Beyond the health tragedy, the huge economic impacts of Covid-19 are becoming apparent. While all levels of the economy suffer, from individuals to small businesses to banks, at the top is the huge international power of the financial sector – the virtual futures markets, derivatives, and other “instruments” with which a tiny elite continues to push vast sums of money around the planet on the sole basis of profit, regardless of the human, social or environmental consequences of their actions.
Looking beyond the staggering corruption in South Africa, there is a deeper evil underlying the global financial system. It is not enough to protest about today’s state-led greed. The future, post-Covid “normal” which everyone is hoping will return soon, will only bring more of the same injustice and financial robbery – until we understand the need for much deeper change.
The myth of ‘normal’
It’s not Wall Street alone. This is about all of us – in our minds – in our belief in what is “normal”. In this pandemic crisis, the powers that be, in particular the economists and financial institutions, are saying we must get back on track with industrial economic growth and ever-growing consumption. This is the basic myth that most people think is the only possible way of organising our world. But it’s a lie. Economic growth and consumption cannot go on forever on a finite planet, and it is the principal cause of our ongoing destruction of our planet. This is a chance to reflect on the deep, corrosive power of the present global economic system, its inherent destructiveness and its lack of ethical foundation.
Of course, the “normal” referred to above is that of the rich; for the poor, it has never been fair, acceptable, or liveable. And it won’t be, until we change the rules.
The 2008-2009 bailout
We must see the global picture. When governments bailed out banks during the 2008-2009 financial crisis, they were using taxpayers’ money – vast amounts of it – to save private banks and companies that had made risky investments. They did this largely by nationalising; taking over part or full ownership of those businesses, until the banks could buy themselves back through renewed profits. Curious, because “nationalisation” has been a hate word of neo-liberal economists for decades – socialism! Yet, even the neo-liberal countries did it.
The system is perverse. Citigroup’s Chuck Prince explained his high-risk investments leading up to the worldwide 2008-2009 crash as the ruthless need to compete with the other banks in order to attract business, even though he knew it was a risky game that could not possibly last. What kind of greed lies in such behaviour? And what kind of financial policy allows it?
Paper over the cracks again?
Crises expose where existing systems are dysfunctional, and the worst response is to try to restore that same system and ignore the fundamental problem. Unless we revolutionise the financial rules and institutions, this crisis – and the next one – will be borne by the poor, and in richer societies, by the taxpayers. The bank rescue operation of 2008-2009 has been described as the biggest rip-off of the middle classes in history. As for the poor, both then and now they just get poorer. But when you are that poor, as the saying goes you ain’t got much to lose, so nobody notices.
But very little was changed in 2009. After these crises, governments made weak efforts to tighten controls on the banks and speculators. Then, every time, neo-liberal leaders such as Donald Trump remove those controls and let them loose to plunder us again. Consider the Tobin tax: financial institutions make billions by shifting money around according to exchange rates. Their computers are geared to notice even tiny fluctuations in nanoseconds. This is simply playing on the temporary weakness of currencies. The proposed Tobin tax in the USA was an effort to limit this disgusting game by imposing just a 0.5% tax on currency speculation. Not even that small measure has been passed.
Or consider those huge bonuses given to executives. Most people recognise that they are unjustifiable, obscene. We could stop this today by imposing 100% tax on any bonus above, well, let’s be generous and say $2-million. Do the leaders in Wall Street, or in the ANC, not feel any need at all to share some of their wealth with the poor? We must choose leaders who do have a moral compass – and no need for six cars and three houses.
It has been shown in many studies (it’s called the Easterlin Paradox) that wealth above a certain level does not make people happier. Yet greed knows no limits. The word “enough” seems to have disappeared from our moral vocabulary. What is it that allows such greed? It is permitted, indeed encouraged, by the global money and finance system. That is to say, by a particular money system – the one that we have designed and allow to continue. Most people think that it’s the only way of organising our money system, but it isn’t.
Interest on money is one of the roots of this evil. Profitable speculation was originally intended, and permitted by laws, to fuel innovation by protecting business innovators against risk. When the early industrial capitalists made profits, however, they invested them in new factories and jobs; they helped the real economy, real people, instead of, as they do today, just investing in money to make more money. Former President Olusegun Obasanjo of Nigeria stated after the G8 summit in Okinawa in 2000: “All that we borrowed up to 1985 or 1986 was about $5-billion. So far we have paid back about $16-billion. Yet we’re being told that we still owe about $28-billion, because of foreign creditors’ interest rates. If you ask me what is the worst thing in the world, I will say it is compound interest.”
As everyone who uses credit cards knows. The banks earn even more while we either get poorer or have to work more. If we have jobs, that is.
The world of speculative finance is now many times larger than the real economy – real work, jobs, and production of goods and services. Why do we allow it? In today’s situation, huge financial groups such as Goldman Sachs should perhaps be nationalised for an indefinite period. (And the huge audit companies that are paid handsomely not to scrutinise them too carefully – see, for example, the Unaccountable/Open Secrets series in Daily Maverick). On a longer-term basis, their speculative activities should be permanently curbed.
How did we get here? In former times, every farmer knew that without a reserve food store, his family could not survive a bad season. Every business kept a stock, as opposed to today’s “just in time” supply chain. A kind of “progress”, ironically, all in the name of “efficiency” – at the cost of both common sense and resilience. We are in this situation because we, and the whole world, live in debt. For individuals, this is in the form of our credit cards and loans.
For countries, it is the case today that nearly all nations have debt amounting to around 50% to 80% of one year’s total national product. (South Africa’s has now risen to more than 100%) This means that we are constantly living off what we may (or may not) manage to create next year. How did we get on this carousel? Because we are urged, daily, to consume more and to use credit. Governments stimulate consumer spending. We are all living off the future, on money that isn’t there – value that has not yet been produced.
It is for the same reason – money has to make money – that the world did not prepare for pandemics that were clearly foreseen years ago. The impacts were known, as were the needs for vaccine research and for surge capacity in hospitals. No, the money was used for more profitable or politically expedient purposes. We are here because payback overrides prevention.
Can we change… our minds?
Ironically, the Covid-19 pandemic is saving thousands of lives through reduced air pollution in cities, as well as fewer car accidents and greatly reduced energy use and climate emissions. These sadly “positive” effects have one basic reason: that Planet Earth Inc takes a break from economic growth and unbridled consumerism. Today, all the financial powers in the world are pressuring us to get back on that track, and not to do anything that will upset their profitable myth of “normal”.
Our economic system, especially the world of financial speculation, is evil. It doesn’t require a conspiracy – it’s just the way it works. Because we have designed it that way. We must reflect on the deeper reasons why we are where we are right now, and address the underlying sickness, our myth. Is this possible, or likely? It is our economic system that is lethal. Can we see it? First of all, we need to change our minds. DM
Chris Butters has a lifetime of expertise in sustainable development. He has worked in several countries as a consultant, architect, energy adviser and project manager, as well as at several universities as a researcher. A founding member of the pioneering Norwegian GAIA network, he is the author or co-author of 12 books written in French, Norwegian, and English. He is a researcher on energy and sustainable consumption at the Centre for Development and the Environment at the University of Oslo, Norway. He is currently on lockdown in Cape Town.