The Guardian February 7, 2001


Erroneous predictions of financial oracles

by Raisa Pages

While Henry Ford symbolised the productive and industrial age of 
capitalism, the person who best exemplifies finance capital in the most 
recent decades is the multi-millionaire financier George Soros, a Hungarian 
living in the United States.

The speculative economy decides and dictates decisions over and at the 
expense of the real economy.

The financial bubble is growing while, at the same time, diminishing the 
amount of capital available for productive investments. This is a trend 
that endangers the reproduction of the capitalist system which cannot 
digest this tendency. It is like drinking a tonic whose secondary effects 
are poisonous to the organism.

The financial markets manage 70 times more money than the real economy and 
there are no controls over their movements. The proportion of foreign 
exchange investment related to real goods and services has fallen from 80 
per cent in 1975 to just two percent at the current time. The remaining 98 
per cent of the $1.5 trillion USD that moves on stock markets each day is 
related to speculation on currency rates of exchange.

The Centre for Research of the World Economy warned in Havana of the chasm 
that exists between unbridled speculation and the ridiculously poor level 
of security and protection against that phenomenon.

International monetary reserves, which are the defense mechanisms available 
to individual countries against sudden movements in rates, are ever more 
insecure now that exchange rates have become the hunting ground of private 
speculators.

The International Monetary Fund and the World Bank have demonstrated their 
inability to prevent the crises that exploded in the final years of the 
20th century, but continue to send encouraging messages, overlooking the 
episodes of the 1980s.

There was the brief New York stock market crash in 1987, which analysts 
were at a loss to explain.

The very high growth levels in the Japanese economy during 1988-89, fell to 
almost zero in subsequent years. But this derailing of the Japanese 
economic machine was overshadowed by a period of prosperity in the US 
economy.

Another related chaotic moment was the collapse of the Mexican economy in 
December 1994 and through 1995. This crisis was eventually contained, 
through a large package of financial aid provided by the United States 
which was worried about the possible commercial repercussions of its 
neighbour's financial crisis. Mexico's crisis exploded the myth of 
neoliberal prosperity in Latin America.

The Southeast Asian tiger model and the opening of their doors to the 
industrialised world was swept away by the subsequent economic crisis that 
engulfed those nations in 1997-99.

In Eastern Europe, experiments involving a rapid transition to a capitalist 
system received their final blow with the crisis in Russia.

Failed capitalist model

The financial crises in Asia, Eastern Europe and Latin America demonstrate 
that hopes of overcoming under-development by following the capitalist 
model have been entirely extinguished.

Last October the IMF announced an encouraging outlook, with predictions of 
a 4.3 per cent rate of world economic growth, pushed on by the US bonanza, 
an upturn in Europe and the rapid recoveries seen in Asia and Latin 
America.

But such predictions do not take into account the explosive dangers. 
Proposals for a new financial architecture to avoid future economic crises 
have been shelved.

On a world scale, the gross domestic product growth rate was 4.5 per cent 
in 1970-79 and 2.9 per cent in 1990-99. If the GDP growth rate of the seven 
most developed countries, known as the G-7, is taken on its own, a similar 
tendency is observed: 5-6 per cent in the 1960s and 2-3 per cent in the 
1990s.

Mega-mergers

Neo-liberal policies have boosted megamergers, reflecting the lack of 
economic growth on an international scale. The pie is not getting any 
bigger and the battle over the division of its pieces is intensifying.

Some 80 per cent of direct investment made in 1999 was through company 
mergers. While in 1990 the value of mergers reached $150 billion USD, in 
1999 this value had multiplied to $720 billion USD.

But for humankind, the most degrading aspect of neoliberalism lies in a 
system that encourages over-consumption for 20 per cent of the world's 
population while leaving the remainder to suffer from under-consumption.

The total fortune of the world's 200 super-rich is equivalent to the annual 
income of 2.5 billion other people. At the same time, neoliberal 
globalisation is creating miniature Third Worlds inside First World 
countries.

The oracles of the IMF and World Bank continue to make optimistic 
predictions but their declarations are nothing more than erroneous signals 
with limited scope.

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From Granma International, January 2001

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