Ethics and Economic Performance When the Forces of Destruction Control the State
Although paid a great deal, orthdodox economists and many managers are having a hard time understanding what is going on at the moment in the US economy. This article is written to help them. It is about the effect of an ethical breakdown at the highest levels of society on the economy
The big hope in Washington was that, after a successful Iraq war, the US economy would bounce back. At the time of writing, Bush has cut taxes and his advisers hope that this, plus a victory in the Iraq war, and falling oil prices, will lead to a growth of consumer spending, as well as renewed investment spending. For those not familiar with the mysteries of economics, it should be explained that growing spending by consumers or companies (on investment goods) feeds sales, and then is supposed to feed into production and employment. Without those sales, production and employment are effected too.
The problem for Bush is that it looks as if the hoped for increase in sales of consumer, and investment, goods might not happen. This is not just because of the continuing international uncertainties but also because of what a Financial Times journalist calls a worrying climate of "embedded pessimism".
Bush hoped that the well off who benefited from tax cuts would spend more. However, it appears that they are using their money instead to reduce and reorganise their debts - and to save more. They are too cautious to go out spending. Companies are doing the same thing - reducing their debts and piling up cash. So the savings rate has gone up from 2% at the height of the boom to 4% now. The Bush government hasn't helped either by trying to stimulate the economy via tax cuts - rather than increasing government spending. Increased government spending would have directly increased demand - but tax cuts, as we have just explained are being used for savings and reducing debt.
So why is everyone so cautious in the USA? A clue is given in a little quote from Neal Soss, chief economist at Credit Suisse First Boston in New York (quoted in the FT). Unlike a lot of the fraudsters Soss appears to be able to read the reality for what it is - "The biggest forecast issue at the moment is the demythologising of of business leaders". According to Soss "the after effects of the 1990s bubble and its associated corporate scandals, are making executives scared of taking risks."
America's Corporate Elite in Crisis
After Enron and WorldCom, the American corporate elite has lost its nerve and lost its sense of orientation. They never were particularly astute, but they knew how to follow the herd on what economists call a "bull market", and what psychiatrists might, with more justice, call a period of collective euphoria, induced by money intoxication. The idea that you could get away with anything, and never lose, because the market was going up and up, was a self fulfilling one up to a point. The way the system worked was like this: earnings for the money junkies went up when stock market prices went up, so they kept on buying on a rising market and this, in turn, pushed the stock market prices even further. That pushed up their earnings further and so on. All that had to happen was for Alan Greenspan, the guru of the markets and supposed regulator, to stand up and confirm that things would continue to get better for ever and ever. Even the lack of savings in the US, which ought to have stopped the funding of the bubble did not stop them - because money junkies the world over were prepared to send over their money, and our pension funds too, to invest it in the speculation and the frauds. In this way a credit bubble of considerable proportions built up.
But reality had to set in at some point. Once the frauds started hitting the markets then that was bad news. Any real economic activity between humans - the sort that generates real wealth that is actually of some use - has to be based on trust. Without knowing that you can trust people, you have no basis for reliable decision making. You only invest in companies that you can trust. You only form business partnerships and plan things jointly, if you can believe your partner. Only trust can can give you a secure sense of what is going on and without it you are without orientation. This trust has to be based on a strong sense both of your partners integrity, and of their competence. In both senses the US corporate elite are fatally compromised.
If you surf the web now you can find tens of thousands of web sites of ordinary US citizens who have lost trust in their government, who have lost trust in their business leaders, who have lost trust in the reliability and coverage of their media. There are deep divisions opening up in US society. These same divisitions do not bode well for "consumer confidence". A society rent apart, a society living in fear, cannot develop. Fear saps the confidence to create the future. Conflict absorbs the energy, which would otherwise go into joint endeavours, and uses it fruitlessly in conflicts, crisis management and coping with the chaos that emerges when people are fighting against each other.
And there are many other reasons to be cautious as well - for one thing those very financial institutions that are supposed to be there for people's needs, when they are vulnerable, are now seen themselves to be in trouble. This is true for example of the US pension funds. According to the Financial Times in April the 100 biggest US corporate pension plans have fallen into a deficit of $127 billion from a surplus of $183 billion in 2000 due to the stock market collapse and falling interest rates.
People are not stupid, in fact they can see what is happening - far better in fact that the incompetent fraudsters, our self appointed betters, who lie to us with their PR machines, who launch wars to create contracts for their friends, who assume their right to live in luxury hotel rooms, who are blinded by their addiction to money.
When the producers of "bads" control the state
It has been a long standing complaint of Green economists that the figure for "Gross National Production" merely measures the level of economic activity and that is not, on its own, a very useful thing to know. This is because the figure for total economics activity lumps together the production of "goods" (things that are useful to us, like nutritious food, or housing) with "bads" (things like armaments)
This idea is of more than of theoretical interest when more and more production in a society is made up of "bads", and less and less of "goods". After a point, if the business interests in the society are so heavily weighted to the production of "bads" the economic and social structure will start to disintegrate at an accelerating rate - because the producers of "bads" are beneficiaries of the growing chaos that they cause.
You can see this clearly at work in the current crisis and you get a pretty good picture of the ethics of power brokers in the US in another FT report about companies who sell their connections in Washington for a fee. "Perhaps the surest sign that the campaign in Iraq has shifted from a military to a commercial footing is a conference to be held in Washington next month. ....'You are invited to participate in the most important reconstruction event of the year' the invitation reads. 'The Iraqi Reconstruction Conference will provide the latest information on reconstruction programmes and funding'. For just $595 (with a $100 discount for early registration) corporate executives are promised 'networking opportunities with top government officials' and an 'exclusive directory' of agencies and organisatins involved in the process."
Apparently "Equity International is not the only group operating in this area. A number of Washington lobbyists hold conferences on altruistic topics that are in fact designed to sell their access to government officials who make spending decisions. 'This is a sort of cottage industry, where the consulting firms try to feed off the disaster du jour' "
So now you know how it works. There's a lot of money to be made in disasters - for the arms industry, for security companies, the military logistics operators and for consultants. That's the free market for you - guaranteeing an optimal welfare for racketeers and gangsters who, having the protection and cover, as well as the connections, which years of working in the secret services offer, manage to grab control of a highly armed state with the support from the concentrated mass media empires - employing working journalists who cannot see further than the end of their own noses.
But it's the love of money that is the root of all evil, not money as such. And there are people with money who have integrity. Extraordinary people who do not make the headlines, but who make a difference, people like Sheikh Nadhan Mtasher Bahadi, for example:
"As one of the few working hospitals in Baghdad, Askan is inundated with patients. Over a thousand dead have come through this hospital alone, according to Sheikh Nadhan Mtasher Bahadi, an elderly man guarding the entrance, who says he has helped keep the hospital running through donations"
People like Sheikh Bahadi are facing an uphill task.
" US troops continue to patrol the city, and appear to have checked the
looting, but still have not received significant quantities of relief supplies to distribute" (note that it will be the US military distribting the supplies - because you don't bite the hand that feeds you I suppose, and least of all when you are starving).
" A US infantry captain said: ' We go out, do assessments, but these people are counting on us to deliver, and we haven't given them anything yet. If we can't come through for them soon, we're going to lose a lot of goodwill'
Jamal Abed Hassan, director of the Yarmouk hospital says he has had to refuse patients since April 7th, when his building was shelled, knocking out a generator. The same day, the building was looted, including 30m dinar ($13,000) for paying salaries. The mifortune followed the busiest day of the war. Dr Hassan says he had to treat 250 mostly civilians, who had been accidentally shot by US troops near the entrance to the airport on April 6th.
Quite an accident that! And perhaps we should notice how well the Iraqi hospitals, and Iraqi civilians are being looked after by America's corporate giants - and then remember that it is Dick Cheney's military logistics company, Kellogg Brown & Root, that has just been given the contract for overseeing the implimentation of the NHS computer modernisation.
Producing a Sustainable 'Goods' Future
So how do we get back to the production of goods? What, indeed, are "goods" in the current situation? Well, as the world stands on the brink of a global climate disaster, and a massive energy crisis because of the onset of oil depletion, clearly 'goods' are the basic necessities of life (not death) made as far as possible with less energy, closer to home (i.e. not wasting energy transporting them across global markets in order to inflate the profits of the multis).
That translates into an economic strategy of transferring resources to a massive programme of energy saving in people's homes and neighbourhoods, the development of organic food sources and more localised food production, and regulatory instruments for the conservation of energy, which should be shared equally and fairly between the world's people's, as well as being shared fairly in each individual country as well.
It also translates into transferring the high tech resources and expertise of the arms industry into a programme for the production of renewables and to urgently find the new technologies to clean up the filthy mess the racketeers have made of the planet.
This is what is meant by sustainable development in which economic, social and ecological needs are all held in balance for the benefit of all humans, and to protect and respect the other senient creatures and life forms on the planet.
If you like, it is an ecological New Deal, evolved jointly by the people's of the world in dialogue, through a reborn United Nations, that has not only broken free of the war mongers, but which has brought them to account. The United Nations has now to be refounded to re-establish international law by bringing the war criminals to trial in a new Nuremberg style process. It must then be made by people of good will, world citizens, to stand firm on the principles of human rights, on economic and energy justice for all. It must be kept to this course of justice by the independent power of a growing global movement for real change.
Or we will all die as the chaos accelerates and we disappear into the abyss.
Brian Davey
Good Friday 2003