Spotlight on Geopolitics

How much more money can be poured into solving the debt crisis before European decisionmakers realise that current recovery strategies do not actually produce the expected results ?

The global financial crisis followed by the European debt crisis are proof of an American export turned toxic, namely the Washington consensus. Its commandments, which consist of forcing governments to address economic problems by lowering taxes, mass-privatising state assets, abolishing trade barriers and deregulating financial markets, have shaped the world’s economy for thirty years. The miraculous recipe was supposed to bring prosperity to the countries that adopted it.

However, what actually happened to vast areas of the world, from Europe to Latin America, seriously comes to contradict the main tenets of the neoliberal credo. China, one of the star economic performers of the last thirty years, has kept its financial markets and currency exchange rates under tight control. No mass privatisation of ports, railways or other important state assets have taken place, nor are they likely to, in the foreseeable future. In fact, China has prospered and succeeded in lifting hundreds of millions of people out of poverty by continuously reducing the inequalities which currently plague the United States, the main promoter of neoliberalism globally.

At the other end of the scale there are a number of countries on all continents – from Argentina and Chile in Latin America, to the UK, Ireland and Greece in Europe – that have followed neoliberal prescriptions to the letter. These heavily Americanised societies have, to varying degrees, lowered taxes (in Greece’s case, doing away with collecting them altogether for about twenty years), have starved hospitals and schools for funding, plundered state assets, pillaged their national cultural heritage (i.e. the Berlusconi government and the recent Naples Library scandal), privatised prisons, armies and police services, while ignoring the plight of the poor.

During the Bush administration’s years in power, the role of a neoliberal state was reduced to that of a huge (republican) “enterprise”. The economies of such states became dominated by corporate crooks or incompetent individuals, and their governments invariably ended up in the hands of kleptocrats.

According to economist James K. Galbraith, to tolerate the existence of this kind of state leads to the implosion of its national economy:

“In time, this situation would lead, in every industrial field, to the eviction of advanced or innovative enterprises, and their replacement with reactionary and backward ones. When the retrograde sectors of the business environment – the worst polluters, declared monopolists and technological laggards – take the helm of the system,cheered on by the financial markets, the most advanced sectors abandon the party, disappear or go elsewhere. The bad practices chase out the good ones. Finally, the entire country becomes in fact the scene of the worst corporate behaviour and is consequently unable to shine within the global economy.” (James K. Galbraith, L’Etat Predateur, p.214)*

The powerful alliance between corporate crooks and kleptocrats holding political power has become the hallmark of neoliberal societies worldwide. The destructive capabilities of these pseudo-elites have been amply proven by the dire situation in which countries from the Balkans, for instance, find themselves at present. For the past twenty years or so, the politicians in these countries have presided over massive tax-avoidance schemes, the weakening of their economies and the subsequent rise in public indebtedness.

For them, collecting taxes in order to ensure the health of public finances is counterproductive. For when there is no deficit, there is no need for the state to borrow billions from private banks. Or, as James K. Galbraith rightly observes, the fat commissions secretly earned by those in power amount to tens of millions of dollars deposited in offshore bank accounts for any big loan agreement signed. Deficits ? The bigger the merrier ! No wonder, therefore, that Greek politicians had neither the appetite nor the moral legitimacy to enforce tax collection on behalf of the state.

In a country like Romania, meantime, there was a “failure” to collect some 50 billion euros in import duties alone, some companies being encouraged to engage in flourishing smuggling operations. These activities enjoyed the protection of leading politicians and of public servants at the highest levels in the Romanian justice system, all the way up to the country’s representative at the ECHR in Strasbourg. As one of my friends put it, the Romanian state budget could be balanced in only one year, if only such mafias would agree to interrupt their activities during this time…

Bringing such states back from the brink is an enormous task, as well as an extremely costly affair, as politicians in healthier parts of the EU have realised. The solution to this problem, however, is not replacing the stolen or borrowed money with EU and IMF funds, gathered from other countries. Nor, for that matter, are austerity measures or the fire-sale of strategic state assets. As experience has shown, these “remedies” only serve to weaken the states even further.

For too long, states have been treated like enterprises and forced to cut essential expenditures such as social security allocations and pensions, to close down hospitals and to starve the education systems for funds. At this point in the sovereign debt crisis, if the EU and IMF do not find ways to impose to governments in trouble the recovery of unpaid taxes and the proceeds of the economic/financial crimes that have long been going on, no economic recovery strategy would have any chance of lasting success.

*trnslated from the French edition by FP

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