Sunday, August 14, 2011

Dealing With the Debt Crisis

As the financial skies darken and massive economic storms threaten the world, it is essential for people everywhere to understand that we are facing more than a double-dip recession.

We are seeing the end of the age that began with the trips of Columbus across the Atlantic (1492) and of Vasco da Gama across the Indian Ocean (1498).
The crumbling power structures of that era will cause great turmoil and the prospect of war is both real and close; but the situation is also ripe with opportunity. Strategic nonviolent action can mobilize people globally to avoid disaster and usher in a new era of democracy and peace. To see what nonviolent activists need to do we have to understand how the current situation developed.

The global expansion of European power that began 500 years ago laid the foundations of the current world economy. Before that, long distance trade consisted entirely of easily transported luxury goods like silks and spices, ivory and gemstones. With the enslavement of peoples in Africa, Asia and the Americas, and the development of large sea-going vessels, agricultural commodities (opium, sugar, tea and coffee), were for the first time traded over long distances. After the industrial revolution of the 17th and 18th Centuries, minerals and manufactured goods joined the mix. The volume of exchanges increased dramatically and, with a few exceptional periods such as the Great Depression of the 1930s, has continued to do so to this day.

The institution central to these developments since the 17th Century has been the joint-stock corporation, the first of which was the East India Company, chartered in 1600. Its centrality is easily explained: the corporation allowed investors to share risk and it limited individual liability.

As the number of investors and corporations grew, so did the support structure of stock markets, banks and brokerage houses. During the 20th Century, economies of scale led the most successful corporations to grow into multinational conglomerates. In the process, family owned companies came under professional managers who took strategic direction from bankers focused on the bottom line.

While that was happening, a parallel process saw corporations enter the political arena to protect their massive investments. Their influence soon grew into control, and in the richest countries they became the steel hand in the glove of government policy. Corporate power came to define social priorities and values.

In Europe, long-standing power struggles were infused with a sharp new energy, and war became a massively destructive -- and highly profitable -- corporate enterprise. That led to the military having a major say in State policy, especially in Germany, where an aristocratic officer class held sway.

Britain’s attempts to contain Germany’s rising power caused two world wars (1914-1918 and 1939-1945), and its efforts to retain an imperial role led to the “special relationship” with the United States that launched the “Cold War.” (In developing countries, where that confrontation was very hot, proxy conflicts killed some 100 million people, as against the 10 million in WW I and the 60 million in WW II.)

The Cold War saw the emergence of what President Dwight Eisenhower described in his farewell speech to the American people in 1960 as a powerful “military-industrial complex” dominating the constitutional government of the United States. It promoted militarization globally. The Cold War also saw widespread government sponsorship of terrorism and support of drug trafficking to pay for it.

The net result of this history is the world we have now, violent, corrupt and highly militarized, with bankers defining strategy in the above ground economy, laundering the proceeds of the criminal underground economy, and guiding government policy in the most powerful countries. The “debt crisis” now roiling the world stems directly from this situation, in which there is neither check nor balance on the overweening greed of bankers.

In the 1990s, with the willing support of a political class indistinguishable from the corporate elite, major banks began to package people’s debts as investment-grade securities. To maximize their profits they eased conditions on who could get loans and handed out billions of dollars to people who could not pay them back. When they began to default, banks were left holding staggering amounts of worthless paper. Their solution to the crisis was to have governments bail them out with taxpayer money.

Taxpayers in the wealthiest countries now face all kinds of austerities to deal with the huge imbalances in public finances. As governments cut back on everything except military expenditures, growing political uncertainty has slowed economic growth; with major nations falling into recession millions of people have been thrown out of work.

The threat of armed conflict in this situation springs from several sources. The first is the real possibility that as in the last Great Depression, the misery and anger of millions of people will empower fascist demagogues like Hitler and Mussolini. The country most threatened by such an outcome is China, where the Communist regime sits atop a mountain of bad debt that has powered a vast real estate bubble. With its export-led economic growth under serious threat, the regime could be faced with a volcano of popular political discontent, with entirely unpredictable outcomes.

India might be economically better off, but its incapacity to defend its borders, especially its coasts, will certainly invite adventurers in a time of general turmoil. If the Euro Zone ceases to exist, all its member States will be in a state of free fall and at risk of violent disruption, especially given the explosive problems posed by Islamic minorities in many of them. The recent “riots” in Britain (see previous post), indicate how cynical political leaders might exploit the situation.

In such a scenario public demonstrations and calls for changes in government priorities are of limited use. The die is cast, and it is likely that we will see global hyperinflation as the United States maneuvers out of its multi-trillion debt, and sharp deflation if China should collapse. The road ahead is uncharted, unstable and rocky.

 That is not to say that civil society activists can do nothing to deal with the current situation. If they organize at the community level and network globally, they can sidestep and defuse the entire crisis. In the process they can usher out the economic system rooted in the colonial era and replace its poisonous corporate globalization with a networked world at peace with itself.

[Anyone interested in specific proposals for bringing about such change should contact me at – and read Reviving Gandhi at]

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