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"Faux 'Free Market' Dogmas Don't Work" -- Ex-World Banker

By greenrd in MLP
Mon Sep 03, 2001 at 06:13:39 AM EST
Tags: Politics (all tags)
Politics

We live in an age when, in many industrialised nations, politicians of all major parties (perhaps hypocritically) trumpet "free markets", reducing social spending, privatisation, etc. as policies beneficial to everyone - including the world's poorest. (Some trumpet them a lot - others change their tune for different audiences.) Indeed, Margaret Thatcher's argument that "there is no alternative" is widespread - even many self-styled "liberal" media publications regularly advocate along those lines. Ex-World Bank Chief economist Joseph Stiglitz is a major anomaly, however. A former believer, he's seen the effects of forcing "free market" dogma on indebted poor countries, and he says it's an outrageous failure. Is he right?


...Or (I'm now playing devil's advocate!) were the problems caused by not being libertarian enough? Or, perhaps, were they necessary evils on the path to economic development? (And if World Bank / IMF free market theory is still basically valid, how could such a key economist be so misled?)

The main linked article is by Gregory Palast, a journalist for the (UK) Observer newspaper and Newsnight, a BBC current affairs program - neither of which are famed for their anarchistic tendencies. ;-)

Stiglitz is not the only economic expert to have been converted from tub-thumping free marketeer to harsh critic of the current economic system and extreme free-market ideologies. George Soros, one of the richest currency speculators in the world, has for some time been arguing that (gasp) anti-globalisation protestors actually have a point (to some extent). He's hardly going to become a vegan eco-warrior any time soon - but he supports policies like debt relief and worldwide enforcement of common environmental and labor standards, to keep the destructive side of capitalism in check.

Please also have a look at the poll to the right - I've made an attempt to seriously set out all the possibilities, and I'm particularly interested in seeing the percentages for it. If you think I've missed out a credible answer, please say so in the comments. (Unfortunately, you can only pick one answer, even if you think more than one applies. ;-)

Disclaimer: The story title is not an actual quotation from Stiglitz - I just wanted a snappy title - but it's not distortionary, either.

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Poll
IMF "free market" plans often fail because...?
o Free market theory was not applied aggressively enough. More privatisation, less protectionism! 10%
o Free markets are >90% good, but 100% libertarianism is too extreme 6%
o Over-deregulating and/or slashing public spending in poor countries retarded their economies 12%
o IMF free market theory is laughably detached from reality 26%
o Many huge corporations are inherently rapacious and destructive 18%
o I don't know enough about it 8%
o They HAVEN'T failed - mass deprivation is just temporary hardship 1%
o They HAVEN'T failed - they have yielded exactly what the IMF intended 14%

Votes: 148
Results | Other Polls

Related Links
o all
o major
o parties
o others
o "liberal"
o regularly advocate along those lines
o a major anomaly
o it's an outrageous failure
o libertaria n
o main linked article
o George Soros
o anti-globa lisation protestors actually have a point
o Also by greenrd


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"Faux 'Free Market' Dogmas Don't Work" -- Ex-World Banker | 42 comments (39 topical, 3 editorial, 0 hidden)
das poll (4.50 / 10) (#2)
by Arkady on Sun Sep 02, 2001 at 07:06:02 PM EST

You're right about them not being mutually exclusive. The ones I think apply are:

"Over-deregulating and/or slashing public spending in poor countries retarded their economies"

"They HAVEN'T failed - they have yielded exactly what the IMF intended"

These two are certainly true. By thrashing the public sector, they've given these countries over to private capital iin their entireties. This both stalls the majority of the population in low income servicing of the wealthy (both local and foreign) and is precisely what the IMF is after.

"Many huge corporations are inherently rapacious and destructive"

This one's self-evident, but not a root cause. The root cause is that many _people_ are this way, corporations organize them and give them free reign (with no repurcussions possible) and this is _why_ the IMF acts as above.

"IMF free market theory is laughably detached from reality"

Now, were the IMF priesthood actually believers, then this one would be true as well. I have trouble accepting that they could be, though, since the evidence of the disconnect between their gospel of "a rising tide blifts all boats" and the real world is just too obvious. It's more like a mystery religios, where their outer (benefit for all) doctrine is counter to their inner (benefit for us) secret doctrine. In that case, things are going exactly according to theory.

Thanks for MLPing the article too. That folks in the inner circle don't believe the dogma needs to be better publicized.

-robin

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere Anarchy is loosed upon the world.


IMF's plans (4.00 / 4) (#5)
by sigwinch on Mon Sep 03, 2001 at 03:34:46 AM EST

By thrashing the public sector, they've given these countries over to private capital iin their entireties. This both stalls the majority of the population in low income servicing of the wealthy (both local and foreign) and is precisely what the IMF is after.
You are giving the IMF *way* too much credit. The evidence suggests that they really do have everyone's best interests at heart, and are merely blindingly inept. Look at the evidence: 1) IMF gets big pile of cash for purposes of aiding poor economies, and then 2) requires those countries to enact "austerity measures" as a condition for receiving the cash, on the theory that 3) their economies were ailing because of deficit spending.

In reality, their economies were "ailing" because becoming prosperous is difficult, not because the governments were printing money way too fast. Predictably (at least to those of us who don't have our heads stuck up our butts, a group that does not include the IMF), the "austerity measures" caused capital to dry up, which hamstrung the economies. Business *absolutely relies* on short term loans; dry those up and the economy collapses within weeks.

Also predictably, the affected nations now realize that just because a fat cat American banker shows up with a billion dollars and highfalutin ideas, doesn't mean he can tell his ass from a hole in the ground. Not only did the "austerity measures" backfire, they did so in such a spectacular public way that people were rioting in the streets trying to end them.

Now, were the IMF priesthood actually believers, then this one would be true as well. I have trouble accepting that they could be, though, since the evidence of the disconnect between their gospel of "a rising tide blifts all boats" and the real world is just too obvious. It's more like a mystery religios, where their outer (benefit for all) doctrine is counter to their inner (benefit for us) secret doctrine. In that case, things are going exactly according to theory.
What a ludicrous conspiracy theory. We're supposed to believe that the IMF had *billions* of dollars just lying around, they had a deep-seated desire to subvert whole nations for their plutocratic masters, and the only thing they could think of was to blantantly FUBAR economies in full view of the everyone, without the slighest attempt at conintelprop or misdirection or subtlety? Puh-leeze.

If the IMF is evil or subversive, then they were singularly inept about it. I mean, if you'd given the CIA 10 or 20 billion dollars to subvert governments, they would have succeeded, and the operation would be self-funding by now. Where's the profit in blowing up an economy? Far better to use the money to insuate yourself in the local power structure: make a prosperous puppet and pull the strings.

--
I don't want the world, I just want your half.
[ Parent ]

I don't believe it does not constitute an argument (3.66 / 3) (#19)
by greenrd on Mon Sep 03, 2001 at 04:58:28 PM EST

The evidence suggests that they really do have everyone's best interests at heart, and are merely blindingly inept. Look at the evidence: 1) IMF gets big pile of cash for purposes of aiding poor economies, and then 2) requires those countries to enact "austerity measures" as a condition for receiving the cash, on the theory that 3) their economies were ailing because of deficit spending.

I don't see how that evidence shows that they had everyone's best interests at heart, at all. Just because they say publically "we believe these austerity measures will stimulate growth", doesn't mean they actually believe that.

What a ludicrous conspiracy theory. We're supposed to believe that the IMF had *billions* of dollars just lying around,

Common misconception, if I understand your point correctly. The IMF and its backers are not losing out here. Exorbitant rates of interest mean that, in real terms, many countries have actually paid off their debts many times over in interest!

they had a deep-seated desire to subvert whole nations for their plutocratic masters,

Bankers and economists are not know for being humanitarian (although there are some notable exceptions). See also my other long post above for a more detailed argument that yes, the IMF really does intend to maximise profit for Western investors - as you might expect from something owned 51% by the US Treasury Department.

and the only thing they could think of was to blantantly FUBAR economies in full view of the everyone, without the slighest attempt at conintelprop or misdirection or subtlety? Puh-leeze.

Basically, yes. The media have for the most part done an excellent job in ignoring or obfuscating the IMF's crimes against humanity. I've read far too much evidence of US war-mongering and nasty behaviour by corporations (like IBM allegedly aiding and abetting the Holocaust, or Nestle contributing to the deaths of babies) by now to doubt an alleged fact merely because it alleges that some elite is evil. Basically, it's pretty obvious - the larger the concentration of power, the more it tends to attract power-hungry selfish people. And selfish people can do a hell of a lot of damage with the amount of power the IMF or the US government has.


"Capitalism is the absurd belief that the worst of men, for the worst of reasons, will somehow work for the benefit of us all." -- John Maynard Keynes
[ Parent ]

the IMF _is_ succeeding (none / 0) (#41)
by Arkady on Thu Sep 06, 2001 at 12:55:11 PM EST

Consider that one of the probable goals of the IMF would be maintaining American hegemony, given that it's controlled by the U.S. government and business interests. With that in mind, here's a discussion of the affects of IMF policies on Argentina (in a review of U.S. economic reporting). These two paragraphs are the important ones:

The I.M.F. has just imposed a stringent set of conditions on Argentina as a requirement of its most recent set of loans. For example, even though Argentina is in the middle of a recession, the I.M.F. is insisting that its government balance its budget, a policy virtually guaranteed to raise unemployment and worsen the recession. Given the ability of the I.M.F. to dictate such policies to Argentina's government, along with the tremendous influence of international bond markets on interest rates (and Argentina's unsustainable debt service payments), it seems that it has already lost control over its most important economic policies.

The article also quotes two experts extolling the virtues of adopting the dollar as Argentina's currency. This decision would also cause Argentina's government to lose considerable control over economic policy, since the printing of dollars would be controlled by the Federal Reserve Board in the United States, not Argentina's central bank. The article does not indicate why it would be a matter of concern if Argentina's government cedes control of economic policy to its provincial governments, but not when it cedes control to the I.M.F. or the Federal Reserve Board.

Now, Argentina has already linked their currency value to the dollar (which makes their economy dependant on the U.S. Federal Reserve's actions and has already blocked a lot of things they could have done to raise employment), but the requiring a balanced budget guarantees that they can't do anything for themselves without IMF assistance. Were they to actually replace their own currency with the dollar, they would quite literally be a dependant state.

Destroying a country's economy can be quite desirable (from a hegemonic perspective) if:

  • it's destruction won't have any adverse effect on your own, and
  • if you get to be the one who picks up the pieces, since this basically renders them a colonial dependancy of your own state.

If the IMF had Argentina's best interests in mind, rather than the U.S.'s, they would be encouraging greater independance for Argentina's economy, rather than greater dependance. A strong local economy, with few dependancies on foreign (money or goods) imports is in the best position to participate in world trade, from it's own perspective. From the IMF's perspective, however, the best position for Argentina to take in world trade is as a client state of the U.S., providing cheap materials and labor, as well as a market dump for surplus production which can't be profitably unloaded anywhere else, just as colonies always have.

-robin


Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere Anarchy is loosed upon the world.


[ Parent ]
Corporations and behavior (5.00 / 2) (#38)
by MrEd on Wed Sep 05, 2001 at 08:12:00 PM EST

The root cause is that many _people_ are this way, corporations organize them and give them free reign

Perhaps so - I tend to the interpretation that the very structure of a corporation encourages this sort of behavior. When your CEO's legal responsability is to maximize profit and your job and career prospects are dependant on the approval of your supervisors (which is by necessity given based on cold numbers and statistics), then one can expect people to be encouraged to act in a solely profit-seeking manner and neglect ethical considerations if they think they can get away with it.

Does this argument make sense?

Watch out for the k5 superiority complex!


[ Parent ]
too few dogmas to choose from (4.00 / 1) (#6)
by duxgregis on Mon Sep 03, 2001 at 07:22:41 AM EST

The problem isn't with capitalism so much as it is with the regulations imposed by the WB/IMF. If third-world countries weren't forced to give up their natural resources to international buisnesses as a condition for their loans (SAPs), they would have a way out of poverty. Similarly, if these countries weren't forced to serve the intellectual property "rights" of the first-world, they would be able to break instantly into important markets currently monopolized by the West. Some third-world countries have a lot of potential (like India), but the regulatory barriers are too much to easily overcome. Capitalism hasn't even had a chance.

There's no good poll option IMO; there are inherent problems with "free market theory" according to the IMF, and that theory anyway is sloppily implemented in order to serve the interests of large multinational corporations.



The problem with globalization. (4.50 / 4) (#7)
by kvan on Mon Sep 03, 2001 at 07:40:01 AM EST

The problem is that globalization is actively opposed by industrialized nations and their organisations (IMF, World Bank, G8 and so on). Import duties, IP legislation and other tidbits all contribute to a market that is decidedly not free, but heavy-handedly controlled by primarily the US and the EU.

"Many people would sooner die than think; in fact, most do." - Bertrand Russell


Define "free market" (3.50 / 2) (#12)
by marx on Mon Sep 03, 2001 at 10:47:54 AM EST

Until you define what a "free market" really is, you can always keep saying this. If you define "free market" as in "everyone should be able to compete in the market on equal premises", then you must have a massive regulator to make sure this condition remains true.

Let's say that our "free market" condition is fulfilled at some point t0 in time. Now, we know that healthy competition is not profitable. Thus, if a company A can somehow decrease competition in its market, for example by forming a cartel with some other companies, this will decrase competition in the market, and thus increase profitability for A. Free market theory tells us that a company will always do something which incrases its profitability, thus A will enter the cartel. After the cartel has been formed, at time t1, everyone can no longer compete in the market on equal premises, and we no longer have a "free market" under our definition. Thus we can see, that under this definition, a free market is not stable, and will thus never remain for long naturally.

The duties, IP legislation, etc. that you mention are all very advantageous for companies based in industrialized countries. I know they support IP legislation (their lobbying is probably the reason why it exists), and I'm sure they also support the duties (why not? it eliminates competitors). Thus I don't see how you will ever eliminate these things only through free market mechanisms. The only way to eliminate them is through state intervention, and this "heavy handed control" is exactly what you were opposed to. So how are you going to solve this?

I would be interested if anyone could come up with a definition of "free market" which could lead to stability in a simulation such as I have described. If not, then the idea of a free market does not work in practice, and should be treated with the same contempt as for example the idea that people make individual decisions in the best interest of the collective.

Join me in the War on Torture: help eradicate torture from the world by holding torturers accountable.
[ Parent ]

I'm not opposed to control as such. (5.00 / 1) (#30)
by kvan on Tue Sep 04, 2001 at 07:55:58 AM EST

The problem is which type of control is exerted. Duties and IP legislation generally work to hinder competition, whereas anti-trust legislation and overseeing works to promote it. I do agree with you that these latter measures have to be in place. There probably even has to be some (much, much weaker than current) IP legislation in place to foster innovation as well.

So no, I don't think an entirely free market would work very well, but that's no reason to eschew competition, which has proven time and again to be a very efficient tool.


"Many people would sooner die than think; in fact, most do." - Bertrand Russell


[ Parent ]
There is No Conspiracy (5.00 / 5) (#8)
by Simon Kinahan on Mon Sep 03, 2001 at 08:01:36 AM EST

Stiglitz own words (on the East Asis crisis, in this case) are rather more informative than the ZNet article. As he says, the IMF is staffed by "third rate graduates from first rate universities", many of whom behave as if they were "shouldering the white man's burden". He makes an interesting contrast between IMF and Bank policy, also.

Its not necessary to posit some conspiracy to wreck the poor countries to explain what has been happening. The policy is simply a stupid one being implemented by incompetents who can't even use the search and replace facility of their word processors correctly (at least one country assessment was pasted from another, and incompletely corrected). Nor is it particularly "free market" in inclination: genuine free market economists emphasise the importance of competition, not privately run monopolies.

Simon

If you disagree, post, don't moderate

Just incompetence... or rational exploitation? (4.71 / 7) (#16)
by greenrd on Mon Sep 03, 2001 at 01:49:31 PM EST

First, thanks for the article - very informative!

The policy is simply a stupid one being implemented by incompetents who can't even use the search and replace facility of their word processors correctly... He makes an interesting contrast between IMF and Bank policy, also.

I agree that the policies are stupid - their underlying theories don't match up with reality. I don't believe that it's merely incompetence that's to blame, though. (And I think that the apparent disparity between the World Bank and the IMF policies is a red herring - in the zmag.org interview, which I believe is more recent, he attacks both the IMF and the World Bank.) Let's take a closer look at Stiglitz's article that you linked to in your post. First, he said that he couldn't work out what was preventing the IMF from listening to change:

So I began lobbying to change the policy. I talked to Stanley Fischer, a distinguished former Massachusetts Institute of Technology economics professor and former chief economist of the World Bank, who had become the IMF's first deputy managing director. I met with fellow economists at the World Bank who might have contacts or influence within the IMF, encouraging them to do everything they could to move the IMF bureaucracy.

Convincing people at the World Bank of my analysis proved easy; changing minds at the IMF was virtually impossible. When I talked to senior officials at the IMF--explaining, for instance, how high interest rates might increase bankruptcies, thus making it even harder to restore confidence in East Asian economies--they would at first resist. Then, after failing to come up with an effective counterargument, they would retreat to another response: if only I understood the pressure coming from the IMF board of executive directors--the body, appointed by finance ministers from the advanced industrial countries, that approves all the IMF's loans. Their meaning was clear. The board's inclination was to be even more severe; these people were actually a moderating influence. My friends who were executive directors said they were the ones getting pressured. It was maddening, not just because the IMF's inertia was so hard to stop but because, with everything going on behind closed doors, it was impossible to know who was the real obstacle to change. Was the staff pushing the executive directors, or were the executive directors pushing the staff? I still do not know for certain.

Later in the article another significant player is revealed - the US Treasury Department (which happens to be a 51% shareholder in the World Bank):

The calamity in Russia shared key characteristics with the calamity in East Asia--not least among them the role that IMF and U.S. Treasury policies played in abetting it. But, in Russia, the abetting began much earlier. Following the fall of the Berlin Wall, two schools of thought had emerged concerning Russia's transition to a market economy. One of these, to which I belonged, consisted of a melange of experts on the region, Nobel Prize winners like Kenneth Arrow and others. This group emphasized the importance of the institutional infrastructure of a market economy--from legal structures that enforce contracts to regulatory structures that make a financial system work. Arrow and I had both been part of a National Academy of Sciences group that had, a decade earlier, discussed with the Chinese their transition strategy. We emphasized the importance of fostering competition--rather than just privatizing state-owned industries--and favored a more gradual transition to a market economy (although we agreed that occasional strong measures might be needed to combat hyperinflation).

The second group consisted largely of macroeconomists, whose faith in the market was unmatched by an appreciation of the subtleties of its underpinnings--that is, of the conditions required for it to work effectively. These economists typically had little knowledge of the history or details of the Russian economy and didn't believe they needed any. The great strength, and the ultimate weakness, of the economic doctrines upon which they relied is that the doctrines are--or are supposed to be--universal. Institutions, history, or even the distribution of income simply do not matter. Good economists know the universal truths and can look beyond the array of facts and details that obscure these truths. And the universal truth is that shock therapy works for countries in transition to a market economy: the stronger the medicine (and the more painful the reaction), the quicker the recovery. Or so the argument goes.

Unfortunately for Russia, the latter school won the debate in the Treasury Department and in the IMF. Or, to be more accurate, the Treasury Department and the IMF made sure there was no open debate and then proceeded blindly along the second route. Those who opposed this course were either not consulted or not consulted for long. On the Council of Economic Advisers, for example, there was a brilliant economist, Peter Orszag, who had served as a close adviser to the Russian government and had worked with many of the young economists who eventually assumed positions of influence there. He was just the sort of person whose expertise Treasury and the IMF needed. Yet, perhaps because he knew too much, they almost never consulted him.

So one implication one might naively draw from this is that the US Treasury Department believed in a policy of privatization, liberalizing financial and capital markets, fiscal austerity, etc. without regard to the specific problems of individual nations. In other words, very close to economic libertarianism. Libertarianism holds that (given basic infrastructure such as courts and police) removing subsidies and privatizing virtually everything except the police, judiciary and military is always the right thing to do, irrespective of prevailing economic conditions in a particular country. Let's call a spade a spade here.

But wait - just one second! How could that possibly be true? The US government (whether headed by Republicans or Democrats) has no intention of applying anything as extreme as economic libertarianism to the US itself. The disparity between the policies the IMF wrote into its loan/aid contracts and the policies pursued by the US is striking, as others in this discussion have already pointed out: farm subsidies, tariffs, financial market regulations, protection for national industries, bailouts of failing megacorps especially in cases of investment bubbles, export guarantees for defence contractors, truly massive procurement and R&D subsidies to industry under the "Defense" and "Science" headings in the federal budget - the list of what count as "market interventions" according to libertarian dogma and yet are carried out massively by the US government just goes on and on! - even environmental laws and labor laws have been classified as "trade barriers" in WTO disputes and negotiations. As Noam Chomsky often puts it, in the US it's a case of "free markets for the poor, socialism [i.e. socialised risk] for the rich". In other words, the poor have to deal with the cold, hard realities of capitalism with hardly any governmental safety nets - whilst the rich, who need a safety net least, are subsidised by the rest of us to the tune of $billions per year.

So clearly there is a double standard here. One policy for the US, one policy for IMF debtors. The question is why?

Whose interests does the US Treasury Department serve? Well, as free marketeers are fond of pointing out, if you want to know why people do things or don't do things, look at the incentives. Let's rephrase the question. Whose interests does the US Treasury Department have greatest incentive to serve?

Clearly the Treasury Department is answerable to the administration. Whilst elected politicians are unlikely to approve policies which will anger 90% of the population to the extent that they will be voted out, there is of course a more important constituency here - those who provide the vast majority of the campaign funding for both the Republicans and the Democrats. Large corporations. Corporations have the vast resources which ordinary voters don't have, to track and lobby for legislation, fund think-tanks and advertisements to skew the media debate and influence voters - and yes, most importantly, bribe politicians. Without significant corporate campaign funding, the reality is you are extremely unlikely to be able to compete with those who have and get elected to Congress, Senate or President. Corporations really do hold an axe over political life - you can see this by counting the number of reps that consistently go against their campaign backer's interests. (It wasn't always this way. In the early days of the US, as Kalle Lasn points out, corporations were prohibited from interfering in the political process.)

It's important to remember that this probably isn't as crude as officials saying to each other "Don't do that or Rep. X's backers won't like it!" - at least not most of the time. It works to a large extent by ideological selection (and doublethink). Those who are "idelogically unsuitable" are never hired in the first place. Officials and experts who start to disagree publically, like Stiglitz, are excommunicated.

Now, the self-interested motivations for corporations in this IMF fiasco are mixed (and often differ from corporation to corporation, of course). Indonesian-style riots or massive inflation is not necessarily good for corporations which have set up shop in a country - hence the capital flight experienced whenever an IMF "five-year plan" (Soviet reference intentional) goes sour. However, neither are corporations particularly interested in spreading peace, hapiness and economic development to the whole world. The Treasury Department and the World Bank / IMF inherits this distinct lack of interest in humanitarianism.

For example - you might think that all businesses favour peace over war, because it's hard to do business while a war is going on, right? Not at all. "Defense" (i.e. war) contractors love it! (And, as one would expect from a self-interested business, they will quite readily fuel both sides of a civil war, thus lengthening it, and go to great lengths to pursue lucrative contracts even with embargoed countries/rebels and prohibited weapons such as landmines - often exploiting quite legal loopholes - by tactics such as shipping through third party countries, or even - get this - renaming weapons to get around laws! For example, even though the UK has made selling landmines illegal, they were quite openly on sale as "antipersonnel devices" at a recent government-sponsored UK arms fair - attended by such paragons of human rights as Saudia Arabia.)

The World Bank / IMF is very much involved in the arms trade. Loan/aid deals are often tied to arms contracts - so that much of the money goes straight back to the lending nations, instead of being spent on education, health-care, or infrastructure. Libertarians often cite the "corruption" of Third-World governments - while remaining curiously silent about the Western defense firms that surely lobbied for this show of IMF "generosity" in the first place. (Indeed, when I pointed out the fact that this military spending is often not due to "corrupt" third-world governments so much as the governments being forced to buy weapons as a condition of the desperately-needed loans, one libertarian called me a lunatic.)

Stiglitz himself said, in my linked article 'The US Treasury view was: "This was great, as we wanted Yeltsin re-elected. We DON'T CARE if it's a corrupt election.." ' .

Once again, the IMF is not interested in spreading development and democracy around the world. It is only interested in those insofar as they meet its real aims, which are to benefit Western corporations and Western economies. I've given one example - defence contracts - if you want more, I'll be happy to provide them, but there's plenty of cogent IMF critiques on the net already.

Repeatedly, the US government says "We are pursuing this policy because it is in the national interest", or "We are not pursuing this policy because it is not in the national interest". In this they are being absolutely truthful - if you remember that in politican and mainstream media doublethink, "national interest" does not mean "interests of the general population", it means "interests of my constituents", i.e. big business.


"Capitalism is the absurd belief that the worst of men, for the worst of reasons, will somehow work for the benefit of us all." -- John Maynard Keynes
[ Parent ]

The IMF and Evil Corporations (4.50 / 2) (#20)
by Simon Kinahan on Mon Sep 03, 2001 at 06:27:26 PM EST

You say a lot of things I agree with, and a few things I don't agree with or am curious about.

Firstly, I'm afraid I don't consider ZNet a particularly reliable source of information, which is why I went looking for another source of information. Their articles tend to be one-sided and to lack references. I find I'm almost always more moderate/further to the right than their "editorial" position. While I don't mind their editorial bias in itself, I'd like to have the primary sources on hand to filter their bias out and insert mine in its place. This is one such case, so as a matter of interest, do you have a URL or similar for an interview with Stiglitz where he criticised the world bank in similar terms to the IMF ?

In my view, and this is just a personal opinion, the IMF is a redundant organisation that should be closed down if only anyone knew where the off switch is. The World Bank, on the other hand, as a AAA rated lender prepared to lend to government's whose sovereign debt is considered junk *can* be a valuable institution, and *has* done some good (as well as harm). Stiglitz opinions of "Washington Consensus" aid policy appears to be basically uncontroversial amongest development economists. Certainly the likes of Paul Kruger and Amartya Sen have said essentially the same things. I'd also like to point out that libertarians (with whom I have several disagreements) are ardent non-interventionists. Its not, therefore, fair to call policies foisted on poor countries by ignorant bureaucrats "liberatarian".

On the organisation of the IMF: its not a company, and therefore does not have shareholders as such. Its an international organisation created by treaty, and executive control is wielded by a board of governors, one from each member state. Decisions of the board are taken by vote, where each state wields a number of votes calculated, presumably, as a function of how much they've contributed and (supposedly) benefitted over the years. The US (the sovereign state - not the treasury department) has 17.16% of the total votes. By far the largest number wielded by any member, but not a majority. That 51% number, if it has any legitimacy, is probably the total voting power of the net lenders. You can check this here.

On the issue of the arms trade: I'd be interested in a primary source for tieing of IMF loans to arms contracts. As I understand it, the IMF loans money "on its own account", from funds contributed by the lending nations, and therefore I have trouble seeing how such ties could be made to bind. I know lots of "development aid" that comes direct from the Paris club countries is tied either to arms contracts or to other tacit industrial subsidies. I am specifically interested in IMF lending in this case.

Now, on to what I suspect is our primary disagreement. While commercial interests certainly wield considerable influence over the governments of the west, the forces are not as strong, or as sinister, as you and others make out. With regard to domestic politics, where powerful, organised or potentially organised groups array themselves against those interest, both the firms and the government promptly cave in, even where they were in the right. Look at the Brent Spar oil platform, for an example. Companies hate bad publicity. Its their achilles heel. While getting a few pennies off the cost of T-shirts may interest them most of the time, bring on the possibility of a few thousand lost sales, and they run like mice. To quote a recent interview with Bjorn Lomborg: when he asked the confederation of Danish employers why they had done nothing to promote the work of Julian Simon (another economist who spent time debunking environmentalist claims), they answered simply "it would be bad publicity for us".

Having said that, these forces that prevent corporations from doing what they like within the West are weaker in the developing world. Civil society is weaker - though not as weak as we're often tempted to suppose - there than it is in the west, and information often takes time to get back to a firm's "home market". However, you only have to look at Shell or Nike to see that these forces do exist and do have an effect.

Its also hard to see the mechanism by which these firms can influence the IMF. As Stiglitz points out, even internationally renowned economists working for the World Bank have trouble finding a mechanism to influence the IMF. While the lending countries - especially the USA - do present one such route, its hard to see anyone bothering to buy the number of senators required to change even US policy in the IMF, let alone affect IMF policy as a whole, when the entire government of the recipient nation, or at least significant parts of its, are probably both more openly and more cheaply for sale. The most thats going to happen is a slight bias towards US "commercial interests".

Additionally, its hard to see the interest of many companies in destroying the economies of poor countries, and most especially in trying to keep their people poor. Rich people, after all, buy more cellphones, Nike clothing, and petrol than poor people, and if its wages your concerned with, there are still quite enough poor people in the world to sow T-shirts without creating more of them.

Hence, on the influence of corporations on the IMF, I have to say "case still not proven". The cock-up theory of socioeconomics seems a better explanation. Economic fashion - its interesting to note than 30 years ago the IMF was promoting nationalisation and government planning - and selective pressure from interest groups - not all of which are corporations - account quite well for the current state of "development policy" in my eyes. Which isn't to say I think its good. Its not. Its shit, in fact. The world's poor would probably be better of if the interfering gits in Washington would just let well enough alone. In spite of that - and no thanks to the IMF - we can be somewhat grateful for the fact that even the poor have more to eat now than they did in 1945.

I actually intended to close there, but on rereading your post, I realise there are two things I still want to say. Firstly, on Noam Chomsky, while I have the greatest respect for his incredibly incisive analysis of reporting, policy and events on the ground, I disagree strongly that anyone's real interests are being served by much of what he criticises. He tend somewhat too far towards conspiracy as an explanation, whereas I personally prefer stupidity. Having worked for several large organisations, it seems more realistic. Most of those in charge would be hard put to conspire to make coffee, let alone take over the world.

And lastly, I wanted to say that in spite of the appalling length of this post, we probably still agree more than we disagree.

Simon

If you disagree, post, don't moderate
[ Parent ]

Rich and poor. (4.75 / 4) (#9)
by Paul Johnson on Mon Sep 03, 2001 at 08:19:04 AM EST

I sympathise with Stiglitz's POV, especially the bit about the IMF riot. But on the other hand I can also see the problems.

A major problem is rich country protectionism. The EU spends billions on farm subsidies which make it impossible for 3rd world countries to sell food to rich ones. The Common Agricultural Policy (the name of the policy in question) was originally designed after WW2 and the primary design goal was to ensure that a naval blockade would never leave European countries short of food. The British in particular had bitter memories of rationing and the lost ships from the Convoys.

But farmers are a powerful lobby across Europe and they don't want to see the end of protectionism. European politicians bow to them, and won't sign up to "free trade" treaties unless CAP is excluded.

But on the other hand many of the poorer countries genuinely need to liberalise their economies. Unregulated capitalism can be bad for your health, but its still better than a corrupt and inefficient state sector. Here in the UK we have several industrial sectors which are bad jokes, amongst them the railways and the water supply. They were all previously run by the government. Back in the 70s our national car industry and telephone system were similarly bad, but then they were privatised. Its true that British Leyland morphed into Rover and has subsequently been bought, sold and downsized into a shadow of its former self. But I regard a change from something that cost the government billions to produce cars that nobody wanted into something that doesn't cost anything as an improvement.

The problem with privatisation in poor countries is that you need an effective regulatory system and independant judiciary to keep the government and civil service snouts out of the trough, and few poor nations have such things. Without them "privatisation" becomes an excuse for theft on a grand scale. But bear in mind that controlled economies tend to have huge amounts of corruption and graft anyway. In many such countries the main income for civil servants is the bribes they can extract from people who need permits to do stuff.

The other thing which tends to trigger the "IMF riot" is an end to government subsidies on staple foods, petrol, water, or whatever. These subsidies tend to happen in countries with centrally controlled economies because its a handy way to keep the people happy: whenever there is trouble just drop the price of petrol/food/water/whatever. Problem is, if people are not paying the economic price for something then they either use it wastefully or flog it somewhere where it isn't subsidised. Either way is a major drain on the government finances.

Paul.
You are lost in a twisty maze of little standards, all different.

Corruption is an excuse (4.00 / 3) (#10)
by marx on Mon Sep 03, 2001 at 10:29:15 AM EST

The problem with privatisation in poor countries is that you need an effective regulatory system and independant judiciary to keep the government and civil service snouts out of the trough, and few poor nations have such things.

I guess if you have such a system though, then your previous argument is irrelevant:

Unregulated capitalism can be bad for your health, but its still better than a corrupt and inefficient state sector.
So what are you really saying? Let's fix their judicial systems, but meanwhile, with the corrupt system as an excuse, let's also introduce a high degree of capitalism? Is this your general idea?

I think the problem is that people are equating state control with corruption. This is provably not true. Sweden has a high level of state control, but a very low level of corruption. Russia now has a low level of state control, but still a very high level of corruption. Russia previously had a very high level of state control, and also a high level of corruption. Corruption is an independent quantity which does not magically disappear by introducing capitalism.

It's also a bit ironic that proponents of free markets and liberalism are suggesting forcing countries to adopt certain policies to solve their problems. This has a certain "5 year plan" ring to it, which completely contradicts the basic philosophy of liberalism. If they truly believed that people are self-regulating, then they would suggest that the democratic process in these countries should be left alone to run its course.

I'm not against having a private sector. As you say, state-controlled industries can be inefficient, while private industries can do better (your railroad example is a bit incorrect though, since I think Britain has never had as much problems with its railroads as after the privatization). However, I think people must realize that since a state-controlled industry is operated through democracy, it truly has the people's best interest as a goal. This is definitely not true for a private industry. This means that wherever it's possible, the state should operate the industry, and only where it's not, the industry should be opened up to the free market.

Join me in the War on Torture: help eradicate torture from the world by holding torturers accountable.
[ Parent ]

Small industries are key (4.00 / 1) (#21)
by blang on Mon Sep 03, 2001 at 07:36:13 PM EST

I'm not against having a private sector. As you say, state-controlled industries can be inefficient, while private industries can do better (your railroad example is a bit incorrect though, since I think Britain has never had as much problems with its railroads as after the privatization). However, I think people must realize that since a state-controlled industry is operated through democracy, it truly has the people's best interest as a goal.

Agreed wholeheartedly. Forcing a government to sell cornerstone industry to private investors is more of a distraction to an economy than a change of course. In most economies, growth is driven by small industry and services. In the big picture, the one that matters for each citizen, the megacorps have little impact. In fact, the state owned industries may be the only reliable export industries, and dismantling it before small industries are thriving, and small business get used to paying taxes, is devastating to the public sector.

I really think IMF is a corrupt organization. You may even find some of the G8 state heads involved in shady affairs. I am not sure if IMF was involved, but Goerge Bush the elder, had several dealings under the table with a Canadian mining company, helping them get their hands on lucrative foreign properties.

He was paid handsomely after his involuntary retirement from the presidency for his "services".
-- What would Brian Boitano do?
[ Parent ]

History (4.33 / 3) (#24)
by Paul Johnson on Mon Sep 03, 2001 at 08:08:17 PM EST

Britain has never had as much problems with its railroads as after the privatization

Before privatisation the railways were run on a theory of "managed decline": they were a sunset industry, eventually they would disappear, so there was no point in trying to preserve them. Just keep them ticking over as cheaply and inconspicuously as possible.

Then they were privatised and the people running the railway companies (as opposed to Railtrack) started persuading people to come back to trains. Passenger numbers increased. The long-neglected infrastructure couldn't cope, and was not helped by the fact that Railtrack was badly run. So suddenly it looked like the railways were failing, when they were simply victims of their own success.

Its funny that nobody has picked up on my other examples of BT and British Leyland. The old GPO telephone system was almost as bad as the French phone system. It took 6 months to get a line installed. You were only allowed to connect equipment rented to you by the GPO, and for many years ansaphones were not on the list. If you were stylish you could get a Trimphone, but the dial was so stiff that you had to hold it down to use it!

Meanwhile British Leyland were infamous for getting huge subsidies to produce cars that nobody wanted.

since a state-controlled industry is operated through democracy, it truly has the people's best interest as a goal.

No, it has the best interest of the people who run it at heart. That is not the same thing. In private industry you make money by producing something that somebody wants at a lower price than the competition (OK, so its not quite that simple, but I haven't got space for a textbook on microeconomics here). In a government controlled industry you make money by persuading the government to give you more money, for example by hiring more people so that you are a more important manager because you run a bigger department, or just by going on strike so that the government gives you a pay rise to shut you up.

All big organisations suffer from perverse incentives of this kind. But you can't solve the perverse incentives in a big company by nationalising it, because that just makes it part of an even bigger organisation and so increases the scale of the perverse incentives.

Paul.
You are lost in a twisty maze of little standards, all different.
[ Parent ]

Corruption and State Control (4.00 / 1) (#27)
by hughk on Tue Sep 04, 2001 at 05:02:26 AM EST

Sorry, the regulatory system is usually half the problem. Build a factory in Russia and discover how easy it is to meet the regulations imposed by the local fire department!!!

The problems goes beyond the judiciary, because unless the entities responsible for the enforcement of rules and regulations are themselves also free of corruption, the system is doomed. It doesn't matter whether this is the militia, or in this case, a building inspector, you can choose which rules and regulations to apply.

One of the critical areas that does need development is the rule of civil law. If corrupt officials risk being sued in court over their decision making, they will get a lot more nervous about awarding contracts for bribes.

Oh, and I have worked on projects funded by the WB as well as other agencies in Eastern Europe and Central Asia so I do know something of this.

[ Parent ]

Regulation is a tool, not the cause (4.00 / 1) (#28)
by marx on Tue Sep 04, 2001 at 05:39:42 AM EST

Sorry, the regulatory system is usually half the problem. Build a factory in Russia and discover how easy it is to meet the regulations imposed by the local fire department!!!

I did not say that corruption cannot occur in a regulated system. What I did say was that a regulated system does not imply that you have corruption. I also claimed that a non-regulated system does not imply that you do not have corruption.

If someone wants to extort you, he needs to have power over you. Since the fire department has the power to forbid people from constructing buildings, they can use that power when the legal system does not work correctly. However, if there was no regulation, other means could be used just as well, for example threat of force. Here is an example from coltan mining in Congo:

'In the morning, when you get up, the Ugandans hand you a pack of cigarettes, and they give you two bottles of beer,'' said Bangazuna, explaining his daily routine. ''In the evening, when you finish digging, you have to pay them back with coltan. It was very expensive. One bottle of beer cost me two spoons of coltan'' -- about $8 -- and cigarettes were one spoon. If you refuse to pay or if you don't have coltan, they beat you and threaten to shoot you.''

So maybe if there was no fire regulation, the local police or military would "offer" you protection for the same kind of payment as the fire department is extracting. Regulation is only a tool, it is not the cause of the problem. If regulation is not there, it will simply be replaced by some other tool.

Join me in the War on Torture: help eradicate torture from the world by holding torturers accountable.
[ Parent ]

Double-edged example (3.00 / 2) (#13)
by crank42 on Mon Sep 03, 2001 at 11:09:16 AM EST

Here in the UK we have several industrial sectors which are bad jokes, amongst them the railways and the water supply.

Right. And the privatising of the water systems was an unmitigated disaster.

Admittedly, part of the problem is that former bureaucrats, used to being checked by public policies, were suddenly turned into "entrepreneurs", and had no idea how to extract profit from their new ventures while simultaenously keeping them in good repair. But the water loss rate in many parts of Greater London was considerably worse after privatisation; and new investment eventually had to be given up completely by some water authorities in favour of panicked repairs to almost all of their water grids.

I'm not suggesting that governments automatically ought to run some things (I think they should, but not for economic reasons); I'm suggesting, instead, that the attempts at privatising water (the UK's experience is not unique) are a good example of how private ownership is not a magic bullet.

[ Parent ]

Railways (2.50 / 2) (#15)
by Pacou on Mon Sep 03, 2001 at 11:12:26 AM EST

Here in the UK we have several industrial sectors which are bad jokes, amongst them the railways and the water supply. They were all previously run by the government

So the fact that since privatisation fares have shot up and there have been a string of accidents causing nationwide 'safety restrictions', making the trains more infrequent and running slower than ever is all the government's fault? We should thank our lucky stars that those selfless people at Railtrack have rescued us from such incompetence! They are worth every penny of the massive bonuses and salaries they keep awarding themselves!

[ Parent ]
Yup (4.00 / 2) (#23)
by Paul Johnson on Mon Sep 03, 2001 at 07:46:05 PM EST

Most of those people at railtrack previously worked for the government when the railways were nationally owned. Also the current state of the railways has more to do with a long history of government neglect than a few years of private ownership.

The "string of accidents" is an illusion: there are more trains carrying more people, so of course there are more accidents. AFAIK the number of deaths per passenger mile has stayed constant. And the six months of speed restrictions have forced a lot of people to travel by road, where paradoxically they were far more at risk than if they had been able to carry on travelling by rail. That probably killed more people than the original accident.

Fares have shot up because subsidies have gone down.

Paul.
You are lost in a twisty maze of little standards, all different.
[ Parent ]

What is a "free market"? (4.50 / 4) (#11)
by Anatta on Mon Sep 03, 2001 at 10:36:27 AM EST

Is it what George W. Bush and Bill Clinton call it, or is it what the Cato Institute calls it?

A quick look at the Libertarian Cato Institute suggests they don't disagree with comments about the evils of the IMF and the World Bank. They see such groups as hinderances to free trade. The Cato Institute has articles on its site like Abolish the IMF and Fire the World Bank which explain their position. Searching in the Cato Institute's search box for either will produce a long string of hits.

The Bank and the IMF have great power over the countries they lend to, but have little power over lender countries like the US and EU nations. Consequently, they can recommend ending agricultural protectionism in lender countries, while they can force opening other trade barriers in borrowing nations. This skews the trade, and does not allow poorer nations to compete because of subsidies in richer countries. It's not free trade at all.

Most libertarian information sources (e.g. Reason Magazine, Cato Institute, and the Libertarian Party) tend to be very much in favor of ending protectionist policies, ending the IMF and World Bank, and many even suggest ending the debt.

That the head of the World Bank came out against free trade isn't very significant, as we really haven't seen free trade in most cases, and he certainly wasn't pushing for it even when he was at the Bank. In that way, the protesters are right, even though if they had their way, their "end" would be worse than the current situation. Arguably the biggest thing the protesters could do is to protest their own countries and end their own protectionist policies. There are some that do, but I don't think it's anywhere near as fashionable as some other causes.
My Music

So what is a "free market"? (4.33 / 3) (#14)
by marx on Mon Sep 03, 2001 at 11:09:30 AM EST

Also see my post above.

If the actions of the IMF and the World Banks are profitable for companies in industrialized countries (by decreasing competition from companies in third world countries), then according to free market theory these companies must support them. So in a "true" free market, without these institutions, equivalent institutions would be created because that is what is most profitable for these companies.

There seems to be a fundamental delusion in libertarianism and with free market proponents that companies will follow the rules and play fair in the market. The problem is that manipulating the rules is part of the game. Have you never wondered why companies spend so much money on lobbying politicians? Surely, if lobbying was not profitable, it would not occur. Just like humans have "outsmarted" evolution by modifying their environment instead of themselves, so can companies. It's much cheaper to get some politician to create laws which destroy a competitor instead of actually out-competing him. So why would companies not do this?

Join me in the War on Torture: help eradicate torture from the world by holding torturers accountable.
[ Parent ]

It ain't what we got. (3.50 / 2) (#22)
by Wah on Mon Sep 03, 2001 at 07:43:45 PM EST

There seems to be a fundamental delusion in libertarianism and with free market proponents that companies will follow the rules and play fair in the market. The problem is that manipulating the rules is part of the game.

This is the concept of "reflexivity" that Soros uses in his book "Open Society". Our current notions of markets do not accept the fact that they can change themselves. This is why we have media companies writing media law, and insurance companies writing insurance law. And of course, they write them to benefit themselves, like any people would. But people want Freedom (to pick a word) and companies want only profits, and then you get what we have here, which is a failure to communicate. (G 'n R, Civil War, reference)
--
Information wants to be free, wouldn't you? | Parent ]

I must admit (none / 0) (#31)
by PhillipW on Tue Sep 04, 2001 at 01:56:01 PM EST

You slipped in that GNR quote perfectly. Now if only I had a way to quote "Welcome to the Jungle"...

-Phil
[ Parent ]
OT: G'n'R quote (none / 0) (#34)
by AlFresco on Wed Sep 05, 2001 at 04:09:43 AM EST

and then you get what we have here, which is a failure to communicate. (G 'n R, Civil War, reference)
I think this was sampled from 'Cool Hand Luke' - excellent film

[ Parent ]
you're right (OT) (none / 0) (#35)
by Wah on Wed Sep 05, 2001 at 09:56:14 AM EST

I think I heard it first from the G'n'R song (and thought it was an old lady). Then saw the movie later. Which would make the next part "which is the way he wants it, so he gets it" kinda funny.
--
Information wants to be free, wouldn't you? | Parent ]
I don't get it (2.50 / 2) (#17)
by crayz on Mon Sep 03, 2001 at 02:28:05 PM EST

The Bank and the IMF have great power over the countries they lend to, but have little power over lender countries like the US and EU nations. Consequently, they can recommend ending agricultural protectionism in lender countries, while they can force opening other trade barriers in borrowing nations. This skews the trade, and does not allow poorer nations to compete because of subsidies in richer countries. It's not free trade at all.

On the one hand, all the free-market types say to privatize everything, and remove all regulations, because that will be the most profitable. Then, when one country/group doesn't, and the free market ones have problems, it's said that it's because of the regulation. Well this doesn't make sense. Shouldn't it be the countries that have regulations that do worse, and the free-market ones that do better?

See what I mean?

[ Parent ]

Consider the Prisoner's Dilemma (none / 0) (#32)
by Robert Uhl on Tue Sep 04, 2001 at 04:37:27 PM EST

Regulations are like the prisoner's dilemma: if other nations have them, then one is better off with them as well. If other nations don't have them, one can be better off by having them. But if no-one has them, then we are all much better off than previously. It's obvious: if you are a free trader, but I refuse to buy your goods even though they are better for me, then you're screwed royally and I but a bit.

[ Parent ]
What is "Libertarian"? (4.00 / 2) (#18)
by mrBlond on Mon Sep 03, 2001 at 03:27:15 PM EST

Is it the freedom or ability to choose, unconstrained by external agencies? Is it the freedom not to be economically oppressed? Is the freedom to shut up and not upset the plutocrats?
--
Inoshiro for cabal leader.
[ Parent ]
Soros IS an veggie-warrior, just not a stupid one (4.77 / 9) (#25)
by Wah on Mon Sep 03, 2001 at 08:40:52 PM EST

I've been reading one of his books, and I'll give you a couple quotes.

Capitalism is very successful in creating wealth, but we cannot rely on it to assure freedom, democracy, and the rules of law. Business is motivated by profit; it is not designed to safequard universal principles."

and a bit on the "free market"

"Market fundamentalists (laissez-faire extremists) hold that the public interest is best served when people are allowed to pursue their own interests. This is an appealing idea, but it is only half true. Markets are eminently suitable for the pursuit of private interests, but they are not designed to take care of the common interest. The preservation of the market mechanism itself is one such common interest. Market participants compete not to preserve competition but to win; if they could, they would eliminate competition."

Take that to the next anarchy meeting. I think it could be paraphrased, business is good, but it wants to be best, so it kills the others, and becomes the worst.
--
Information wants to be free, wouldn't you? |

The question boils down to: (4.00 / 2) (#26)
by ariux on Tue Sep 04, 2001 at 04:39:59 AM EST

Is the IMF evil, or merely stupid?

It's hard to say. Fortunately, we don't need to - in either case, our response should be: investigate them; then replace or defund them, depending on what we find. It's time for one of those piercing little self-examinations democratic governments are so good at.

Where is this constructive? (4.00 / 2) (#29)
by hughk on Tue Sep 04, 2001 at 06:56:13 AM EST

I have worked on a project funded with WB money as well as other projects with funding from other sources. I am not an economist, just a supposed expert on financial markets. I can't talk about the higher-levels but I can comment on how things work on the ground in a couple of former Soviet countries.

We have a privatisation which, on the whole, wasn't very successful. A few people who were well placed walked away with the spoils and nothing has really changed. The comparative good times earlier happened because the Soviet Union was bankrupting itself. The system lacked transparancy so few people realised how bad things were.

WB and IMF funding is in the form of loans. The loans are under very generous terms but they are not just gifts. The idea is that the country feels the loan and tries to be wise in how the money is spent. Unfortunately, the local politicians consider this another honey-pot to steal from.

I do not sympathise much with the governments there. On the whole, they are very undemocratic with little room for dissent from the official party line. Russia, though is perhaps better than some. My sympathies go with the people.

If a person feels they would rather save their money as dollars under the mattress than as a currency that is rapidly falling in value (to the benefit of the govt.), then why shouldn't they. This is not true capital flight until they leave the country, which many end up doing.

Many of the governments try to finance themselves with short-term debt instruments. Long-term is usually out of the question due to the preceived reliability of their economies. I was at an OECD sponsored meeting of Central Asian countries shortly after the '98 devaluation of the rouble, and they were all eager to dig their own holes by imitating the Russians.

Short-term debt is great but only for financing deficits caused by economic growth.

I do agree with the point about about the globalisation of trade, at least to a limited extent. Again, it is never a problem for the powerful to import or export anything. It is just a problem for the common person. So the local price of agricultural goods is a fraction of the world price.

Somebody then exports these goods, for example, cotton and makes a fortune on the difference between the internal and external prices. The issue of getting over the NAFTA/EU tarif barriers is secondary and does not benefit the average person in the country.

The WB does try to reduce the local obstacles so that prices can rise, as well as wages but that is difficult. Getting the stepping right is far from easy (and those with the privilege to export, fight to keep it).

World Bank & free markets (3.00 / 1) (#33)
by maskatron on Tue Sep 04, 2001 at 07:17:01 PM EST

I don't think the original poster knows what the World Bank & IMF do - they make shitty loans to corrupt governments that hardly ever pay them back. They're more like nation state welfare than anything.

Ceation of wealth (none / 0) (#36)
by gjbloom on Wed Sep 05, 2001 at 10:50:07 AM EST

Helping the poor is all about helping them help themselves. Loaning money to governments that don't understand this is not going to help the problem, hence the failure of WB/IMF efforts. By focussing on eliminating the obstacles to and creating structures for self-help, we can enable the poor to produce wealth. Essential steps include:
  • Minimize government interference in creation and operation of businesses
    • In many "developing" nations, it can take six months and much baksheesh to get official permits to establish a business.
    • In places like the US, a business can be established in less than 45 minutes.
    • In some "developing" nations, businesses are taxed at rates that amount to 100% of profit.

  • Minimize obstructive competition
    • Competition that results in better products or services at lower prices must be encouraged.
    • Obstructive competition in the form of monopolistic practices intended to inhibit fair competition must be discouraged by statute and enforcement. (The race must go to the swift, not to the one who trips the other runners).

  • Enhance freedom and security of capital and ownership
    • A person considering business should know that their enterprise is secure, will not be siezed by a capricious government, and will be vigorously defended by government against illegal siezure by others.
    • They should also be free to borrow and lend capital and to buy and sell goods with whomever they choose without interference of government or competitors.

History has repeatedly shown that growing wealth is like gardening - with the right combination of seeds, sun, soil, water and management, beauty flourishes. Lacking any of these fundamental ingredients, there is no garden.

Fair enough.. (none / 0) (#40)
by ajduk on Thu Sep 06, 2001 at 10:10:20 AM EST

You also need things like press freedom and freedom of information, which tend to counteract corruption, governmental and coorporate.

I think that a government can help with things like basic housing, sanitation, decent water supplies, roads, and basic healthcare. Experience suggests that whilst people in developing countries can't often afford these things from their own money, their excess productivity at work makes up for the cost if these things are provided.

Irony is that the IMF/World Bank plans always seem to undermine these things.

[ Parent ]
Wait, government-fostered freedom? WTF? (none / 0) (#37)
by weirdling on Wed Sep 05, 2001 at 07:03:53 PM EST

How, exactly, can what the World Bank and the IMF do be termed 'free trade'? There are so many policy strings attatched to that money, it's not even funny. True free trade would be if Wells Fargo saw fit to loan money to these countries, with *no* political requirements, but *with* an expectation of payback, which almost nobody has about what IMF and the Bank have done. In other words, this isn't capitalism; it's thinly disguised socialism producing what socialism always produces in the end: poverty and exploitation.

I'm not doing this again; last time no one believed it.
But why didn't it work? (none / 0) (#39)
by greenrd on Thu Sep 06, 2001 at 07:04:01 AM EST

True free trade would be if Wells Fargo saw fit to loan money to these countries, with *no* political requirements, but *with* an expectation of payback.

Whatever. The point I'm trying to make is, enforced free market policies within a country don't work. Point of fact. The question is why not? How does the political strings explain why it didn't work? You're just avoiding the main issue here.


"Capitalism is the absurd belief that the worst of men, for the worst of reasons, will somehow work for the benefit of us all." -- John Maynard Keynes
[ Parent ]

I'm avoiding the question? (none / 0) (#42)
by weirdling on Thu Sep 06, 2001 at 04:26:25 PM EST

What, exactly, are the free-market principles being enforced? Let's see: the Bank and the IMF tell people they need to repay loans and then loan them money everyone knows will never be repaid. No credible financial institution would so throw good money after bad. The market rewards fiscally conservative policies with improvements in the general situation of the economy but fiscally liberal policies with high inflation and eventual bankruptcy. The IMF and the World Bank are both enacting situations that are clearly not market-oriented.

A 'free' market can't be 'created' by a government. It must be let to happen. In none of the countries that the IMF and the Bank so egregiously interfere can the market be said to be 'free'. A result of the stipulation that moneys in these countries be capitalised such that they do not free-fall in comparison to some hard currency is the legal fiction that causes a thriving black market in hard currency and a total shortage in viable markets of said hard currency. Often, these countries begin to take over their economies, subsuming them into the governmental higherarchy, which the IMF seldom argues against. These actions, of course, doom the economies. Further, graft and corruption are rampant whenever free money is available, and this the IMF and World Bank are powerless to do anything about.

Anyway, the truth is that you can't 'enforce' a 'free' market. It's an oxymoron. It's inherently contradictory. Freedom can't be enforced; it can be legally protected. The only way to achieve a free market is to let the market be free. In other words, if government quits interfering, perhaps these third-world nations might learn something and quit depending on the IMF and the World Bank as their primary sources of graft, as *nobody* else will loan them a dime until they pay off their current loans. This would be a step towards fiscal responsibility, and much more helpful to their eventual success as citizens of the world than forgiving their debts right now would be.

Anyway, if these countries were simply to respect contracts with multi-nationals, their lot would improve, but they constantly use their small amount of clout to renegotiate or outright sieze control of assets in the country, making multi-nationals wary of investment in these countries.

What is certain is that worldwide enforcement of wage standards would be an unmitigated disaster in terms of developing countries. After that, no developing country will see a dime in hard currency, as it makes no sense to invest in these countries when a much more effective labor force is available. It is interesting to note that no one is accusing the people who wish to have a global wage standard of what is their most likely motive: keeping low-grade manufacturing jobs in the hands of their proletariat, those in first-world countries that are seeing these jobs go to second- and third-world countries. Just a thought...

I'm not doing this again; last time no one believed it.
[ Parent ]
"Faux 'Free Market' Dogmas Don't Work" -- Ex-World Banker | 42 comments (39 topical, 3 editorial, 0 hidden)
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