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(en) The commoner #7 - The Return of Scarcity and the International Organisation of Money After the Collapse of Bretton Woods - by Matthew Hampton II (2/2)

From Worker <a-infos-en@ainfos.ca>
Date Wed, 23 Jul 2003 12:15:51 +0200 (CEST)

A - I N F O S N E W S S E R V I C E

Globally the situation is no different. ?Punishments? according to
Egli, ?are the driving force behind international lending? [2000,
p279], and the vast increase in global debt over the past three decades
suggest a commensurate increase in the vulnerability of debtors, not
just within the debt laden South but throughout the totality of
capitalist social relations. The source of this vulnerability, as I've tried
to highlight, is simply the globalised, mobile and competitive nature of
debt markets. What is unique is how the credit and monetary systems
have become entwined and diffused in complex ways that mutually
reinforce each other in the imposition of austerity. Debt (as opposed
to credit) supports money's social power to command labour, while
sound money places constant pressure on debtors by forestalling the
possibility of debt relief through inflation. However, it is still unclear
how this vulnerability manifests as socially imposed scarcity at the
level of the national economy.

The answer lies in identifying this increased vulnerability with the
risks generated by the new international monetary regime which on
realisation seep into every crevice of social reproduction at the level of
the national economy. Of course risk permeates financial markets and
as the IMF notes, ?financial instruments are bundles of risks
?? [Adams et al, 1998, p191]. The orthodox line is that financial
markets ?manage, allocate and price risk?, although many market
analysts go further in their attempts to justify the massive growth in
financial markets, suggesting they spontaneously develop mechanisms
capable of cancelling risk as a whole. In this view generated risks
produce their own antibodies ? a pathological response ?like in
infectious viruses? [Darby, 1994, p1]. In contrast, Barclays Bank
CEO Martin Taylor suggests ?risk, like energy, is neither created nor
destroyed, merely passed around? [The Economist, 1996, p10]. Of
course risk results from social actions rather than some cosmic force
as Taylor's analogy suggests and it is difficult to avoid the conclusion
that markets are in fact creating risk on a massive scale. Fuelled by
?a growing acceptance of lower-rated issues [over 70% of corporate
bonds now issued in the US are rated A+ or below] and a proliferation
of increasingly complex structures?, markets have displaying
alarmingly ?permissive attitudes towards risk? [BIS, 1996,
p10;1999, p102].

Risk in turn generates instabilities and as Martin notes, ?it is within
the nation state that the instabilities of global money appear? [1994,
p274]. These instabilities confront the domestic economy in a number
of forms as national currencies exist as both asset and medium in the
constant reshuffling of global debt, filtering through a multiplicity of
connections linking domestic price structures and ultimately
monetarised social relations to global money. These integrative
mechanisms are far more diffused and complex than those found
under the earlier monetary internationalism of the gold standard, but
the final outcome is similar once private risks are socialised within
?national economies'. I'll explore two such mechanisms ? the
exchange rate and the state ? although numerous other transmission
belts for austerity exist, such as the demands of ratings agencies on
corporations seeking to enter the global corporate bond market, or the
influence of global institutional investors on equity markets,
particularly their focus on ?shareholder value', ie job cuts to bolster
share prices.

The exchange rate is of course meant to act as a basic adjustment
mechanism for the domestic economy and early monetarists touted
flexibility as a painless panacea for the disruption caused by capital
mobility. Experience has proven otherwise as flexible exchange rates
have transmitted sharp and volatile shocks to the economy through
churning real exchange rates capably of gutting entire sectors.
Evidence over the last twenty years has shown real and nominal
exchange rates move in tandem, meaning rapid shifts in nominal rates
generate significant changes in the patterns of international
competitiveness. As Gourinchas concludes, ?exchange rate
movements affect significantly both net and gross factor reallocation
? [1998, p64]. The transmission of competitive pressures ? often
into manufacturing sectors once pivotal to working class organisation
such as auto and steel ? has seen a concomitant collapse of the social
forces that underpinned the political economy of the mass worker.
The churning of global debt markets is thus reflected in a churning
real economy ? central to the decomposition of the working class and
the imposition of austerity.

Instability assumes its most dramatic form at that moment when
creditors' faith in the promises held collapses ? a point signalled by
crisis. Crises can manifest at various points of weakness depending on
whether the exchange rate is fixed or flexible: the domestic financial
sector, balance of payments or the exchange rate itself. Resolution will
occur when faith is again restored in the continuing ability for debts to
be serviced through an intensification of exploitation ? the state is
disciplined or restructured (?fiscal retrenchment') and domestic
austerity imposed through unemployment and devalorised capital
[Baldacci et al, 2002, p5]. Furthermore, institutional investors spread
contagion across entire regions or beyond, ?produc[ing] crises and
sharp output contractions? [Kaminsky, 2000, p2]. While these
linkages are usually spurious, herd mentality ensures the market acts
first and analyses after: ?safety first is the motto of investors when
they smell a rat? [Dornbusch, 1998, p181].

It is clear that financial crises are ?becoming more frequent, more
severe, and less predictable? [Little and Olivei, 1999, p43], and
despite impacting disproportionately on emerging markets, core
OECD countries have not been immune. What unites all crises is the
socialisation of private loses resulting from global financial
speculation (we can include the costs of central bank intervention as
well). The magnitude of these can be enormous ? ironic given the
high value placed on fiscal rectitude by the markets. In Mexico, the
costs of bailing out the financial sector from the 1994 meltdown have
risen steadily to more than 19% of GDP, while the costs for
industrialised countries are hardly less significant (for example, the
figures for Finland, Sweden and Norway in the Scandinavian banking
crisis in the early 1990s were 8%, 6% and 4% respectively). Obviously
bailouts of this magnitude divert public funds from alternative uses ?
such as welfare payments and infrastructure - not only in the
short-term but for years after. In Thailand, where the public debt
following the Asian meltdown was a modest 40% of GDP in 2000, the
IMF was busily ?urg[ing] the Government to cut public spending
?? [Cheesman, 2000, p12].

While these costs are heavy, ?all too frequently, the subsequent
macroeconomic effects [of a financial crisis] in terms of lost output
and rising unemployment have been considerably more costly? [BIS,
1997, p166]. Estimates of the impact of the Asian crisis on the real
economy suggest the loss of ?at least one decade in the development
race? for the region [Hartcher, 2000, p40]. The impact of the 1994
?tequila' crisis on Mexico is well known as is who ultimately had to
pay. As real GDP fell by more than 6%, eight thousand firms closed
with official figures recording real wage cuts of 25-30% and household
consumption falling by 25% [Baldacci et al, 2002; Strange, 1998]. In
Thailand following the 1997 crisis, the number of Thais living below
the poverty line jumped 15.9% during 1998 to 7.9 million, while nearly
7000 firms closed and unemployment hovered near 2 million.

Market surveillance ensures crisis and instability hangs over all
economies as a constant threat, exerting a mundane but nevertheless
powerful mechanism restricting the policy choices available to the
state if it hopes to avoid crisis and reduce instability. This was
intensified during the 1980s and 1990s as rapidly expanding
government debt was integrated into global bond markets (ironically
the proportion of government debt is now declining after a decade of
fiscal consolidation, much to the consternation of financial markets
who use this paper for benchmarking yield curves). As the IMF
argued, ?the largest economic entities in the industrial world [states]
have decided that participation in world capital markets confers
significant enough advantages to make it worthwhile to subject
themselves to the unwritten rules of the marketplace? [Goldstein
and Folkerts-Landau, 1994, p32]. Such ?rules' include the avoidance
of ?overly ambitious policies?, ?more timely correction of
macroeconomic imbalances?, ?fiscal discipline? and ?set[ting]
domestic policies in such a way as to establish fundamentals which the
markets will judge sound and sustainable? [BIS, 1997, p143;
Goldstein et al, 1993, p22; BIS, 1995, pp116-119].

Indeed, the participation and integration of the state into global debt
markets has seen the state itself ?become the main vehicle, the
pre-eminent carrier, of ?embedded financial orthodoxy'? [Cerny,
1993, p80]. Whereas the state's central role in organising money had
previously laid the platform for monetary nationalism and the
political economy of the mass worker, it now acts as a transmission
mechanism for global austerity through the integration of national
currencies into global debt markets. An important precondition for
full integration has been the recreation of a cordon sanitaire of
constitutional checks - originally monetary targets but more often
inflation band targets since the 1990s ? that have removed central
banks from democratic interference. Sealing off the internal
contradictions within the liberal-democratic state-form (such as
politicised central banks) has been as vital to the return of scarcity as
was their initial opening to Keynesian class management.

For workers this restructuring of the state is experienced in a
multitude of ways - the privatisation of social services, the risk of
falling through a shrinking welfare net, volatile interest rates
impacting on personal debt repayments and so on. Underlying all
these strategies at recomposing the liberal-democratic welfare state is
the attempt to enforce the capitalist relation of unbounded work,
nicely summed up by MIT pedagogue Rudi Dornbusch, who recently
argued that welfare recipients ?need to be integrated into a normal
social life ? ie a working life ? from which the welfare state in its
perversion had given them unlimited leave? [1997, p5]. Ironically, a
significant portion of the vast pools of restless money that hang over
the state is comprised of workers' savings (whether forced or
?voluntary'), necessitated by the decomposition of the welfare state
under the dictates of global monetary terrorism.

In short, whether actualised as crisis or simply a latent threat, market
generated risks and instability act as points of leverage over the state,
neutralising the pitfalls of social democracy that became readily
apparent under Keynesian class management. Using Lukes's [1974]
typology of power, socially generated risk can exercise power over
states in a simple one-dimensional fashion. A (financial markets or its
institutional supports, such as the IMF) can force B (say the Brazilian
state during the crisis of September and October 1998, where
domestic interest rates doubled to nearly 50%) to do something it
would not otherwise have undertaken (impose a three-year fiscal
adjustment programme in order to access an IMF led support
package). In effect Brazil was forced to ?pursue the chimera of
?investor's confidence,' while throwing the burden of adjustment
over the shoulders of the poor? [Morais et al, 1999, p14].

However, global money capital can also exercise power in a more
complex two-dimensional view, where A has the power to limit the
scope of B's decision making, excluding certain issues or conflicts
from the legitimate sphere of (political) activity. It seems clear that
the definition of what is and what is not ?legitimate economic
management' is largely codified by ?the unwritten rules of the
marketplace?. This, rather than the spectacle of crisis, is the more
formidable power of the new regime of monetary internationalism.
Built on nothing more than worthless paper, it instils silence and
closure that it throws like a shroud across the political and economic
spheres of social life. It is in the successful avoidance of crisis through
the decline of democratic choice wherein the real triumph of this
reorganisation of money lies. What conservatives once decried as the
state's power of seigniorage - a power transmogrified through class
struggle into a strategy of money nationalism - has melted away. The
potential risks facing a state that ignores the dictates of global money -
the ?fucking bond-traders? so loathed by Clinton [Henwood, 1999,
p24] - are too great to ignore.

Concluding Comments

Efforts to explain the post-Bretton Woods regime as signifying the
end of money, a pathological breakdown or more crudely a ?Faustian
bid? for global domination by the US [Gowan, 1999] fail to recognise
that the radical reorganisation of capitalist money over the past 30
years has had one overarching goal, inchoate at first but increasingly
clear - to globally decompose all working class formations that resist
the unfettered rule of money. Money has become interwoven with
credit, or rather debt, and on this mountain of financial excess
scarcity has been monstrously born. Capital has fashioned a globally
dematerialised money-form ? itself a reflection of the circuits of
struggle that ruptured the static Keynesian compromise of
monetarised class struggle - into a weapon to impose austerity on the
working class through endless crises and permanent instability that
materialise and socialise within national economies the private risks
generated in global financial markets. By expressing scarcity relations,
this money-form is infused with a content of exploitation, with the
social power to command.

Even more dangerous is to take a post-modern ramble amidst this
world of ?paper butterflies?. An article by Bill Maurer [1995]
provides an excellent example of the dangers posed by accepting at
face value the hyper-fetishism of global money. According to Maurer,
the power of off-shore finance has, like Dorothy's red slippers, carried
the modern economy into ?an atemporal nonspace?. Even more
startlingly, this power ?does not circulate itself through the human
subject but through a new architecture of nonhuman units? which
are also, apparently, located outside of time and space. For reasons
unclear to me, Maurer argues that the economic problem as defined by
scarcity (modernity) has, for the ?posthuman? subject existing in
the complexity of offshore finance, simply disappeared off our merely
human understandings of space and time [1995, pp117; 125; 136].
Apart from the obtuseness and meaninglessness of Maurer's
cyber-punk musings, its political message is disastrous. Little separates
his position (apart from the obtuseness) from those who celebrate the
return of monetary internationalism, conflating it with a new
techno-social paradigm that somehow symbolises ?dynamism,
universality, pervasiveness, irreversibility, inevitability, and positive
destiny? [Winner, 1978, p52]. How can mere human ?units' located
in time and space resist such forces? Indeed, does it even matter given
the apparent gulf separating modernity (scarcity, production) and
post- modernity (finance, post-scarcity)?

Of course it does matter, for the current organisation of money
(including off-shore finance) is designed to ensure that those at the
bottom bear the brunt of the costs of ceaseless global adjustment.
Off-shore markets do not signify the transcendence of scarcity, but
rather act as mechanisms for its vicious imposition over the global
social relations of production, seeking the complete subsumption of
working class reproduction to the dictates of the law of value ? to the
capitalist relation of endless work for all those ?human units
?? unfortunate enough to be left behind in the twilight years of late


While this article has made no attempt to pinpoint the limits of global
money terrorism or outline counter-strategies that could be deployed
against it, the above analysis points to some tentative conclusions.
Firstly, it seems axiomatic that a fundamental goal of the Left must be
to congeal hyper-mobile money - the cornerstone of money's social
power to enforce the social bond(age) of the market. More than the
threat of capital flight, mobility transforms credit into debt and
worthless paper into sound money. Unless this power is undermined
or tamed, it seems unlikely that the claims of ?the multitude against
Empire? [Hardt and Negri, 2000] will find sufficient traction to begin
their full realisation. While it is extremely important for the Left to
use a range of tactics and identify strategic goals, including global debt
repudiation [Cleaver, 1989], Tobin-like taxes (useful despite clear
limitations, see De Angelis, 1999), capital controls and global
?bancocide' [Caffentzis, 1995/2001], the purpose is not to ?reform'
the financial system, establish a new financial ?architecture' or
?return' to Bretton Woods, but instead to counter a potent weapon
that has been used with great success in decomposing the working
class at a global level.

A second conclusion is that any analysis of this power must be
tempered by the recognition of the obvious fragility of this ?regime',
raising serious questions over its longer term viability. The crude
mechanism of permanent crisis has proven itself a blunt and violent
means to realise debt and enforce work, not only posing severe
contagion risks that threaten systemic failure, but causing massive
political and social upheaval that is counter-productive for capital.
Furthermore, the paradox of the post-Bretton Woods order
highlighted earlier in this paper can easily turn into outright
contradiction when we recognise the dynamic requirements of this
strategy. While scarcity depends on ensuring credit is constantly
realised as debt, credit must be constantly expanded to avoid sinking
the global economy into a vicious deflationary spiral. Yet this growing
mountain of credit/debt is issued on an increasingly fictitious promise
to pay ? a point of debt saturation where the ability to repay becomes
largely meaningless. The risks generated by this global organisation of
money which drive a logic of scarcity become instead pathogens
capable of collapsing the entire paper pyramid. At this point the
post-Bretton Woods system appears to reach its limits, for the
credit/debt singularity is ruptured and the antagonistic unity between
money's form and content is pushed apart. Further credit simply
breaks down the rationality of market relations, while a refusal to
extend credit realises the fictitious nature of these paper promises,
surely signalling systemic failure. While one may celebrate the fall of
monetary terrorism, leaving ?regime transition' to the weight of its
own internal contradictions would in all likelihood inflict such
violence upon working class reproduction as to leave little to cheer
about, making it imperative that the Left continue to develop and
organise counter-strategies before monetary terrorism drags us all
into the abyss.


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It should be stressed that cross-border flows do not include
?foreign' ownership of the $33 trillion of domestically issued bonds.
For example, government securities are classified by the BIS as
domestic bonds, even though we know that around 40% of US
government bonds are ?foreign' owned. As the BIS notes, ?with
more and more countries liberalising their capital accounts and
financial markets, the distinction between international and domestic
markets has become less meaningful over the years? [BIS, 2003b,
p39]. The upshot of this is that cross-border flows are in reality far
larger than cross-border figures suggest.

The Commoner N.7 Spring/Summer 2003

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