments and unjust taxation—which do occur--there are other factors that are that might be fuelling the popularity of payment media that leave no paper trail. Most citizens prefer being honest and not tangling with the law. But when too easy billions beckon, they may grant themselves a one-time dispensation from the official rules, and vow that once the billions have come their way they will do private penance by endowing charitable foundations.

But when the millions fail to come in, they may cut a further corner or two, their daring keeping pace with their desperation. The same is likely to happen with some of the hopefuls who mortgaged their homes to make a killing in Internet stocks. This would seem to add up to the need for more rather than less government regulation that The Economist would seem to prefer. There is in fact an inverse relation between the standard of accountancy and surveillance imposed on the business world and the amount of white-collar crime.

There is also a correlation between the irregularities that crop up in the business world and the dependence of politicians on massive contributions from the business world to buy TV time.

We are in fact witnessing two moral faults that are converging—one has to do with the increasingly questionable accountancy in both the private and public sectors, and the other is the high cost of being elected. Together they contribute mightily to the growing demand for cash leaving no paper trail.

In the mid-1990s the first generation of purely digital cash was brought to market. Digicash went bankrupt, Cybercash abandoned the field for greener acres. Most payments on the Internet still take place by credit cards, which do leave a paper trail, and take a sizable bite out of the merchants’ revenues. Moreover, special software had to be installed for payment purposes, and there were limited sellers who would accept e-cash.

Now a second generation of e-financial firms is making its bow. It addresses some of the problems mentioned. Some of the new firms are pioneering the handling of "micropayments"—purchases with a price of up to $10. The prices of such purchases are stored in an online account and presented for payment by credit card only when it achieves a certain minimum. "Starting in May the 38 million members of American Airlines’ frequent-flyer programmes will be able to earn mileage points jthroughl purchases on AOL, the world’s largest online service, but will also be able to spend them there. Since unused air miles will be expendable for online purchases, this will, it is estimated, unlock between $30 and 90 billion of purchasing power for online use.

Such special online money will encourage the further spread of local and other special moneys at ground level. Some of the e-moneys are designed to appeal to conservative folk. E-gold, for example, creates a gold-standard for e-net payments. Clients fund their online accounts by buying gold or other precious metals. These can be drawn on for transfer toe-gold’s Web site by entering an account number and a password. This creates the illusion amongst people who have not watched the volatility of gold prices to believe that they are using ‘risk-free’ money.

"Private currencies are in use on the only barter exchanges set up recently by Barter Trust, Big Vine and Lasso- Bucks. To make cashless exchanges of goods and services easier, they have had to create their own trading currencies. Big Vine, for example, is trying to patent its ‘monetary policy.’

"Online technology will make foreign-exchange transactions much cheaper than the exorbitant costs ofmodest currency transactions since ‘globalised one-stop financial services’ came in. Services such as PayPal or e-gold might make it easier for residents of a country with a weak currency to shift their savings into a stronger one.

The real hazard is the piling of one unrealistic multiplier upon another—for example piling onto the leverage of our banking or stock market the leverage of further money creation by online companies that already have replaced price/earning ratios with "market share" criteria. Once again the magic of technology risks being mistaken for liberation from the constraints of accountancy. And that is delivering to potential crooks the master key to society’s treasury. wk

—from COMER, April 2000

Index

13: The Worgl Schillings

An extract from David Weston’s 1985 TOES speech

—from Prosperity, March 2000

In the town of Worgl in the Austrian Tyrol, there stands a bridge whose plaque commemorates the fact that it was built by debt-free, locally created money. This is just a small part of a significant experiment which transformed towns and whole areas out of poverty within 3 months and into prosperity within one year, when there was widespread unemployment in the national economy. In the early 1930s this small town (6000 pop.), was suffering like every other from the Great Depression. Worgl’s Burgomaster, Michael Unterguggenberger, faced an empty treasury, because the unemployed citizens could not pay their taxes; there were roads, bridges, buildings and parks needing maintenance, for which the town could not pay; and idle men and women earning no wages.

He recognised that all three problems could be solved if he found the connecting links. Those links were the key human information systems of money and a community-owned bank. The three problems the Burgomaster outlined co-existed because no one had any means of exchange, and his simple solution was to create money locally, with the Town Hall as the bank. He issued numbered ‘certificates for services rendered’ to the value of 32,000 schillings, in denominations of 1, 5 and 10 schillings. These became valid only after being stamped at the Town Hall, and depreciated monthly by 1% of their nominal value. It was possible for the holders to ‘revalue’ them by the purchase, before the end of each month, of stamps from the Town Hall, in the process creating a relief fund.

The depreciation not only encouraged rapid circulation, but also the payment of taxes, past, current, and upcoming. These taxes were used to provide social and public services, such as for the payment of wages for the building of streets, drainage and other public works by men who would otherwise have been unemployed. During the first month, the money had circulated 20 times. Taxes were paid, unemployment reduced and local shopkeepers prosperous. It enabled unemployed people, not only to receive a local wage, but also to create useful public assets — street repair, including a new drainage system, street lighting, construction of a ski jumping platform, bridges and a new water reservoir ... The workers found all businesses in Worgl accepted the currency in payment and at face value, and the notes returned to the town treasury bank as dues and taxes. Economically, there was no inflation, and politically, the money was unanimously acceptable to all the municipal parties.

Because it was a depreciating currency, it circulated with rapidity, boosting the local economy. Because it was a locally controlled bank, the politically ensured ‘multiplier effect’ helped to create and enhance the well-being of the local community. It is observable that the more a pound can be circulated and recirculated within a region or community, the more economic activity will take place. In contrast to this is the ‘extractor effect’ of externally controlled currency and banking, whereby every pound that is extracted is, in effect, a pound lost to the region or community.

In Worgl, people were able to pay their current taxes in the currency, and also discharge their tax arrears. Many paid their taxes in advance because it was financially advantageous. Apart from the obvious employment benefits, physical assets were created.

Although the Worgl money was unanimously accepted at the local level, there was opposition from two centralist forces—the Tyrol Labour Party and the Austrian State Bank. There seemed to be the fear of the experiment spreading, for the idea was copied by the neighbouring town, Kirchbichel. The town monies were valid in both places. Other towns in the Tyrol also decided on issuing depreciating money, but didn’t proceed due to threats from the State Bank.

The nearby town, Kitzbuehl, followed suit with a similar programme. A meeting of 200 Austrian mayors decided unanimously to follow the Worgl example. Prominent people, including Premier Daladier of France, visited and were enthusiastic.

The end of the experiment: It became clear that the financial interests of Austria and of Europe were afraid of this success spreading, as ultimately the State Bank threatened, and took, legal action against it. After a long legal battle, the Austrian Supreme Court decided in favour of the bank, and the innovation was prohibited. The idea spread to Bavaria and was also squelched there. On 1st Sept. 1933, the Worgl experiment was terminated.

© David Weston

Index

14: What Is "Efficiency"?

John McMurtry

which designate the opposite of what these concepts normally mean. But the Orwellian nature of this paradigm’s language runs deeper. The more the world it signifies becomes the opposite of what its concepts assert, the more dogmatic the marketeers become.

Nowhere is this pattern deeper set than in the neo-classical principle of "efficiency." The epochal power of the incantation "more efficient" holds all in a trance so that even critics of the doctrine think that to disagree with the prescriptions of neo-liberal dogma is to choose against "efficiency." Because even critics assume its meaning of efficiency as given, they are put into the position of either accepting neo-classical doctrine, or complaining that efficiency is somehow wrong. Once they imply that efficiency is too harsh a taskmaster, they are labelled as "Luddites" or "afraid to compete." And so the neo-liberal juggernaut rolls on—reassured of its superior rationality and the softheadedness of all critics. We’ve travelled around inside this circle for years, maybe centuries, and you will be hard pressed to find a place in the vast libraries of contemporary economics and political science where this criterion of economic efficiency is once challenged.

Yet what is deemed "efficient" by neo-classical doctrine is, in fact, systematically inefficient from a standpoint that is not confined to the interests of private stockholders and enterprises. Indeed it is more profoundly and ruinously inefficient than stripping the land you live on to feed armies of goats—a past efficiency of maximal goat-product yield for least cost which desertified the once great civilization of Greece.

Demystified, the neo-classical formula of efficiency is the ratio between the cost inputs of a firm and its priced outputs. The lower this ratio, it is assumed, the more efficient the enterprise. But dress up this simple-minded formula in layers of mathematical notations that cannot be deciphered by common sense, and most people no longer know what it means. In this way, the nature of efficiency becomes insulated from public debate and reason, and so the blinkered neo-classical concept of becomes ossified and assumed as an "iron law" prescribed by the nature of economics itself.

Once the simple formula of efficiency is clothed in the mystifying robes of econometric equations, the mind suffocates for lack of life-reference, and any system-bound nonsense can come out the other end of cascades of decoupled formulae as a "scientific" conclusion.

But the life-blindness of contemporary economic policies becomes comprehensible once you peer below the proliferating vestments of industrial-physics algebra to the generating simple principles upon which the whole machinery rests.

The survival of the proclaimed science of neo-classical economics depends, in fact, on a single concealed condition which no-one discusses—-the fact that the doctrine’s base premises are never opened to question. Any economics student will tell you that the one thing the economics teacher cannot handle is a question as to why its life-blind premises should be accepted in the first place. It is like throwing a lever on the machine. Once the examination of assumptions begins, then everything that depends upon the first principles is discovered to rest on dubious or false premises, and the foundations of the model collapse like a child’s castle raised on sand.

What is surprising is that almost no-one seems to go to the system-deciding value blindness upon which the neoclassical castle stands. Not only do economists presuppose its suppositions as articles of indubitable faith, and a requirement of getting their priesthood papers. Even ethicists and philosophers take the economists’ unexamined premises for granted. Politicians, in turn, are afraid to ask what the equations they are fed are based on. And the people downstream from the decisions flowing from the formulaic dogma are told their lives are being stripped because "they can’t compete." It is a closed program—like the daily sacrifices of innumerable people in the ancient Aztec empire to allow the priests to return the light of the sun.

 

Efficiency Beyond the Neo-Classical Blinders:

So let us consider the formula of efficiency in the light of an illustration. It follows from the neo-classical principle of efficiency that the more you reduce input costs for private enterprises while maintaining or increasing their priced outputs, the more "economically efficient" these enterprises are—and "the more productive" and the "more competitive" they become. This makes perfect sense as long as you think within the blinkers of the doctrine that every economist has fixed in his mind as its organizing structure. For once this narrow criterion of efficiency is granted, then cost-cutting for business becomes a government priority "in order for the country to compete in the tough new international marketplace." These "greater efficiencies in production," in turn, are deemed good for all because they "mean cheaper goods for consumers," "comparative advantages in doing business abroad," and "more prosperity for everyone in a win-win global market."

The assumptions and inferences are incanted with such hypnotic repetition that soon everyone believes it is good that more and more jobs are made insecure or declared redundant, that middle and lower wages and salaries do not increase but decline in real terms, that shareholders and corporations are paying less and less of the tax load, and that the environment is increasingly stripped by deregulated or unenforced environmental laws and protections. These are all "necessary sacrifices." And their consequences follow like 2+2=4 from the principle of efficiency of the neo-classical paradigm. Each and every one of these worsenings of life for most people, that is, "achieves cost savings for investors."

But we need not be confined to the narrowed chinks of this criterion of efficiency. Once we open past its closed bias to the money interests of private stockholders alone, we recognise that true efficiency means quite the opposite. It means, in fact, working to produce intended effects without value waste. This impartial criterion of efficiency does not slant towards a single sectarian interest, as the neo-classical concept does. Instead, it defines efficiency in a rational way so that it does not assume the privileged interests of one party of economic agents as absolute.

Understanding the economy through an impartial concept of efficiency, we soon see that what was called "efficient" through the partisan blinkers of neo-classical economics is in fact violently inefficient. If people are disemployed to save stockholders input costs, their livelihoods and their productive activities for society are wasted from the impartial standpoint of efficiency. More clearly, if the non-renewable goods of the environment are stripped or degraded--its forest and fish stocks, its clean air and water, its biodiversity, and its atmospheric integrity—all to reduce costs for private corporate stockholders, this is catastrophically inefficient by its destruction and waste of the very sources of human and environmental life. Yet it follows from the neo-classical concept of efficiency that these global life destructions are merely "externalities" because they are not a cost to capital investors. This is a consequence which by itself is enough to condemn the doctrine as a cultural insanity.

Ever more "efficiency" from the perspective of this deranged mm-set means, in fact, ever more inefficiency and waste from the standpoint of human and ecological life. The mystery is how so many people could for so long believe in such mindless cant while the world around them is intermittently collapsing under the weight of its dead hand.

 

John McMurtry is Professor of Philosophy at the University of Guelph.

—from COMER, March 2000

Index

15: The internationalisation of capital requires an equivalent internationalisation of labour, so why …

Battling for Britain?

Nick S.

According to Roy Hattersley, Labour’s March 2000 budget was built on "principles which I feared the government had abandoned". For Peter Jay also "the Labour government had started to behave like a Labour government". It’s tempting simply to retort that for every one of its days in office cuddling up to capital, demonising refugees, scapegoating teachers and nurses, this government has behaved exactly like a Labour government. What Hattersley wants to believe, though, is that the social democratic daydream is somehow beginning to become concrete. Gordon Brown’s budget suggests the opposite is true. The economic policies conducted by Western European governments in all their guises in the last twenty years have been based around the abandonment of the post-war Keynesian settlement with organised labour—a settlement capital had decided it could no longer afford. De-industrialisation was combined with changes in taxation to transfer wealth back to the rich from the poor.

By 1991 52% of the tax cuts implemented in the UK since 1979 have gone to the top 10% of income earners. Measured after housing costs, the incomes of the poorest tenth in 1991-92 were 17% lower in real terms than in 1979. Margaret Thatcher described Nigel Lawson’s 1988 budget, which cut the highest rate of income tax from 60% to 40%, as "the epitaph for socialism". In reducing the highest rate of income tax, Lawson gave a total of 2 billion in tax cuts to the top 5% of wage earners.

You might presume that if New Labour was in any way committed to its declared goal of eliminating child poverty, it might begin the task by seeking to reverse some of the give-aways for the rich introduced previously. Instead it has continued the process of redistribution to the rich with, in this budget, a cut in basic rate income tax (a move which always benefits most those who are taxed the most) and a further reduction in corporation tax, such that businesses will now pay just 10% on the first 10,000 of profits. Corporation tax in 1979 stood at 52%. It now stands at 30%, "the lowest rate in the history of British corporation tax, the lowest rate of any major country in Europe, and the lowest rate of any major industrialised country anywhere, including Japan and the United States" as Gordon Brown observed.

The supposed anti-poverty strategy has amounted to establishing a minimum income level for the working poor (which, in the absence of a trade union wage militancy, acts as a drag on wage levels generally) combined with coercive moves to get the youngest claimants off the dole and into low-paid work. Cash injections for the NHS and education? The money pledged to the NUS doesn’t even match the European average for health spending as a proportion of GDP and, tied as it is to proposals for ‘privatising’ NHS management (and with the Private Finance Initiative still in place), amounts to yet another step down the road of privatisation by stealth.

New Labour’s response to BMW’s off-loading of Rover to the venture capitalists of Alchemy Partners confirms that, contra Hattersley, there’s nothing at all new under the Blairite sun. BMW’s decision is likely to cost at least 6,000 jobs at Longbridge and upwards of 20,000 across the West Midlands as a whole. Ford, meanwhile, is hinting at 1,500 job losses at its Dagenham plant. New Labour has made it clear that, beyond shedding a few crocodile tears, it has no plans to intervene. The Financial Times on 20th March 2000 declared that Britain was now "a good place for foreign companies to invest". The de-territorialisation of capital was a response to trade union militancy in the 1960s and 1970s.

De-industrialisation in the West was combined with a strategy of location wherever labour costs were cheapest. The nationalisation of British Leyland in the 70s was part of a strategy aimed at taming trade union militancy in the car plants. An effective and feared shop stewards movement was conned into a collaborative process in the name of ‘British industry’, which promptly sold its workers down the river by flogging off the Leyland plants to British Aerospace, who in turn pocketed 800 million for the sale of Rover to BMW. Some people, it seems, have learned nothing from all this. Ken Jackson of the AEEU and Bill Morris of the TGWU have called for a boycott of BMW cars and begged Tony Blair to ‘battle for Britain’. Blair intends to do no such thing. As Larry Elliot has noted, "looking at what the government does rather than what it says, the strategy seems to be to try to skip an industrial generation. Deep down, ministers see no long-term future for industries where Britain has been struggling to keep up over the past three or four decades and would rather devote resources to boosting the sunrise industries of the third industrial revolution" (The Guardian, 27th March 2000).

Capital’s response to its shopfloor battles of the '70s has been to seek to roam the world. As George Monbiot put it: "the corporations have, so far, succeeded in globalising everything except their obligations. Their rights have been harmonised while their responsibilities have been shed" (The Guardian, 23rd March 2000). Blair and Brown have a clear, and often declared, agenda to facilitate the mobility of capital. Against this, the solution cannot be for working class militancy to be reduced to calls to ‘battle for Britain’. The internationalisation of capital requires an equivalent inter-nationalisation of labour. The best allies in the battle against job losses in the West Midlands are car workers in Germany. This was obvious years ago; the bitter legacy of social democracy remains the extent to which it fostered a belief within the trade union movement that British bosses and ‘British’ labour had some common ground. All the evidence, even in the 1970s, was to the contrary. In the mid ‘70s Ford told the Heath government that unless Britain’s ‘industrial relations’ improved they would relocate to Spain. Construction of a stamping and assembly plant was begun in Valencia. Between 1973 and 1974 Spanish workers engaged in a campaign of mini-strikes, slowdowns and sit-ins. Sabotage shut down the Leyland plant in Pamplona and the Renault plant at Valladolid. Automotive News reported in 1975 that Ford was having second thoughts about Spain.

It’s curious to note the extent to which a government committed to the mobility of capital chums out reams of narrow nationalist propaganda for its British audience. We are told we are being swamped by refugees (even though a recent UN report estimates that low birth rates in the UK means that the ratio of workers to pensioners necessary to fund pension benefits could only be maintained by raising immigration from 73,000 per year to 88,000) and Blair has begun a campaign to "reclaim Britishness for Labour". ‘British-ness’ is a value Labour seeks to reserve for the poor, internationalism is the domain of the rich.

The best option open to the Longbridge workers would be to seize the plant, along with all other Rover property, on the basis that Alchemy can’t asset strip what they can’t possess. Fundamentally, though, if trade unionists want to resist New Labour s designs, we have to dump ‘Britishness’ not reclaim it.

—from Freedom, 8 April 2000

Index

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May 2000