May 25, 2017

Profits of doom

Steven Ferry interviews Edward Goldsmith for Government Technology magazine, May 1999.

Previously published under the title “The Destruction of domestic economies”.

Among Edward Goldsmith’s 15 published books, The Case Against the Global Economy: and for a turn toward the local received the 1997 Best Book of the Year Award for Ecological and Transformational Politics from the American Political Science Association. Goldsmith is co-founder of the International Forum on Globalization, and founder and publisher of the 30-year-old The Ecologist, Europe’s leading environmental journal.

In this interview, Goldsmith, who lives in England, goes beyond the usual descriptions of the global economy to explain how it all began and then moves on to show that it cannot continue for long. This interview is not for the faint of heart.

Ferry: Although the globalization of the economy represents the most significant shift in the world’s political and economic systems since the Industrial Revolution, few understand or are explaining the significance of the change. Can you describe the global economy simply?

Goldsmith: Industrialists have always wanted to expand the size of their market. After 1855, we in England tried to set up a free trade regime around the world. We dominated the world economy at the time, so a level playing field benefited us – if you and I wanted to confront Mike Tyson, we wouldn’t want to do so on a level playing field as he would make mincemeat of us. So the British made mincemeat of the other countries until about 1873 or 1874, when we discovered that other countries had become more efficient.

The British then abandoned free trade and began a scramble for colonies in Africa and elsewhere, looking for that bigger market. By establishing these colonies and forcing them to sell us their raw materials cheaply, provide cheap labor and buy our products, we had the markets we sought. We were thus doing exactly as we had 20 years earlier, when we dominated the free trade market. We drained those colonies. Lord Salisbury said, “India must be bled”, and that’s precisely what we did. We killed their whole textile industry in order to force them to buy our Lancashire textiles. We did it everywhere.

After World War II, several people, the American State Department included, decided that we couldn’t continue this type of political colonialism anymore. We had to find a substitute for it which would enable us to continue expanding our market so as to prevent a recurrence of the 1929 depression, which had lasted until 1939 in terms of unemployment.

What was a good way of doing that? The only solution was to expand our market into the Third World, to incorporate the Third World into the Western Industrial system, bring it within the orbit of our trade. And that is what the 1944 Bretton Woods conference was all about.

What were the institutions that provided the framework for, and forwarded the idea of, a global economy?

In order to achieve this, we set up three very valuable instruments. The first was the World Bank, whose object it was to fund the infrastructure of Third World countries, warehouses, highways, harbors, power stations, so they could trade with us, acquire the products we produced and send us their raw materials.

The second instrument set up was the IMF (International Monetary Fund), which was there to tide these developing countries over their balance-of-trade difficulties while their infrastructure was being built, and until their exports could pick up steam and then the tab.

The third instrument was going to be the International Trade Organization. It was never actually created because the American Congress thought that it was not compatible with maintaining America’s sovereignty. So instead, we had the informal set-up called the GATT, which has now more or less been wound up and replaced by the World Trade Organization. So we managed in the end to bring the third official instrument of globalization into existence.

WTO’s role was to make sure that once we had built or funded all this infrastructure, once we had the mechanism for tiding these countries over their balance-of-payment difficulties, which were expected to be temporary, we would then make sure that these countries didn’t put up barriers against our products by establishing quotas or high tariffs to prevent our products from entering their countries.

The whole object of the global economy is to favor big companies. One of the characteristics of the global economy is that it is being and will be taken over by larger and larger companies.

Where do you see the global economy leading us?

It has many problems. First of all, it won’t last, it can’t last. One of the big problems is that, in order to bring these countries within the orbit of the western trading system, you have to destroy their domestic economies.

The IMF, you see, lends money to these countries when they are in trouble, which they are invariably in, having funded all sorts of completely uneconomic and unproductive schemes. Much of the money is stolen. I understand that 80 percent of the money that is lent to Brazil is simply stolen by the politicians. In Russia, it is closer to 90 percent. So the countries cannot avoid falling into big debt. When in debt, the solution is to go to the IMF and borrow more money. The World Bank hands it over, only worsening the situation of hideous indebtedness.

Since the 1980 South American economic crisis, however, the money they are given has become associated with a flock of tougher conditionalities, including that they devalue their currency. As their debt to the World Bank is always in dollars, we are correspondingly reducing their capacity to pay the debt.

At the same time, we are killing their domestic economy because one of our conditions is that they allow everything of ours into their country. They are not allowed to put up any barriers against our imports. We, therefore, transform these unfortunate countries from nations of producers into nations of importers. We kill their manufacturing industry. Because they are usually poor countries, they import luxury products for the elite. So the poor people who take part in small manufacturing enterprises and agriculture go out of business. Worse still, the IMF imposes another conditionality on these countries: to clear their economy, and in particular their agriculture, for exports. This further reduces the domestic economy’s chance of survival by diverting all the resources, efforts and money from the domestic economy towards the global economy, exporting towards it.

Why does the IMF pursue such a course of action when it seems so destructive to others and self-defeating, even?

Firstly, because it doesn’t want the western banks, which have made piles of money lending very irresponsibly to the Third World countries that don’t have any money to pay their debts, to go bust. Therefore, these highly indebted Third World countries have to pay them. How do you get them to pay? By giving their economy to export so that they can earn the foreign exchange with which to pay the money they owe to our western banks so that they don’t go bust. So the IMF is a very tough and unpleasant debt collector for western banks.

Secondly, by doing this, it is incorporating them within the global economy, but of course, at the same time killing their domestic economy. Now, none of these countries can survive without domestic economies. Look at Japan. It never had an IMF structure-adjustment program to my knowledge. It has a $120 billion surplus on current account. It exports like mad but has no domestic economy. No one is buying anything as they are terrified of spending their money because they think everything is going to go to pieces. So even though they just handed out free money to everyone there, no one is buying anything. Their domestic economy is dead, therefore their economy doesn’t work.

This is what we are doing to all these poor countries. Once we kill their domestic economy, how can they buy from us? So it is self-defeating for us in the West, too, because the whole object of the operation was to create a market for our finished products. But if you ruin all these people except for their few elite who are involved in the export industry, which is largely the transnational and often western corporations, how will they buy all our products?

The obvious conclusion is that the global economy won’t last on those grounds alone, but there is another, much more important reason: The transnational corporations take over from the small ones which cannot keep going in the domestic economy. Only the big transnationals survive, but they provide very few jobs. According to the Institute of Policy Studies in Washington, DC, the 200 largest transnational corporations, which control 28 percent of the world’s market, provide less than 1 percent of the world’s jobs. The jobs are provided by small and medium-size companies.

What happens when you push all these small and medium companies out of business, which they are going to do everywhere? Take the case of India, which has 600 million people living on the land as farmers, service caste, artisans, street vendors, small shopkeepers and business. They will all be swept aside with the industrialization of India. They will be pushed into the slums. How do you accommodate that many people in the slums of India, where unemployment is already 20 percent or more? How can one marginalize such enormous numbers of people and still keep the economy going?

We are going to create poverty and destitution on a scale we have never seen before by killing domestic economies, replacing all these small producers with giant transnationals that don’t provide jobs. This can only lead to revolutions. China is already getting them now with the peasants revolting. The Chinese economy can function very well with a couple of hundred million people, and compete with America. What’s it going to do with the extra 1.1 billion people? There’s no need for them whatsoever. This is the first time in history that the wealthy have had no need whatsoever for the poor. How can one deal with 1 billion surplus people?

If this is the direction economies are taking in the Third World, then how will this affect the American economy?

Unemployment levels can only go up. We have avoided them in England and America by cutting down on salaries, starting to dismantle the welfare state, replacing long-term jobs with part-time ones, replacing men by women who are willing to work part time and are paid 30 percent less in this country, and replacing highly paid industry jobs with service-sector jobs that are paid peanuts.

So the average worker in this country, and eventually in America, too, will be a woman working part time, on a short-term contract, in a service industry, earning peanuts with an unemployed husband at home filling his belly with chemical beer and beating the hell out of her when she returns home because he is so frustrated. That’s the world we are creating at the moment.

Presumably, the fact that your book, The Case against the Global Economy: and for a turn toward the local, is selling like hotcakes in Washington, DC, shows it has struck a chord at the federal level?

I have always said that America will be the first country to abandon the global economy. You see, America is in trouble at the moment: With all these devaluations around the world and countries in difficulty, it is experiencing massive amounts of cheap imports from around the world. Ships arrive in Pacific ports full of goods from Asia and leave quite empty. So America has to borrow more and more money. You are borrowing $240 billion this year. Next year, it could be as high as $300 billion. You will eventually have great difficulties, but it will also affect jobs.

Where are we borrowing this money from?

I am not altogether certain. At one time, you were borrowing a lot from Japan. I understand that the Japanese own 10 percent of the US Treasury bonds, and if they were to sell them there would be hell to pay. But America is in pretty good shape at the moment, there is no inflation or unemployment to speak of, everything is booming.

But it all depends on the American consumer. 75 percent of the American GNP is ordinary people buying things in shops. The day the consumer stops consuming, the whole thing is going to collapse. Third World countries can only climb out of their problems by exporting to America. They can only do so if the American consumer buys things.

One of the reasons the American consumer buys things is because he has done so well on the stock market. The shares have been going up all the time. What happens when the shares stop going up? The whole situation is on a knife’s edge. The whole kit and caboodle could collapse, as it very nearly did during the summer and autumn of 1998. Even the most fanatical proponents of the global economy admit that we were very close to a meltdown. By lending colossal sums of money, about $200 billion to Malaysia, Thailand, Russia, Brazil and others, the American taxpayer provided a subsidy to keep the global economy going. What always makes me laugh is that these industrialists say we have to get the government out of the economy. But if the government got out of the economy, there wouldn’t be an economy.

GATT and NAFTA seem to be invalidating national, state and local laws, especially those protecting workers and the environment. What’s your take on sovereignty and the rule of democracy?

Democracy doesn’t exist any more in England or America. When you have colossal corporations as big as the ones you have today — the list of the 100 biggest GNPs in the world includes 50 corporations — the corporations have become too powerful now. The Ecologist magazine, which I started 30 years ago, published an article last year on the Business Round Table in Europe.

We took transport and education issues, looked at the reports published by the European Round Table, which is totally controlled by businessmen. We looked at the reports on the same subjects produced by the European commission, the bureaucrats that are meant to run Europe, and found that they just reproduced the Business Round Table’s reports, word for word. Policies on transport and education we find, and probably all the other subjects, are entirely decided by the transnational corporations that operate in Europe.

It’s like that everywhere, so how can you talk about democracy under these conditions? No one in these corporations is elected. Even if you forget the corporations and look at the bureaucracies, how can you talk about democracy when the IMF determines completely the economic policy of every Third World country it has assigned a structural-adjustment loan to? That country has no say in what it imports or exports, what investments it allows in, whether it is going to have a domestic economy or export everything abroad. It has no say in any of the important aspects of its economy. So in signing this document with the IMF, these countries have handed over the running of their economy to a foreign body sitting in Washington, D.C., which itself has not been elected.

It is exactly the same thing in Europe. We are creating this superstate, which now has its own currency, its own government, its own parliament, its own central bank, its own court of law, and now they are talking about having its own army. All you need now to have a complete superstate is a common educational system and a common language. Then you have a superstate.

England is now a small province of a huge artificial country made up of subcountries that have nothing in common. As an Englishman, when I go to France I am not going to a different country, I am going to a different planet! How can one create a proper, functioning state out of this? The Germans will dominate us.

When my brother was in the European Parliament, he was always attacking Helmut Kohl, saying that he was trying to achieve by economic means what the Kaiser and Hitler failed to achieve militarily. How long will the other countries agree to be subjected to rule by Germany? It will only work temporarily, quite apart from all the more obvious, small economic problems. The interest rate that Germany needs may not be the one that Portugal needs, for instance. Economic and social problems will abound, which will create political problems which could easily lead to war.

A good example of this is the north and south of Italy. They form a single country, yet they are completely different. The south is very poor, with poor soil that the Romans wiped out. The north is industrial and richer, with a different sort of people. In spite of all the money that the north invests in the south, the south still remains extremely poor. It produces vast numbers of children, many of whom emigrate to America and Argentina, etc. The main business in the south is exporting labor to the north, which creates great resentment. There’s a move to gain independence by the north.

So by joining the European countries together, they are not solving problems but creating them. They are playing into the hands of the extreme right, as anyone in Europe will be able to live and work wherever they like. There will be vast numbers of people moving into the richer countries like Germany, and the far right will object to such massive immigration.

What should state and local governments in the United States be doing to prevent the kind of problems you see arising as a result of the global marketplace?

You will find local and state governments trying to attract foreign capital to their areas, vying with each other to give these corporations more and more advantages. The governments give them free land, free training for their staff, they exonerate them from all sorts of local taxes and given them huge subsidies. So these corporations are scouring the globe for cheap labor, lax environmental laws and more and more subsidies and advantages. So how do you deal with this? You are very foolish giving them all these subsidies because they will not stay there very long. They will stay there as long as it is useful for them to do so and when it isn’t, when they receive better offers, they will move elsewhere. The whole thing is very unstable. You need a stable economy, not one that is shifting around all the time, to create a stable society.

How do you handle it? It’s a very difficult task. I don’t know. We aren’t dealing with anything properly. When society breaks down, you get a lot of crime. The solution, then, is to build more prisons and hire more policemen. That doesn’t deal with the problem itself. It just serves to mask the symptoms. Same goes for all the problems we create. We look for technical fixes that can be made without having to change anything. Perhaps all they can do is mask the symptoms of the problems that have been created by your political leaders and international agencies and corporations that have great influence over them.

If local governments can’t do anything but mask symptoms, then what should be done to address the actual problem?

One should try to recreate local communities and economies, as mentioned in my book. You can even start a new currency in each town or area so they can trade in it.

Like a barter system?

Yes. There are 200 to 300 in France already. You may not realize that approximately 700 local, regional, national and international barter groups, servingsomething like 400,000 individuals and companies, conducted transactions valued at over $9 billion in the United States and Canada during 1997, so you already have it.

That’s how the people survive in Russia, by these informal networks of exchange. People survive in Third World cities like Manila through these kind of systems. So if your federal government is doing everything to kill the local economy, you can see what you can do to revive it.

There’s is even an alternative, welfare system, invented by Edgar Kahn, called “Time Dollars,” in which young people look after old or sick people and receive credit for doing so. When they become old and sick, they, in turn, are looked after by young people, bartering on welfare. All sorts of systems like this are possible. You need initiatives to recreate local action of one sort or another. The present economy we have is hostile to these initiatives. But they can still be done if people cooperate at a local level and do things together.

Do you consider that local governments should be pushing these initiatives, or is it something for individuals to engender?

If you procure the book Time Dollars by Edgar Kahn (president of the nonprofit Time Dollar Institute), you will find this system is being supported by various states as the government wants to phase out the welfare state so they quite welcome the idea of citizens taking it over for them. During the slump in the 1930s, many towns in Austria and France set up their own local currencies. Of course, the government took a dim view, saying these cities were trading without paying taxes and sales taxes, and clamped down on them. But it is stupid of the state to clamp down on these initiatives.

Built into the global economy are the seeds of its own disintegration. But the biggest problem we face today, which dwarfs all others, is global warming. That could make us extinct as a species in the next 60 to 70 years. The ice sheet in the Antarctic that is melting right now will raise the sea level by almost three feet, which will flood a lot of cities and agricultural land. No one has done anything effective about the problem. Kyoto was a failure — it hasn’t been ratified by the U.S. Senate, with the oil industry and OPEC countries stopping the treaty being ratified.

The only thing which may save us is the complete collapse of the global economy, with all the problems that that will create. The choice is between two horrors. The computer models are terrifying in themselves, but some climatologists are saying that things are much worse than even the models suggest. Hurricane Mitch wiped out 80 percent of Honduras’ infrastructure, depositing something like five feet of rain in one week, washing away most of its crops and subsoil because the country had been improperly logged. Yet that storm had lost most of its power by the time it hit Honduras. So we have a situation of general environmental destruction added to global warming.

So what should local governments be doing?

They should realize that we have major problems on our hands, that things are not right. They have to improvise, work with the communities themselves. Rather than behaving like distant administrators, they have to muck in with local communities and NGOs and make things straight. Unfortunately, local governments in America are mainly concerned with developing their areas and raising real estate values. So local governments are pursuing the same sort of short-sighted, money-motivated goals as central governments. They have to forget all that. It’s a question of survival now, not becoming rich.


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