At the height of the 1999 World Trade Organization ministerial meeting in Seattle, just as the proceedings were being suffocated by tens of thousands of street protesters, Pascal Lamy, then the EU’s trade commissioner and now WTO director general, pronounced that what the world was witnessing in Seattle was “a medieval process.”
Within earshot of Monsieur Lamy, legions of baton-totting gladiatorial robocops smacked their shins in unison. The Seattle Trade and Convention Center, from which M. Lamy uttered those words, had become a hollow fortress as the riotous discontents outside drew a line, ate Roquefort, and whacked a few store fronts.
A state of emergency was declared and the hapless citizens of Seattle sat helplessly watching as their city descended into chaos. It was a heady week for global civil society groups and by the end of it one couldn’t help but think that the post war political and economic architecture had a new crack. Y2K was a month away.
This weekend in Toronto, 10 years later — in the wake of 9/11, Bali, Madrid, London, Iraq, Afghanistan, and the on-going financial crisis — the major global powers meet in the latest iteration of the globalization saga.
An attempt will be made to come to a consensus on how to co-ordinate a re-writing of the rules and principles of global finance. In the wake of the financial markets collapse much has been made by the end of the “Super Bubble” and “Great Recession” crowd about the need to establish new rules and rebalance the world economy.
Yet little critical or popular discourse examines the increasingly labyrinthine complexity of the FIRE (Finance, Insurance and Real Estate) economy and how exactly it finally forced the global economic system over the tipping point. The FIRE economy has grown to be so large a percentage of the North American and European economies, that coupled with the devastatingly powerful capacity of computers to slice and dice economic data down to the millisecond, the laissez fair, self-policing doctrine of electronic wealth creation, valuation and economic management imploded. The math just didn’t add up anymore.
The capacity of virtual derivative-value-extraction methods had trumped real-world asset values. Wealth destruction was the swift, direct and merciless result. Some estimates suggest that up to $US 20-trillion was ruthlessly eliminated from the world economy.
Regardless of the true sum either removed from the economy or injected into insolvent financial institutions, what has become clear is that we have entered a brave new world of nominal and notional economic and financial values. The numbers were getting simultaneously bigger and some say surreptitiously less reliable and credible. Bond traders now openly question what the too-big-to-fail banks say, and they have begun to doubt governments’ capacity to provide reliable statistics — especially in Europe. Everybody and their cousin was in on the game says TARP Overseer and Harvard Law Prof Elizabeth Warren, who has recently pointed out that “nobody could even understand their credit card agreements” let alone credit default swaps.
When the era of easy credit evaporated the economy came to a grinding halt – it actually contracted at a rate 6 per cent at one point. The problem, however, became not that everyone had maxed out their credit cards but the fact that the economy was no longer producing enough legitimate economic output (read sufficiently high-paying jobs that generate enough disposable income to foster substantive and sustainable growth) to meet credit demand and bankers were not willing to do the hard work of actually trying to understand the new phenomenon of an emerging economic paradigm.
Gaming the financial system it turns out was a much easier way to make money. By reverting to the boom-bust ethos, by turning the taps off, by letting the smaller, newer players fall by the wayside, the major economic players were given carte blanche to consolidate. In short — a recession is good for business. The problem is that the GM and GE’s of the world had become financial companies and not just industrially driven output conglomerates. The money was just too good and too easy. Why work when you can just churn a contract that few even bother to read?
Beyond these obvious examples of human fallibility, however, lies a deeper perhaps more sinister malaise and betrayal, the edict that crises are the bane of economic disruption, innovation and growth. From a macro point of view it is a fairly persuasive, if destructive, argument, however it also fails to reconcile with another deep-seated human trait — the desire for stability, shelter, and sustenance. Seemingly at odds, chaos theory rears its ugly head as a viable economic paradigm. The problem is chaos doesn’t sell well with the masses as a governing mantra.
The denizens of high finance, however, see matters from quite a different vantage point. Volatile, gyrating markets provide the perfect cover for an ever more sophisticated computational alchemy devoid of messy human affairs. Unfortunately, the reality is that the collateral damage has morphed into middle-class road kill.
Reflexivity, of which George Soros so adroitly writes, while a strong conceptual framework still largely fails to account for analog or environmental valuation. It is easily extractable into destabilizing algorithms or “fancy formulas.” So what is Obamanomics? Is it regulation, re-regulation, sleight of hand neo churn that seeks to placate dominant players, while injecting ingenuous forms of targeted credit into sectors of the economy that are anathema to Conservative Republicans. Is it socialism?
Listening to some in the U.S. Congress, you would think that the crucible of democracy is slightly less sophisticated than an introductory political science course. Gridlock rules, and when bipartisan attempts fail the heavy hand of the ruling party buys its version of how things should be run. No news there. But what needs to be addressed aside from trade imbalances and massive financial fraud is something deeper many argue. That it is not the miscreants who need to be locked up necessarily – but instead that it is the status quo, free-riders, who have become insidious and averse to any form of true innovation. The word “innovation” now rings as rhetorically hollow as the marketeers in desperate search of their next “business” model.
The problem seems to lie in the inability or unwillingness to really take the time to understand value. Where disruption and distortion have become dominant systems of thought, people cancel out anything that could be construed as critical, negative or upsetting the apple cart. The Bad Apples — Buy Nortel it’s good for you argument.
So where does this leave the energetic, progressive creative class? The ones who are seeking access to capital to make things happen again. Are low cost, exploitative economic models the best we can do? Does Larry Summers really think he can steer America away from a double dip with an export framework? Has the race to the bottom finally bottomed out? In Juarez, Mexico, people are apparently willing to kill for $50 a week. Juarez is not an abstract economic theory.
Those in the avant garde of thought leadership have identified the fundamental necessity to rethink our political culture and the relations that govern our economic lives — feel good mantras notwithstanding. It is both a pragmatic and ideological challenge if the new engines of wealth generation and regulatory standards are going to be less arbitrary, manipulable and exploitative. In a world still grasping with the power of human potential we must learn to live more peacefully with our resource scarcity.
International law and political relations will remain subject to domestic imperatives and thus the task of harnessing the power of trans-boundary electronic capital movements is a profound conundrum. The world is in need of a substantial re-set if further economic and environmental degradation is not to become our collective fate. Sadly, the G8/G20 summits will not launch this renewal in Toronto, but those who seek a better world know that renewal is a continuum.
Morgan Gabereau is a writer-director based in Toronto, and is a member of rabble.ca’s G8-G20 summit coverage team.
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