Austerities, Economic Incentives and the Melanesian Way

Introduction

As great economists of the globe struggle with the present economic crisis and the financial meltdown, small economies that are as yet, not fully integrated into the global market system need to ask themselves some critical questions about alternatives to the capitalist trap that the Industrialised nations of the first world are currently embroiled in.

Perhaps small economies of the Southern countries should take a second look at the nature of the beast we call capitalism, and before it is too late, to delay their total emersion into what many analysts have long recognised as a socially destructive economic system.

Simbu Dancers 2002 Port Moresby

It may be prudent for small economies to begin imagining appropriate escape routes and plans that may steer them away from a system that has marginalised them and jeopardised their own economic choices and chances for any equal participation in the global economy.

It is predicted by many experts that the capitalist system itself, in its present form will eventually fail all nations, including first world nations, and threaten or destroy many diverse societies which have alternative systems of human survival.

This article is meant to help maintain the right questions in Melanesia, regarding economic systems, by bringing together some critical reactions, analyses and discussions arising from the present economic crisis. At certain points we will cut back and forth from various discussions in order to ensure the article's own logic and to offer a perspective aimed at generating local discussion.

Strong Unions – The Worst Nightmare for the Financial Elite

"... we will use the same basic principle that we use in breaking a horse, combined with some more sustaining factors. We reduce them from their natural state in nature; whereas nature provides them with the natural capacity to take care of their needs and the needs of their offspring, we break that natural string of independence from them and thereby create a dependency state so that we may be able to get from them useful production for our business and pleasure". 

 -Taken from a speech delivered by a white slave owner, William Lynch, on the bank of the James River in 1712. 

To this day, the basis for the success of capitalism continues to be, the exploitation of humans and human labour. This is the primary source of its survival. Capitalism is a system that seeks to create an alternative reward for human labour - removed from the ordinary experience and the normal expectations of the fruit of human endeavour.

To be effective at this, a capitalist system strives first, to deny humans the total experience of production. In this way, humans who labour to create a certain product cannot fully comprehend their own part in the production of the marketable result of their labour - the finished product. Secondly the system strives to create a dependancy of the working classes on an addictive culture of consumerism.

On a closer scrutiny of the logic of capitalism, it may be noted that this system is the enemy of all other traditional culture and their connected forms of human survival systems and mechanisms.

Melanesian societies continue to witness the severe erosion of their cultures and the beginnings of a total loss of alternative economies and traditional trading relationships and partnerships.

Strong economies in the Pacific, who are themselves agents of global capitalism in the region, in many ways aid the stranglehold of capitalism by dominating regional dialogue and preventing the meaningful exchange at the level of small economies, amongst themselves as Pacific Island countries, thus preventing greater internal reflection and reaction to the capitalist threat on their fragile cultures and systems.

From the beginning, the capitalist system very quickly saw the Labour Unions as a threat to its ulterior intentions and its desire to exploit humans effectively. In the US

"... Worker rights and a decent wage represent a toxic brew to the ruling elite.  In the past, they expressed their antiunion position in a crude fashion.  From the 1870′s through the 1920′s, industrialists fought union growth with hired thugs and complicit law enforcement officials.  Organizers and union members were harassed, maimed, and killed throughout the country for simply acting on the right to organize and participate in a union".  


From: Strong Unions – The Worst Nightmare for the Financial Elite.

"Man wouldn’t pay you unless he had to"  -  Chris Rock.

Austerity Programmes

Dictionary meaning: Austere - harsh, stern, morally strict; severely simple - from the old Greek "Austeros" - severe.

"Austerity" as a concept and as an economic reform tool, works on the principle of seeking to destroy working class systems that stand in the way of economic imperialism. It does this by first pretending to be a cost saving exercise in a country's economy, by denouncing and discrediting many aspects of social protection mechanisms, refusing to pay for the costs of social security or refusing to support an effective social netting system, including retirement and pension schemes for the workforce of a country. It often fashions this policy by disguising the austerity argument as a criticism of the Unions and the impracticality of a nation to uphold many of the human rights principles that trade unions seek to uphold.

It helps those that push for an austerity programme to introduce these programmes at moments in time, when Trade Unions and their leadership have reached a state of organisation where there are internal conflicts and divisions about the means to various ends.

Austerity programmes have been introduced to working economies in the past, most notably to the British economy thus paving the way for the fall of the unions and the rise of "Thatcherism" from 1979 onwards.

"The head of British government had always been adamant that in order to carry out her radical social reforms, the unions had to be curtailed. After all, the workers affected by her reforms had a powerful organisation on hand in their trade unions, which were hardened in battle and also prepared to fight, and which stood up against the state ordinance of wage dumping and layoffs. Moreover, they were radical opponents of Thatcher’s agenda: the paradigm shift in the social welfare state that declares that the provisions workers have to make for the inevitable cases of need in their career in capitalism to be the “own responsibility” of those who cannot afford them. There was no question for the Prime Minister that her objectives — lowering national wage levels, liquidating unprofitable industrial sectors and privatising traditional government tasks in infrastructure — all these were a question of power, i.e. they required breaking union power. The Iron Lady’s mantra — “The solution to the union problem is the key to Great Britain’s recovery” — was a proclamation of class war from above against the trade unions and constituted the first step of her national reform project." 

- Taken from: "A model lesson on the magic formula for how to use wages and the social welfare budget as weapons in global competition" 

Anatomy of Capitalism (Structure of the Global Bank)

If we consider International monetary policies to be the main instruments regulating trade in today's global environment, then we would also consider the US Federal Reserve System (the central banking system of the United States) as the global bank leading the monetary policies that regulate the affairs of the earth's financial institutions. This is evidenced by the recent bail out of the Banking Institutions during this financial crisis.

Some of the main players within the structure of the Global Banking System include the Federal Reserve Bank, the European Central Bank, the Reserve Bank of India and the People's Bank of China. These entities are the main controllers of monetary policy on earth.

Global Banking Today

Traditionally, a Banking system was built upon the storage and transfer of liquid currency and portable property. These currencies and portable properties were actual goods of wealth or promissory notes convertable into goods of wealth and services of comparable value. These concepts and measures of trading relationships were honourable within a trading area, empire or community.

Today's Global Banking System is built on an advanced theory of money, where most of the monetary wealth that the Global Banking System itself seeks to dominate and control, is theoretical and even fictitious - often they are "not worth a plugged nickel".

The primary theories that build the credibility and wealth of the Global Banking System include articulated theories like:

• the advanced theory of money itself in which to a great extent money is no longer a measure of metal but rather a measure of speculation and trade confidence
• the speculation on the stock market
• the theory of market leverage

Demonstration of the fictitious aspects of Banking by looking at Leverage:

What Does Leverage Mean?

1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.

2. The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged.

Leverage is most commonly used in real estate transactions through the use of mortgages to purchase a home.

1. Leverage can be created through options, futures, margin and other financial instruments. For example, say you have $1,000 to invest. This amount could be invested in 10 shares of Microsoft stock, but to increase leverage, you could invest the $1,000 in five options contracts. You would then control 500 shares instead of just 10.

2. Most companies use debt to finance operations. By doing so, a company increases its leverage because it can invest in business operations without increasing its equity. For example, if a company formed with an investment of $5 million from investors, the equity in the company is $5 million - this is the money the company uses to operate. If the company uses debt financing by borrowing $20 million, the company now has $25 million to invest in business operations and more opportunity to increase value for shareholders.

Leverage helps both the investor and the firm to invest or operate. However, it comes with greater risk. If an investor uses leverage to make an investment and the investment moves against the investor, his or her loss is much greater than it would have been if the investment had not been leveraged - leverage magnifies both gains and losses. In the business world, a company can use leverage to try to generate shareholder wealth, but if it fails to do so, the interest expense and credit risk of default destroys shareholder value.

Another Angle on Leverage at Work: 
For those that don't know, leverage is a way investors get a higher return.  It works much like a mortgage on your home.  To buy a $400,000 home you might put in $50,000 of your money and borrow $350,000 from the bank.  If the house increased in value by 10% you now have an asset that you can sell for $440,000 or $40,000 over what you paid.  But remember, you only put in $50,000, so you have made a return of 80% on your investment.  The $350,000 that you borrowed was financial leverage.

The problem with this theoretical system is that when the sub-prime market begins to melt down, bonds can lose value faster than the stocks drop. Lenders, alarmed by the drop in collateral may call-in their loans. As the value of collateral drops, a company or country is caught in a death spiral.

Going back to the housing analogy, it's as if your house is declining in value and worried about this, the bank calls in your loan and the loans of all of your neighbors.  But as all of your neighbors put their homes on the market, the value declines even more so that even if you sell, you can't repay the loan anymore, all of your equity has been wiped out.  At that point, you have no choice but to walk away and give the bank your house.

Financial Revolution Underway Led by the Global Banking System

There is a quiet revolution going on. It's not a political revolution or a social revolution. It is being carried out without guns, bullets or physical violence, but this aspect makes it none the less real. The world is in the midst of a financial revolution led by the banking system whose representative in the U.S. is the Federal Reserve, a private bank that is not part of our current government system and does not hold reserves. The goal is the complete dominance, ownership and control of all assets by the government. What Americans are now witnessing may be the finest coup d'etat ever perpetrated.

Welcome to Greece, the birthplace of democracy and now the first European country to fall victim to the Global Banking System.

The plight of Greece should be observed carefully by small economies of the South. How it fares in the next few weeks and how it will suffer or survives this global financial crisis.

The Greek Economic Situation within the Euro Zone

As I write this article, Greece is witnessing massive street protests and a strike of millions of workers against the government’s austerity plans.

Greek Austerity Protests  Click for more images at The Daily Bail

With many high level meetings taking place within the European Union leadership, especially between French and German officials, it seems to be of critical importance for the global banking system and its agents to prevent Greece from defaulting on its debt. The apparent fear are the regional consequences resulting from such a scenario.

The Greek Prime Minister George Papandreou is under immense pressure to try to ensure that his country steers away from defaulting on its debt to the European Union. This week Papandreou says that he will reshuffle his cabinet to try to achieve consensus on how to address the country’s crippling debt crisis.

PANITCH: ... So there is a problem in terms of Greece's finances, but that problem existed before the crisis. It was aggravated considerably by the fact that Germany is the big exporter in Europe's free trade zone. That's what the European Union is, a free trade zone. And Greece got the money through transfers from the EU, from the European Commission for a while, but mostly from borrowing from German banks to buy German goods. Right? And they were very heavily in debt when the global economic crisis hit. That global economic crisis was made in the United States in the American mortgage market, but Deutsche Bank was very heavily invested in the American mortgage market. Deutsche Bank owned almost all of black Cleveland's mortgages. They'd been foreclosing black Cleveland. Well, Deutsche Bank is in a precarious situation. They were bailed out, as were other banks, mainly by the Fed, not only by the European Central Bank.

JAY: The American Fed?

PANITCH: The American Fed. And when they saw a situation in which Greece would not be able to repay its debt, they were very worried that they would face a liquidity problem, and maybe even an insolvency problem, not from Greece alone, but insofar as that would have knock-on effects, especially to those other countries in Europe which also have been the importers of German exports and borrowed very heavily in order to be able to buy those imports. Now, what's very important here is that it wasn't primarily the states that were borrowing that money; it was private banks borrowing that money, lending it to Greek consumers and corporations who were importing this stuff. But the state then bailed out those banks, right, in order to make them solvent or guarantee their debt.

The severe public censuring of Greece is only sabre rattling which will not stop the inevitable - that Greece has no other way around the problem but to default on its debt mainly to German banks who themselves were rescued by the Federal Reserve Bank of America during the beginning of the crisis.

JAY: So what's the alternative? ... why not default?


PANITCH: ... Greece will default. I mean, it's not a matter of whether they should default. There is no choice. All you read in the media, all you see in the media is hard bargaining. It's hard bargaining. You know, what will be the cost to Greece of defaulting? It will happen. No question it will happen. 


So whereas after the Asian crisis, when, you know, the great booming East Asian countries, Korea and Thailand and so on, you know, experienced a tremendous outflow of capital, after that, the knock-on effects were such that they got the banks to restructure debt in a whole bunch of countries which felt the knock-on effects of this, as they applied structural adjustment programs to those countries as well. And they did so without the kind of hard bargaining. They were trying to stop the bleeding. 


In Greece's case, what they are afraid of is that if the default takes a form that doesn't involve very, very heavy costs, and certainly the German and French banks are insisting no cost to themselves--.

JAY: They want--"heavy cost" meaning heavy cost for the Greek people...

PANITCH: Yeah, to some extent for the German budget and the European budget and the French budget, and to some extent perhaps even for the American budget, because a lot of the quantitative easing that the Fed is doing is flowing into these banks to keep them liquid in case there's a default on that debt. So there's no question it'll default, and all that's going on is, you know, what the arrangement will be, you know, how serious it will be, and how severe the penalties will be so that others won't default.

The above interview is extracted from the video below.

The Melanesian Way - Survival of people in Marginalised Economies

This blog entry is concerned with the systems of survival in Melanesia and other South Pacific Islands. Having demonstrated what our fragile cultures are up against we have to recognise what we need to be doing locally to shield our people and our cultures from global financial crashes and melt downs. 

The following video shows that our people are already aware of the dangers that have befallen other economies such as the attempt to control the supply of all planting material on earth by Montsanto. Many people and organisations in Australia, New Zealand, Papua New Guinea and other smaller Pacific countries are starting to organise to protect land and the independence and self determination of fragile systems of survival, by protecting among other things, the self reliance of indigenous people, protecting their food resources especially seeds and other planting material.

Video: Alternative Action and Organisation


Needless to say, in view of the above issues, it becomes paramount to ask questions about where the new economic incentives of the region should be targeted. Should economic incentive be used to further the so called "austerity" in global capitalism or rather used as a humanitarian measure to protect the planet from misery and mass starvation?

 About the Speakers quoted in this Article

Leo Panitch (born May 3, 1945 in Winnipeg, Manitoba, Canada) is a Distinguished Research Professor, renowned political economist, Marxist theorist and editor of the Socialist Register. He received a B.A. (Hons.) from the University of Manitoba in 1967 and a M.Sc.(Hons.) and PhD from the London School of Economics and Political Science in 1968 and 1974, respectively. He was a Lecturer, Assistant Professor, Associate Professor and Professor at Carleton University between 1972 and 1984.

He is a prominent exponent of Marxism who sees his own work as theoretically innovative within that tradition, because he maintains that the dominance of the United States in the early years of the twenty-first century can't be understood using theories of imperialism that are themselves a century old.

He has argued, for example, that the concept of imperialism developed for the Victorian era over-emphasized the matter of the export of capital. Yet if one uses that as a yardstick today (he reasons) Great Britain is more a victim of U.S. imperialism than Kenya -- since American investors have much more at stake in the former than in the latter. The advanced industrial nations, in other words, are interpenetrating -- exporting capital to one another, not to the 'South,' and this requires a great deal of revision in Marxist-Leninist models.

Panitch has also argued that Marx was wrong to contend that the rise of trade unions would develop a socialistic class-consciousness in the working class. The association of workers for the purpose of collective bargaining has proven quite compatible with capitalism -- since such bargaining concerns the terms of wage labor, not the legitimacy of wage labor. He argues that Marxist political parties must abandon the assumption that there is anything inherently revolutionary about any class, so that they can get to work creating a self-conscious revolutionary class of wage earners, "articulating the articulation."