Global Finance: New Thinking on Regulating Speculative Capital Markets
Edited by Walden Bello, Nicola Bullard and Kamal Malhotra
Zed Books
244pp., A$48.95
Taming Global Financial Flows: A Citizen's Guide
By Kavaljit Singh
Zed Books
237pp., A$43.95
REVIEWS BY SEAN HEALY
The Asian economic crisis of 1997 concentrated the eyes of the world on the power of the financial markets, and their volatility and destructiveness. Between 1990 and 1996, private capital inflows into the Third World skyrocketed from US$44 billion to US$244 billion. Within a year, capital poured out, leaving devastation and misery.
While speculation is as old as money, and all the essential assets traded on markets today (stocks, bonds, futures, options) are at least two centuries old, the size and dominance of the financial markets has exploded in the last 10 years. These markets now dwarf the "real" economy of trade and production of goods and services.
Just two figures from these two books indicate this: in 1977, the daily turnover of the foreign exchange markets was US$18 billion; today, it's US$1.49 trillion. In the early 1970s, 90% of foreign exchange trade was related to trade and investment — companies bought foreign currencies so they could buy foreign goods or set up in foreign countries. In 1997, the total value of global exports of goods and services was US$6.6 trillion — equal to just over four days of trading on world currency markets.
With this has come a reconfiguring of power within the global economy: "today", argue Bello, Bullard and Malhotra, "finance 'drives' the world economy" and those who dominate finance dominate the world.
As the new global protest movement has grown, its targets have shifted: from the practices of companies and institutions, like the use of sweatshop labour or "structural adjustment programs", to the corporations and institutions which engage in them, like Nike or the IMF, and to the forces behind them, Wall Street, the White House, the whole structure of capitalism.
The movement has proceeded "up the chain", so to speak, towards the heart of the beast. That heart now lies in the world's financial markets, the centre of corporations' power, the repositories of their wealth, the machinery of their enrichment, the apparatus of their domination, and the weapons of their choice.
The decision to shift economic power to the financial markets (or rather the complex of banks and other financial institutions which control markets) was a deliberate one by governments, the US government in particular.
Much of their fiscal and monetary policies — paying off public debt, floating currencies, cutting taxes on business, privatising state assets, deregulating banking, promoting private superannuation funds — have been designed to shift savings from the household or government sector to the finance sector, where it can be used by the capitalist elite for even greater, and more concentrated, "wealth creation".
Where governments, especially in the Third World, were initially unwilling, they have been brow-beaten into submission.
Singh details how the Organisation for Economic Cooperation and Development — the club of industrialised countries— and, even more so, the International Monetary Fund have made pursuing open capital accounts and unhindered capital flow their mission during the 1990s. He details how successful they have been: by June 1998, 145 members of the IMF had agreed to the fund's stipulations on open capital accounts; 70 had done so since 1993.
The justification for such a deliberate policy has also been a calculated one: the claim that, such is the power of these financial markets, that no state can control them. The best that can be done is to ride them.
The great merit of both of these books is that they illustrate how easy it would be for governments to regulate these vast private flows of capital — if they had the will to do so.
Singh's Taming Global Financial Flows is the more straight-forward of the two. It is what it says it is, a "citizen's guide" which summarises financial globalisation, looks at particular points of stress (specifically hedge funds and offshore financial tax havens) and then catalogues the various attempts by national governments, from Malaysia to Chile, to restrict speculative capital flows.
Global Finance is more ambitious. Edited by Walden Bello, Nicola Bullard and Kamal Malhotra of the Bangkok-based research centre Focus on the Global South, which has provided invaluable insights into financial globalisation and the Asian crisis, the book is a collection of papers presented at a March 1999 conference, "Economic Sovereignty in a Globalising World: Creating People Centred Economics for the 21st Century".
The papers are a mix of political and technical analysis.
An introductory chapter by the editors, "The Ascendancy and Regulation of Speculative Capital", is a skilfully written and succinct stage-setter, analysing the means by which finance capital was "unbound" following the early 1970s' collapse of the Bretton Woods system of fixed exchange rates and restricted international capital flows, a theme continued in Susan George's already widely circulated chapter, "A Short History of Neo-liberalism".
South African activist and academic Patrick Bond deconstructs the different camps in the debate about the "international financial architecture", which he designates: the status-quo "Washington Consensus"; the "Old World Order" of US isolationist Republicans; the "post-Washington Consensus" of moderate neo-liberals like former World Bank chief economist Joseph Stiglitz; the "Third World nationalism" of Malaysia's Mahathir and Zimbabwe's Mugabe; and the "New Social Movements".
(Bello, Bullard and Malhotra do something similar, but don't identify an old-guard Republican camp and fold the Third World nationalists and moderate neo-liberals into one camp.)
Other contributors are more technical or limited in their aims: Jessica Woodroofe of the British-based World Development Movement proposes an International Investment Agreement based on recognition of the terms of pre-existing UN human rights, environmental and labour treaties; the Third World Network's Martin Khor details Malaysia's capital controls; US academic Zhiyuan Cui argues for an "International Chapter 11", which would allow countries to declare bankruptcy while keeping control of their assets and cash flows, as is possible under US bankruptcy law; and Rodney Schmidt details how simple it would be, given the increasingly centralised nature of international financial payments systems, for governments to impose and collect a "Tobin tax" on foreign exchange flows
That said, both works suffer from a considerable failing: they don't generalise on their analyses. By not doing so, they make their answers to the questions they set out to address — can speculative capital flows be "tamed"? — ambiguous and ultimately unsatisfying.
One problem is of analysis itself. Singh and, in their introduction, Bello, Bullard and Malhotra attribute the massive explosion of speculative funds (at least in part) to a global crisis of overcapacity — the world economy produces more than it can profitably sell, so investors go in search of returns in the casino of the financial markets.
Others in Global Finance, notably Bond, Indian academic Sumangala Damodaran and French political economists Suzanne de Brunhof and Bruno Jetin, who write about the Tobin Tax, also tend towards a similar focus on speculation as structural to capitalism.
But no-one goes from there to ask the obvious question: is it even possible to end speculation, and the ascendancy of speculative capital, without ending capitalism?
This question instead gets reduced to something rather more facile: is it possible to pass laws which restrict speculative capital flows?
The second problem is of strategy. How exactly do such restrictions on speculative capital flows come about?
Again, both Singh and most of the writers in Global Finance begin from a structural, essentially class, analysis of who is pushing the empowerment of the financial markets — there are many references to the "Wall Street/Treasury complex" and many more to how the beneficiaries of such policies are concentrated in the upper strata of the richest countries.
There are some tantalising glimpses into how demands for practical measures to restrict speculative capital flows may fit into a larger attempt to "storm heaven".
Bond, for example, writes of "the need for non-reformist reform strategies" which progressively take power from the money men, Jetin and de Brunhoff describe the campaign for a Tobin Tax as an "attack on the current political consensus" which would "financially [punish] the speculators" and George invokes Italian pioneer communist Antonio Gramsci, reminding us, "we have the numbers".
There's also some pointed, and accurate, criticisms of moderate "opponents" of neo-liberalism: Bello, Bullard and Malhotra criticise the lack of a "fundamental and thorough critique of globalisation" from the "Global Keynesians" who, in the words of one of their chief spokespeople, Dani Rodrik, want a "regime of peaceful coexistence between national capitalisms".
Bond meanwhile savages both the strategic naivete of moderates who "[reify] the embryonic global state" by thinking it can be democratised through such measures as establishing a "World Financial Authority" or strengthening the United Nations, and the hypocrisy of Third World nationalists who have been "talking left" in order to justify "repression of public interest groups and trade unions".
But this is as far as it goes, leaving a whole sequence of strategic issues (the relationship between the new social movements and governments in the Third World, for example, or an analysis of which specific demands should be part of this "non-reformist reform strategy" and which give too much ground to the other side) mentioned but not really addressed.
As a consequence, other writers in Global Finance, and Singh in his later, concluding chapters, slip very easily into the very thought patterns criticised earlier: a concentration on either the UN system or Third World governments as both the primary target audience and primary actors for change.
The debate about how to tackle speculative capital flows will continue. These books are valuable contributions to it, both by analysing the history of finance capital's new ascendancy and by putting the lie to any claim that it simply cannot be regulated.
However, the debate on what this all means for the strategy of the new social movements must go much further.