Global Policy Forum



By Rene Passat

November 13, 2002


It was meant to be the end of history.

No doubt a remarkable technological change was displacing the driving force of development from the field of energy and matter to that of information and the non-material. But after the collapse of the opposing system from the East, humanity had attained, we were told, the natural state to which, since the beginning of time, it had aspired; there was only one possible economy, a neo-liberal economy whose superiority had just been consecrated by events.

Like all revealed truth, this one had its founding text, the "Washington Consensus" - a direct descendant of a G7 Summit held at the beginning of the 80s - whose "ten commandments" spelt out the benefits of free movement of capital in the world together with a complete liberty to take initiatives, at the same time that they were denouncing the temptations of "the Evil One" disguised as the "welfare state".

This truth also had its big prophets - Hayek, Friedman - and its guides who, in the human shape of President Reagan and Mrs Thatcher, were leading their peoples - in those same 80s - to the threshold of the Promised Land. The 3Ds - deregulation, (social) disinvestments, decompartmentalization, - brought about the embodiment of the ideal on Earth. Capital, freed from the state controls which bogged it down, could be concentrated internationally, within the hands of powerful financial institutions - banks, insurance companies, pension funds, speculative funds - which were able to impose their law on the entire economy and society, through corporations, states and the large international financial or economic institutions such as the IMF, the World Bank or the WTO. Capitalism, having become "shareholding", would henceforth be regulated by an essentially financial logic. This was explained as being a good thing: in the search for maximum return, finance would push the economy towards optimising its performances; the rates of national currencies, fluctuating freely, would adjust to the level of the "parity of purchasing power" to which, in case of disparity, selling or buying currencies would continuously restore them. This would be the end of the large speculative movements likely to create an imbalance in economies. We would see what we would see.

And we saw.

What we saw - under the effect of a destabilising race for immediate financial profit - was every human promise within technological change backfiring into one or other crisis affecting the entire planet: we saw speculation go wild from now on although this had been declared impossible; we saw the coming together of people, in a world where everything would be lived out in real time, turning into social cleavages, domination, greater inequality and instability, due to the movements of capital searching for profit and security where they could be found, i.e. in rich countries, coming and going according to massive predictions; we saw the lightening of human labour being translated into layoffs, unemployment, impoverishment, social exclusion, under the pressure of greedy shareholders avid for all the profits of productivity from the system rather than sharing them by reducing working hours; we saw the money-driven economy extend to all areas of life, culture and the natural environment which we plunder, pollute and disrupt to satisfy the thirst for short-term financial return.

Today we see that this kind of unlimited growth capitalism is in crisis. This crisis first started off on the stock exchange at the beginning of 2000 when the NASDAQ (technology stock market) became over-burdened with the delirious predictions of speculators whose infallibility however was one of the dogmas essential to the proper workings of the system. It moved on to traditional securities: in little more than two years - from March 2000 to July 2002 - $6700 billion went up in smoke on Wall Street; the SP 500, the index of the 500 largest American securities listed on the stock exchange lost 50% of its value; while the CAC 40 in Paris and the L'EURO STOXX of Europe's top-ranked 50 securities lost 30%.

Then it touched the real economy. In December 2001 the bankruptcy of the insurance broker Enron hit the headlines, followed soon after by others, including, in July, the liquidation - the largest bankruptcy of all time- of Worldcom, the world's top ranked telecommunications corporation. In France, the Vivendi Universal affair broke. These events revealed the existence of dubious behaviour and fraudulent book-keeping designed to deceive public opinion. Enron had hidden a $21 billion debt with the complicity of the auditing firm Andersen. Meanwhile the conglomerate Tyco was hiding an expense of $8 billion linked to the acquisition of 700 companies, the reprographics group Xerox inflated its results by $1.7 billion during the period 1997-2001, Worldcom camouflaged, between 2001 and the first quarter of 2002, $7.1 billion in current charges under the guise of investments. In France, Vivendi is under investigation by [the Stock Exchange regulator] COB (Commission des opérations de Bourse while its small shareholders are suing for fraudulent accounting. and it is clear that this is the suddenly exposed tip of the iceberg. It is the entire logic of the system which is thus being questioned: the requirement by pension funds of a 15% return on their own capital leading to forced results, the practice of stock options encouraging company executives to fraudulently back their price so as to cash them in later while consigning salary savings to a sad oblivion (as was notably the case with Enron) the downturn in the economy arrives.

The system is now damaged at its core, which is confidence; and Mr Greenspan, the head of the Fed, was not mistaken when he declared on July 16 before the American Senate Banking Committee: "Falsification and fraud destroy capitalism and the free market and, more widely, the foundations of our society". "Society", indeed, not just economics, because the dirty roots of the numerous links between this business world and the political world is quite clear. Did not Enron not play an important part in the financing of President Bush's campaign? Did not the President, just like his Vice-President, Dick Cheney, cultivate practices yesterday when they were in business that they are now forced to denounce today as responsible politicians? What moral force and what credibility does this give them?

Here we are now - in August 2002 -at an uncertain point where the vicious cycle marking the final descent into crisis seems to be underway. Like a shockwave, the confidence crisis triggered by embezzlement in the real economy is affecting the stock exchange whose erosion threatens purchasing power and investment, the basis of real economic activity. We fear "seeing households, demoralised by the fall of Wall Street, simply stop purchasing in order to rebuild their savings. We could thus find ourselves back in a situation not seen since the 1930s"; this is what is commonly referred to as the "effect of wealth"; in July 2002 the Index on Consumer Confidence published by the Economic Research Institute of the Conference Board actually fell by 9%. As for investment, the erosion of securities quoted on the stock exchange makes it difficult for corporations to find money on the market and therefore to invest. "The confidence of people in the stock market has been deeply shaken. It will be years before it comes back, " says Jeff Knight, head of investments at Putman Investments (Le Monde: 24-07-02).

As a result , the growth forecasts in the US, just as in Europe, have been lowered. Anticipated stock exchange performances will be affected by these revisions to and will reinforce their negative effects on the real economy, which in turn. This is the vicious circle at the edge of which we now stand in August 2002 .


The "only natural system" therefore reveals its contradictions.

We realise that the "instrumental rationality" on which it is built no longer constitutes an acceptable base. Undoubtedly yesterday - when production was not enough to meet essential needs and human activity did not threaten the existence of the biosphere - the well being of people was being measured by the quantity of consumer goods at their disposal. Furthermore, capital was the rare factor limiting the advancement of economic activity, economic calculation was based on its efficiency. In a word, the instrument's quantitative performance was assimilated to that of the economic system. But, when global production is sufficient to cover basic needs world-wide while 815 million people suffer from hunger and 1.3 billion live on less than $1 a day, we begin to question the "rationality" of the system which creates such results; the essential problem is no longer production but distribution. When, as it produces, the productive system destroys itself - destroying the natural environment which supports it as it supports all life - the question arises about what kind of behaviour will secure sustainable development.

Produce more? For whom? Why? How? For what? The reply to these questions is not to be found in economic system but in the value system.

We also notice that financial logic is contrary to the requirements of today's world. The means of communication - with the computer foremost - has made the world into a single unit organised into networks, living in real time and dominated by interdependence; the issues that the economy raises involve a very long-term sensitivity towards the biosphere and a respect for its regulatory mechanisms; a sensitivity also towards values based on ends and no longer on means. The supposedly universal economy is responding to this by withdrawing tightly into a logic based purely on financial means. Thus, the very long-term becomes the "next ten minutes", as James Tobin, a financier proud of his realism, declared at the Nobel Prize Ceremony. The economic apparatus is no longer there to develop territories, produce wealth and even less create well being, but to make the blood of profit flow at the cost of depopulation, environmental degradation, destruction of wealth and human distress. Globalisation and Its Discontents - by Joseph Stiglitz, another Nobel Prize winner, shows us - with infinite examples to support this - how the IMF, a true "firefighter-arsonist", by imposing an exclusively financial logic on the poorest countries itself creates - for the greatest gain of international financiers - the problems that it needs to combat: everywhere, when the crisis threatens and the real economy would need liquid assets, restrictions, on the contrary, are, imposed which plunge people into distress, but which ensure that their creditors are reimbursed. Thus it is that by sacrificing those basic investments with a long-term dividend (economic, infrastructures, education, health.) which are necessary for any kind of economic lift-off , in order to cancel budget surplus necessary for debt repayment, Structural Adjustment Plans (SAP) strangle those they claim to help.

We thus understand that the ravages described above - far from being dysfunctional - ensue from the very logic of the system.


The political world, so taken up with its own little affairs, has shown a distressing lack of understanding confronted with this situation.

So we find ourselves facing one of the most far-reaching, if not the most far-reaching mutations of all time; it brings with it great hopes for humanity - but these hopes have been dashed, turned around and perverted by a system based on financial greed. The time seemed finally to have come for a confrontation between society's conflicting aims, and we were served up with one of the dullest, most dismal presidential campaigns that we have ever known, based on the need for security and the choice between the merits of a 30% income tax or a 50% housing tax, when it was not - and I am inventing nothing here - a candidate's ability to prepare steak with noodles. We can barely be surprised at the enthusiasm that gripped the crowds... and the levels of abstention that followed.

The left seems to have forgotten its historic mission of carrying the hopes of the disadvantaged. There was great poverty in the middle of the nineteenth century, but there were men (Owen, Fourier, Proudhon, Sismondi, Marx, Engels, Hugo, and later Jaurí¨s) to tell the victims of emerging capitalism that at the heart of the system there were forces at work to create a better world in which they, the most impoverished, had a role to play. These ideas brought hope, but those who held them were in opposition to the established political powers and no more was expected of them than the expression of an utopian vision - realisable perhaps, but far off and destined to keep up workers' courage in showing them a path to follow.

It is the strength of that hope that finally carried the men that upheld it into power. A formidable ordeal, for assuming power was no longer a question of being content with distant perspectives, but of knowing what to do now in order to achieve results. The left wing in power therefore wished - quite legitimately - to prove its capacity for leadership, and this led to putting the accent on the programme... to the detriment of the project. The left no longer has anything other than programmes to offer. It has lost its sense of history, and does not know where it is going any more than the other parties.

Carried to extremes, this attitude has given birth to a strange concept of 'realism' - that of Blair, Schrí¶der, or Jospin - that consists of bowing down before reality, and so adopting the logic of their adversaries. Curiously, the term "modern" is applied to a socialism which, based on out-of-date information, accepts the system which it claims to combat' and a socialism which, taking change into account, tries to create a future, may be called "retrograde".

We see analyses appear that are based on the incontestable fact that the traditional Marxist social dichotomy between the owners of the means of production and the work force has been replaced by the formation of a large intermediary social category. As a result these analyses suggest a 're-centring' of propositions in favour of this new category, leaving the most disadvantaged unmentioned - as if the most essential objective were to get elected. It does not seem to have been understood that just as, if idealism is ineffective when it is not founded on the reality it is claiming to transform, so true realism can not base itself on reality in order to transform it in the name of an ideal. It is time for the left wing to once again to offer both hope and projects, in keeping with its mission.


Despite today's crisis, we have not yet come to the twilight of civilisation, nor even the end of 'stock market' capitalism.

A crisis - even the one as serious as that of the 1930's, can be an adaptation to new realities. The methods of stock market capitalism might change, but this will not change its fundamental nature as long as the real power remains in the hands of financial forces. Between acceptance and rejection of existing society, the issue is one of authorities: it is by changing the nature of these authorities that we change the logic of the system. This could be called 'radical reformism': putting the end result for human beings at the centre of the decision-making process, and finance in its place of simple instrument.

This means primarily that a human rationality exists. There is not on one side the rationality of money and merchandise, opposed to simple human 'irresponsible and irrational' generosity. We must insist on the existence of an economic rationality which, although built on different foundations, still involves the establishment of decision-making which is equally as rigorous as that based upon what I have always referred to as a simple 'logic of dead things'.

This implies, on the level of companies, a real rather than symbolic participation of the workers in the decision-making process. The question must also be raised of citizen control of activities that concern the public directly (pollution, or dangers to the local community, as for Toulouse for example).

On a national level, the subordination of employment to the profits of shareholders (the reduction of workers for the sake of the stock market index) must stop. The taking over by the machine of man's tasks must become an instrument of freedom (the reduction of time at work has always been a long-term deciding factor for the number of employed workers, when the total yearly volume of working hours is continually regressing). And the mechanisms of the sharing of wealth must be rethought in a perspective of fairness of distribution (in particular the question of a 'citizen's income').

On an international level: the law of the market must become subordinate to the respect for social and environmental laws as defined by international conventions (such as those of Rio, Kyoto, the International Labour Office, etc.). The freedom of circulation of world capital has to be controlled. Speculative excesses carried out to the detriment of the real economy must be opposed. The debt of less developed countries must be cancelled, structural adjustment plans stopped, and dirty money and tax havens genuinely fought against - with actions and not just words.

To put the interest of human beings back at the heart of institutions is to first take political control on an international level of the forces to be governed. This should lead to a reinforcement of international co-operation, and to the dismantling of today's institutions - that too often behave as instruments of the interests they are supposed to be controlling - and to the setting up of new international institutions more representative of the economic, social and civil forces within world societies (for example, the Social and Economic Security Council of Jacques Delors, or the World Organisation for Social Development of Riccardo Petrella).

Europe is a space within which several viable initiatives could be carried out - initiatives that are considered unrealistic on a national level. As long as the Union is reinforced before being extended to the point of becoming a mere internal zone of free exchange that melts into a world- wide free exchange zone.

The primacy of human interests must also be the refusal of all 'reductionism', be it commercial or totalitarian, in order to construct a 'plural economy' reconciling the free play of individual interests with the supremacy of the general interest. It is upon this base that both a public and a social economy sector should be founded that are both placed firmly above the laws of market regulation.

Finally, co-operation should be reinforced that does not neglect the power of citizens, and does not lead to an administration that is heavy to the point of paralysis. Power should be devolved without diluting solidarity that may have been forged slowly through history. This, however, implies a deep reflection upon the implications of the principle known as 'subsidiarity', which may be based on excellent intentions, but is as yet badly analysed and even more badly practised.

What forces should be set in motion?

Firstly, the law, insofar as national states still possess significant authority. Politicians who speak of governments' powerlessness in the face of the modern world should change jobs.

Secondly, dialogue and co-ordination of policies on an international scale. If, as we are often told, this is not within the remit of any particular government taken in isolation, it must depend on the initiatives of each government in attempting to convince the others of this need in every field where that government thinks it is important.

Finally, the world-wide awakening of peoples' and of citizens' movements which, since the victory against the MAI project, and since Seattle and Porto Alegre, are growing with surprising speed. We are witnessing a form of direct democracy that has to be listened to and combined with more traditional forms of democratic representation, if one does not want to run the risk of a direct confrontation, for such a confrontation would have catastrophic consequences for democracy. It is not by hiding behind walls in Davos, in Quebec, or hiding one's head like an ostrich in the sands of Qatar that the problem will be resolved.

When 'instrumental rationality' has run out of steam, realism changes sides: the time has come to insist on the necessity - and the possibility - of an economy based on human purposes.

Translated by: Jane Holister, Gillian Sloane Seale, David and Barbara Forbes

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.