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	As the economy crashes, will mainstream economists change their Stripes? by Mark Engler Alternet USA   These days, establishment defectors from the doctrine of market fundamentalism are growing in number.   Back in March 2008, before the financial crisis had reached historic proportions, concerned observers of the global economy had already begun reaching for metaphors of ill health. An article that appeared in Der Spiegel, Europe’s most influential newsweekly, worried that the United States’ declining fortunes had already harmed the European economy, and that worse was to come: “It’s like the beginning stage of the flu, when the patient still appears healthy and strong,” the article explained. “But the virus is already replicating in the body, and the patient is beginning to feel the effects of joint pain and crippling fatigue.” The final result could be “a collapse of the global financial system.”   The world economy is now well beyond the early stages of a cold. But Der Spiegel’s analysis could today be applied to the battle of ideas—its diagnosis an apt assessment of the intellectual underpinnings of corporate globalization. These days, the doctrine of market fundamentalism still has enough defenders for a few to perceive a healthy disposition. Yet its ample defectors and ever-more vocal detractors will make most people suspect that its constitution is seriously compromised.   One can witness an evolving debate about globalization both in public discussion and in several of the books about the global economy published in 2008. These bolster the sense that once-dominant economic neoliberalism may never recover the strength it recently possessed. One such work is Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism by Ha-Joon Chang.   Bad Samaritans offers a neo-Keynesian proposition increasingly becoming the norm in economic debates. Chang, an economist at the University of Cambridge, opens with a bit of personal and economic history. “Korea, one of the poorest places in the world, was the sorry country I was born into on October 7, 1963,” he writes. “Today I am a citizen of one of the wealthier countries in the world.... During my lifetime, per capita income in Korea has grown something like 14 times, in purchasing power terms.” Noting that it took the United States a century and a half to realize a similar advance, he writes, “The material progress I have seen in my 40-odd years is as though I had started life... as an American grandfather born while Abraham Lincoln was president.”   The account of Korea’s economic history long preferred by the international financial institutions in Washington, DC held that the country sparked its miraculous growth by embracing the free market: keeping tight control of inflation, limiting the role of the state, lowering trade barriers, and inviting foreign investment. Advocates of corporate globalization, in short, hold up the country as a model of neoliberal economics. They then preach that countries wanting to replicate its success should hew to the International Monetary Fund’s “free trade” dictates.   Yet the truth of Korea’s success hardly fits the pattern they would like it to. “What Korea actually did during [the past four] decades,” Chang explains, “was to nurture certain new industries, selected by the government in consultation with the private sector, through tariff protection, subsidies and other forms of government support.” Blatantly violating the policies regularly prescribed for poor nations, the state also owned all the country’s banks, kept tight control over the flow of foreign currency in the country, and ran its own businesses in key areas where it felt the private sector had invested insufficiently. The country’s leaders moved toward more open trade only when its industries were well prepared to compete internationally.   Korea, as it turns out, is hardly an exception. Chang’s wider point is that “practically all of today’s developed countries, including Britain and the United States, the supposed homes of the free market and free trade, have become rich on the basis of policy recipes that go against the orthodoxy for neoliberal economics.” Drawing on a 1841 quote from German economist Friedrich List, Chang charges that advanced industrial nations are guilty of “kicking away the ladder”—prohibiting developing countries from using the very tactics that allowed them to ascend in the global economy.   Given capitalism’s foundational and often-celebrated exaltation of self-interest, one might surmise that wealthy countries are motivated in their ladder-kicking by a crass desire for greater market access for their own goods and services. However, Chang takes a gentler stance. He argues that, in the late stages of their economic development, countries like the United States and Britain have rewritten their economic histories to make themselves seem like paragons of free market virtue when “in fact, for a long time they were the most protectionist countries in the world.”   The great majority of free market politicians, he contends, are genuinely well intentioned but have been duped by this revisionist history. Thus, they have become bad Samaritans, “making the lives of those whom they are trying to help more difficult.”   Chang’s urgent relevance becomes clear only when it is placed against the unrelenting “free-trade” advocacy, or against the work of party-line economists who, even in these days of government bailouts for Wall Street, remain in a state of denial.   For all their blasé self-confidence, defenders of the Washington Consensus have failed to answer the most damning charges against neoliberalism. The fact that most consistently nags is that the policies of corporate globalization have failed to live up to its promoters’ central promise: robust GDP growth. Chang notes, “during the 1960s and 1970s, when they were pursuing the ‘wrong’ policies of protectionism and state intervention, per capita income in the developing countries grew by 3.0% annually.... Since the 1980s, after they implemented neoliberal policies, they grew at only about half the speed” seen previously. “Growth failure,” he notes, “has been particularly noticeable in Latin America and Africa, where neoliberal programmes were implemented more thoroughly than in Asia.”   Studies purporting to show that globalizing nations fare better than non-globalizing ones fall apart if countries like China—which, as Chang reminds us, has steadfastly protected its economy—are not misleadingly categorized as “free trade” exemplars.   The reason is clear. Chang compares the act of forcing developing countries to prematurely adopt “free trade” policy with the prospect of sending his six-year old son out into the open labor market to learn the value of hard work and thrift. Hypothetically, free-marketeers might contend that putting the boy into the workforce would allow him to overcome the dependency of parental care and to thwart market-distorting subsidies like public education. In the short term, the kid would probably bring in more cash than the average deadbeat first-grader. But obviously, his life choices—and future income—would be noticeably constricted.   Ultimately, Chang is not against trade or movement toward open markets—if appropriately timed and planned. He reminds us that some of the world’s most efficient enterprises are state-owned (think Singapore Airlines, repeatedly voted the world’s favorite carrier), and that many now-private businesses became world-class firms under state control. And he makes a damning case against intellectually property laws designed by self-interested lobbyists at corporations. Chang is not alone in voicing many of these views.   In the decade since the Asian financial crisis, the failures of neoliberal mandates have led to a dramatic increase in the number of mainstream economists who are willing to speak out against them. Arguments once commonplace at the protests and teach-ins of the global justice movement—but taboo within economics departments—have moved to far more central places in the public debate.   The increasing prominence of Chang can be considered part of this shift. The more prototypical example of it is his mentor, Nobel Prize-winning economist Joseph Stiglitz, who made a swift transition from being chief economist at the World Bank to being an outspoken critic of market fundamentalism.   The policy alterations that have accompanied the changing intellectual scene have already proven significant. Witness the changing fate of the IMF: not long ago the institution was the head of a powerful Washington group in development policy. To escape its grasp, developing countries have paid off their loans to the IMF early and built up large currency reserves in recent years so as never to have to return to Washington in the event of future emergencies. Today, the Fund’s recommendations are regarded as ideologically suspect. The institution has became a shadow of its former self—and is now trying to use the new financial crisis to reinvent itself.   The American electorate has clearly grown suspicious of unchecked deregulation, making the terrain of the globalization debate at the start the post-Bush era very different from that seen at the end of the Clinton years.   While global capitalism itself may be adaptable enough to survive the demise of its most recent laissez-faire incarnation, the transition will mean real pain for people across the globe. This will be felt by the millions of working people in advanced industrial nations with bad credit and stagnant wages who now face foreclosure on their homes. And it will likely be felt by poor in global South as well—those who receive neither enough aid nor enough income to escape hunger and disease. These people will be denied because countries that are clashing over oil resources and adopting beggar-thy-neighbor economic policies in an attempt to soften the downturn at home are those least likely to engage in a cooperative, multilateral campaign to end poverty.   That a reinvigorated charity drive will not suffice to solve global economic problems is almost certain. The more difficult question is whether the financial and environmental problems neoliberalism has created might also thwart Ha-Joon Chang’s strategy of neo-Keynesian, neo-developmentalist engagement with the global economy. We must ask whether there is still space for more countries to replicate the economic success of past winners in a world of peak oil, global warming, and geopolitical instability—or whether these challenges will demand a more creative and thorough-going set of changes for an international order that, in a time of crisis, is rapidly being made obsolete.   * Mark Engler is a senior analyst with Foreign Policy In Focus.
	Capitalism Has Degenerated into a Casino by Muhammad Yunus Der Spiegel Germany   10/10/2008   Nobel Peace Prize laureate Muhammad Yunus says that greed has destroyed the world''s financial system. SPIEGEL ONLINE spoke with him about the profit motive, social consciousness and what should be done to end the financial crisis.   SPIEGEL ONLINE: Mr. Yunus, for years you have been preaching a more socially conscious way of doing business and have denounced the narrow focus on maximizing profit as harmful. Now, the entire financial system is wobbling ...   Yunus: The current turn of events makes me sad. It is certainly not something I am happy about. The collapse has hurt so many people and has suddenly made the entire world unstable. We should now be concentrating on making sure that such a financial crisis does not happen again.   SPIEGEL ONLINE: What should be done?   Yunus: There are huge holes in the current financial system that need to be plugged. The market is clearly not able to solve these problems itself, and now people are having to run to the governments to ask for emergency assistance. That is not a good sign because it shows that trust in the markets has evaporated. At the moment, there is unfortunately no other option than for government takeovers and government support. That is currently the method being used to combat the crisis -- a method kicked off with the $700 billion bailout package passed in the US. In Germany, the government has likewise jumped into the fray.   SPIEGEL ONLINE: Where exactly do you see the problem with such a strategy?   Yunus: The point is that we have to return as soon as possible to market mechanisms that can ameliorate the crisis and solve problems. Solutions should come out of the market and not from governments.   SPIEGEL ONLINE: But you just said yourself that the market is not capable of doing so.   Yunus: That is exactly what we need to work on. For a long time, the main priorities have been the maximization of profits and rapid growth -- but that focus has led to the current situation. Each day, we have to look to see if there is potentially harmful growth somewhere. If we find there is, then we need to react immediately. If something grows unnaturally quickly, then we have to stop it. Why don’t companies all pay into a fund that buys up securities that have become too risky? I can even imagine a business model for such a program.   SPIEGEL ONLINE: On the one hand, you say that the market has to solve the problem itself, on the other hand, though, you criticize overly quick growth. That sounds like you think that profit-oriented capitalism has failed.   Yunus: Not at all. Capitalism, with all its market mechanisms, has to survive -- there is no question. What I excoriate is that today there is only one incentive for doing business, and that is the maximization of profits. But the incentive of doing social good must be included. There need to be many more companies whose primary aim is not that of earning the highest profits possible, but that of providing the greatest benefit possible for human kind.   SPIEGEL ONLINE: And you think that those two incentives are mutually exclusive? The bank you founded, Grameen Bank -- which led to your receiving the Nobel Peace Prize in 2006 -- both helps people and earns healthy profits.   Yunus: It is a company which is focused on the social good and which makes a profit, but it is not focused on maximizing its profits. I am not interested in turning all profit-oriented companies into socially conscious operations. They are two different categories of companies -- there will always be businesses whose primary goal is that of earning as much money as possible. That is okay. But earning as much money as possible can only be a means to an end, not an end in itself. One has to invest money in something meaningful -- and I would make a case for it being something that improves the quality of life for all people.   SPIEGEL ONLINE: What, though, does an increase in the number of socially minded companies have to do with the financial crisis?   Yunus: Were there more socially minded companies, people would have more opportunities to shape their own lives. The markets would be more balanced than they are today.   SPIEGEL ONLINE: You are talking about saving the world with altruism ...   Yunus: There are many philanthropists in this world, people who help people by providing them with homes, education, etc. But that is a one-way street. The money is spent and never comes back. Were one to invest that money in a socially minded company, it would stay in the economy and would be much more effective because it would be used according to the criteria of the market and would thus develop a certain amount of market leverage.   SPIEGEL ONLINE: Who do you think is guilty for the current financial meltdown?   Yunus: The market itself with its lack of adequate regulation. Today''s capitalism has degenerated into a casino. The financial markets are propelled by greed. Speculation has reached catastrophic proportions. These are all things that have to end.   SPIEGEL ONLINE: The current financial crisis began as a credit crisis -- homeowners in the US could no longer pay down their mortgages. At Grameen Bank, which provides microloans, the repayment rate is close to 100 percent. Do you think your bank could be a model for the entire finance world?   Yunus: The fundamental difference is that our business is very connected to the real economy. When we provide a loan of $200, that money will go to buy a cow somewhere. If we lend $100, someone will maybe buy some chickens. In other words, the money goes to something with concrete value. Finance and the real economy have to be connected. In the US, the financial system has completely split off from the real economy. Castles were built in the sky, and suddenly people realized that these castles don''t exist at all. That was the point at which the financial system collapsed.   SPIEGEL ONLINE: Is it now time for governments to intervene in the market economy and strengthen regulation?   Yunus: There has to be regulation, but governments should not be allowed to steer the market. On the other hand, it has become clear that Adam Smith''s "invisible hand" which supposedly solves all the market''s problems doesn''t exist. This "invisible hand" has completely disappeared in the last few days. What we are experiencing is a dramatic failure of the markets.   *Interview conducted by Hasnain Kazim. Translated from the German by Charles Hawley. Muhammad Yunus was born in Chittagong, Bangladesh in 1940. Yunus studied economics in Bangladesh and in the United States. He founded Grameen Bank in 1983 to provide microcredit to the poor so they could start their own small businesses. In 2006, he received the Nobel Peace Prize in recognition of his bank''s achievements.
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