Neoliberal Financial Globalization

Money has hypertrophied. The instrument that symbolized
the real wealth created by Humankind has itself been
transformed, virtually, into real wealth. From being a symbol
of goods to be exchanged on the market, it has become a
merchandise itself. This is a fiction, an illusion. Like the
Anti-Christ, who presents himself as the real Christ but is
just hollow pretence, today's globalized capitalism has made
a farce of money. It no longer represents real wealth, and
this may be a fatal disease for globalized capitalism.

What is money today? No longer is it just the notes and
coins minted by national Treasuries. It is also the
securities and bonds produced by government financing
agencies, along with the shares, debentures and other papers
issued by publicly traded companies, that today cram the
capitals markets. All these papers claim to represent real
wealth, already produced or to be produced in the future.
There are also other countries' currencies, known as foreign
exchange, that have gained a market all to themselves, where
feverish trading jams phone lines the world over.

Why do governments and companies produce these papers?
Their intention is to accumulate liquidity in order to buy
and spend more. As one form of money, the securities, bonds
and shares seek to raise another form, cash. With money, they
rent or buy money - and, more and more, the economy hinges on
money instead of real products. Once a means to economic
activity, financial operations are becoming more and more an
end.

What is the result when governments and companies
produce these papers? The result is indebtedness. When
the standard reference value was gold, cash was a debt
security from the government to its bearer: in exchange for
the currency, the bearer was entitled to receive a certain
weight of gold. Today, cash no longer has a reference value.
In a growing number of countries, one informal standard tends
to be the North American dollar, but the dollar is money too,
and so is also virtual by nature, until it actually comes to
represent real wealth. In other words, any dollar in
circulation not based on real wealth is virtual. If that
dollar is virtual, then any currency that takes that dollar
as a standard is virtual too, in a lengthening chain of
virtuality and illusion, of purchasing power greater than the
real wealth that exists to be purchased - and therefore an
inflationary chain, forever pushing up the price of real
products.

Papers backed by that virtual currency whose standard is
the virtual dollar are also virtual. Bearers of these papers
expect a return, which they receive in the form of the
interest they are paid as rent for their cash. Papers are an
easy investment for them, because they do not require them to
work in order to earn. The earnings come to them either
through the work of others or through the cash which is also
virtual for lack of underpinning in real wealth. The
unregulated and unplanned growth of this activity of
exchanging cash for money-papers and vice-versa has resulted
in increasing speculation, finally creating a great air
bubble in the world economy: a bubble of virtual moneys that
are fueling processes of spending and consumption by
individuals, governments, companies and banks - until the
moment the bubble bursts. Now, other than dispersing the
bubble, there is no way of preventing it from bursting or
from causing an embolism in the system as a whole. This calls
for political resolve and an active sense of ethics on the
part of all those who benefit temporarily from the bubble. It
also requires untiring pressure from those who are prejudiced
by it and who will be the chief victims when it explodes.

The Brazilian government is a typical case. By way of a
policy of extremely high real interest rates and buying up
reals on the financial market in exchange for Treasury and
Central Bank securities and bonds, the Fernando Henrique
Cardoso government has increased Brazil's internal debt
almost sixfold, from R$60 billion in January 1994, when FHC
took office, to R$373 billion in November 1998. The interest
payments on this debt reached R$ 330 billion during the
period and have been excruciating for the country's economy.
FHC built a financial and investment policy on foreign
saving, in an endeavor to attract foreign investors' dollars
to bridge the gaps in its own accounts. When the crises in
Mexico, then in Asia, and then again in Russia, placed these
investments and the Real's artificial stability in jeopardy,
the FHC government disregarded the danger warnings. In order
to attract this capital which, avid for easy gains and
fearful of losing them, was devastating those economies- and
which would also threaten to devastate Brazil's economy -
instead of creating instruments to control and regulate the
inflow and outflow of foreign capital, the government
preferred to raise interest rates and even to offer tax
exemption to foreign exchange applications. The Brazilian
government was irresponsible and reckless and, as a result,
its bubble burst on January 12, 1999, threatening to drag
other Latin American economies, and even perhaps the USA's,
down with it. The Real Plan died there, and Brazil was
plunged further into bankruptcy.

Today the bubble of international speculation is formed
by all the moneys that circulate rapidly around the world
chasing opportunities to reproduce without effort, without
productive work, without creating real wealth, merely by
changing hands, by speculating with foreign exchange, with
products that are to be produced and traded in the future,
foreign debt securities from indebted countries, and even
money from drug trafficking, the arms trade and other illegal
and immoral activities. The total sum of all these has not
been measured accurately, but today is estimated at nearly
US$100 trillion!

A wide range of agents are inflating this bubble. Much
is said today about "popular capitalism" in the USA
or in Switzerland, where millions of individuals own company
shares, government bonds, foreign debt securities, foreign
exchange, and so on. The main agents, however, in terms of
both the quantity of moneys they wield and the frequency and
speed at which these moneys circulate, are the big banks and
investment companies, the pension funds and other types of
private, and even State, institutional investors. It is they
who are responsible for the bubble. And their favorite
theater of operations are the capitals markets set up in the
poor world and Eastern Europe in the image and likeness of
the capitals markets of the highly industrialized countries.
They it is who today stroll their virtual moneys around the
world, triggering crises wherever they go, speculatively
attacking local currencies, not just when they pull out, but
from the moment they enter each economy's domain. Speculative
withdrawal would be the most appropriate name for
these agents' headlong rush to pull out of a country's
capitals markets. Scared? Yes, scared of losing their easy
profits.

In mid-January 1999, a small investor in Switzerland
showed me his bank statement: he had applied FS6,000 in the
portfolio management bank where he worked and, three days
later, he redeemed the investment: to his surprise the
value had risen to FS7,300!!! A return of more than 21% in
three days! What kind of activity could produce a gain of
that size that effortlessly? What country or institution
could pay interest at that rate? None. It is pure speculation
with foreign exchange. With the information that a currency
is to be devalued, you invest in foreign exchange and then
buy back the local currency after devaluation. And what
currency was suddenly devalued in mid-January? The Brazilian
real, which lost 25% of its value against the North American
dollar between January 12th and 19th and, on the 22nd, had
already lost another 18 percent! This is a typical example of
exchange speculation. At the root of this speculation there
is thought to be some Brazilian government official or other
who "tipped off" his international
"partner"... name=Footnote2A>Footnote2 That is how the world financial
system works today. This is a clear example of the logic and
the ethics of capital: whatever multiplies capital gains is
valid and good, including speculation and corruption; while
everything that hinders them is bad or stupid.

The unlimited right of governments and companies to
issue these papers has led to the world's markets being
inundated with virtual money, because a large part of the
papers are launched on the supposition that, sooner or later,
the government or company will be able to turn them into real
wealth and so redeem them for the value that they are
supposed to represent. This supposition belongs to the
subjective sphere of the economy, that which operates on the
basis of non-material values like confidence, foresight, hope
and so on. Now, when the government or company does not
manage to repay the bearer of their moneys, it becomes
insolvent, thus proving that the supposition was false and
that the confidence and hopes deposited in them were
mistaken, for lack of proper planning, rules and supervision
to ensure that the game was played correctly and cleanly -
and because their moneys were only virtual.

In fact, they are as virtual as the chips in a casino,
which are equivalent to a certain amount of cash, but not
necessarily to real product. The economy of a casino is a
circle of virtuality, but even there there has to be
planning. If the casino puts into circulation a greater value
in chips than the value of the money it expects to collect
from its customers, including what will go to pay its
operating costs and cover payments to owners and employees,
the casino is at risk of going broke. The economic rationale
of a casino thus includes a limit on its freedom to issue
currency (chips): that is, its capacity to enter into debt
with its customers.

Today we are witnessing a casino economy at the world
level and, with it, an almost unavoidable risk of worldwide
financial, social and economic crisis. A gigantic amount of
money circulates around the world in various forms, with no
backing in real wealth. Also it is circulating in more and
more virtual form; that is, on computer screens instead of in
papers in the hands of its bearers. Ever since electronics
has enabled these moneys to be exchanged via computer, they
have been circulating at a dizzying speeds. Today, anything -
securities, bonds, shares, etc. and even cash in the form of
foreign exchange - can be exchanged by electronic means. And
these moneys can be issued and circulated free from
restrictions, from any effective regulations, even though
Central Banks do impose certain rules on companies and banks
designed to limit this freedom. When such rules do exist and
are made to work, companies' and banks' indebtedness tends to
be viable. When governments impose rules on themselves to
limit their right to enter into debt - and then comply with
those rules - they also tend to remain solvent and manage
their nation's economy feasibly and competently, as
demonstrated by the municipal government of Porto Alegre, in
Southern Brazil.

This no longer happens in the world of financial
globalization, however. Governments, companies and banks
throughout the world are over-indebted and at risk of
bankruptcy. Even the rich countries or the banks and
companies that hold most assets have accumulated debts that
are leading them, sooner or later, to the moment of truth:
either they pay up or go bankrupt. In order not to go broke,
governments cut back on their investments, particularly in
social programs, and raise taxes. Switzerland, the country
with the highest per capita income in the world, a haven for
clean and dirty money from all over the world, is a good
example of this. Claiming lack of funds, the governments of
the confederation and cantons have systematically cut social
investment. Recently, the Swiss government announced a one
percent increase (from 6.5% to 7.5%) in VAT to offset a 1998
budget deficit of FS 7.6 billion. It later apologized to the
public, explaining that there had been a
"miscalculation" and the deficit was in fact only
FS 300 million. Nonetheless, it did not reimburse the
taxpayers nor lower the tax rate. Some months ago, the
Japanese banking system was plunged into a severe crisis by
the over-indebtedness of the real estate sector. The North
American government operates with high levels of indebtedness
but, last October, it did not hesitate to bail out the
private financial group, LTCM, specialists in speculation,
with a package of US$ 3.5 billion culled from public funds.
Companies and banks of all sizes, when on the brink of
insolvency, often merge with, or are bought out by, others
that are sounder at the time. Today we are witnessing a
snowball of mergers and buyouts that point to a global
economy that, in just a few more years, will be highly
concentrated and monopolized... until the bubble bursts.

Neoliberal ideology has shaped the environment for the
globalization of financial capitalism. It holds that the laws
of the market are universally valid for all spheres of human
existence. Everything, including money, should be treated as
merchandise, and the market should be left free in order for
goods and money to circulate properly. In this way, the
market will meet all needs and effectively distribute the
wealth produced. All regulation is unwelcome, because it
prevents the free flow of goods and money. That is the
content and sense of the villainous Multilateral Investment
Agreement which was being drafted and discussed in secret by
the wealthy countries. In practice, neoliberal capitalism is
responsible for the casino-economy that has globalized in the
world today - and for the extreme enfeeblement of the State's
regulatory role and social function.

In the 80s, for a number of reasons, the indebtedness of
countries of the Southern hemisphere, made possible by the
irresponsibility of both governments and their creditors,
reached the point of insolvency. In exchange for rescheduling
these debts, the creditors imposed rules whose prime
objective was to liberalize the debtor countries' economies
and markets- that is to say, they imposed rules to eliminate
rules, to neutralize governments' power to regulate and
sanction, including the liquidation of public patrimony by
privatizing and denationalizing State enterprises. In this
way, governments of very indebted countries, which were
generally those with the higher poverty rates and the longest
histories of colonial subordination, exchanged real wealth
for virtual wealth. Many took out new loans in the 80s to pay
off previous loans, and not to invest in creating new wealth
or the capacity to produce it. They became strapped into a
vicious circle of indebtedness from which they were never
going to escape, at least not by the end of this century.

The over-indebtedness of the countries of the Southern
hemisphere, now accompanied by those of Eastern Europe,
constitutes a modern form of colonization. They are obliged
to service the debt to their creditors in the North to a
seemingly limitless horizon, as if they were paying a regular
tribute to a colonial metropolis. There is one important
difference, though: these metropoles are no longer only
colonial or imperial powers, but also private companies and
banks based in the rich countries, plus the multilateral
financial institutions - the World Bank, the IMF and the
regional "development" banks.

The disease manifest in the hypertrophy of money and
over-indebtedness can only be surmounted by a national and
planetary system of planning and regulation, capable of
liquidating these ailments at their root. Capitalism itself
is unlikely to set up such a system, since the capitalists do
not want to see that this is a disease - and one that could
be fatal to the system itself. When they do realize, they are
unwilling to take radical curative measures, because these
measures too could be fatal to the system! In fact,
capitalism is increasingly squeezed between these two
pressures: on the one hand, pressure for the various forms of
money issues and indebtedness to be planned and for capital
flows to be regulated; and, on the other, the risk of
bankruptcy throughout the capitalist system if it fails to
adopt these measures.

The real solution for the world, particularly for those
who live mainly by their work, lies in summoning up the
courage to break with neoliberal capitalism and, in the last
analysis, with capitalism itself. This means several things:
imposing limits and rules on capital flows and on the issuing
of different forms of money; setting up institutions at the
national and international levels capable of enforcing these
rules and sanctioning agents that break them; adopting an
investment policy that will make self-managed models of
development viable from the community to the national levels;
adopting a policy of progressive taxation, capable of
encouraging domestic consumption and production and of
discouraging speculation by redistributing wealth and
investment; radically reforming the international financial
institutions, their principles, functions and way of
operating; restoring control over each family's and each
community's finances to themselves, by multiplying
cooperative savings and credit institutions and by passing
appropriate legislation to support them; restoring the power
to plan development, from the micro to the macro levels, by
using finance as merely a means - because the end should
always be individual and collective human development.

Notes

Footnote1
Socioeconomist and educator of PACS (Rio de Janeiro) and
fellow of the Transnational Institute (Amterdam). Translation
from Brazilian Portuguese by Peter Lenny.

Footnote2
This illegal behavior is a crime in Brazil. A Workers'
Party congressman is demanding full investigation of the
factors behind the behavior of nine large national and
international banks which made windfall profits last January
with the devaluation of the real.

Copyright 1999 PACS