A disaster caused by the free market

June 25, 2008

More than 100 people gathered in San Francisco June 7 for a forum and discussion on the global food crisis featuring Anuradha Mittal, executive director of the Oakland Institute, and Elizabeth Terzakis, a contributor to the International Socialist Review.

Socialist Worker is reprinting the speeches from the meeting in two parts--Elizabeth Terzakis' remarks in this issue, and Anuradha Mittal's tomorrow.

ON APRIL 19, the Economist ran its cover story on the world food crisis under the title "The Silent Tsunami," likening the current crisis to a natural disaster, when in fact, it is absolutely orchestrated and man-made.

The editors in that issue calmly proclaimed that the world of cheap food is gone, and they go on to outline what the crisis means for different segments of the population around the world.

For what they call the "middle classes," it means cutting out health care or rent and food. For what the Economist calls the "middling poor"--the roughly 2 billion people or one-third of humanity living on $2 a day--it means pulling children out of school and cutting back on vegetables so they can still afford rice. For those living on a dollar a day--1 billion people, or a sixth of humanity, fall into that category--they're cutting back on everything but cereals, and moving from two bowls a day to one.

The only group the Economist refers to as desperate are those living on 50 cents a day, and for them, the crisis means disaster. Although, isn't living on 50 cents a day already a disaster?

A Guatemalan child being treated at a health center for malnourished children
A Guatemalan child being treated at a health center for malnourished children (Patrick Farrell | MCT)

So the crisis is affecting different countries in different ways. And it is affecting both the people who are usually affected by famines, which are quite large in number, and the people who usually aren't. Here in the U.S., the effects are much less dire than they are elsewhere, but they are nonetheless felt. The number of people claiming food stamps rose to around 28 million in January of this year--that's an increase of more than 1.3 million from the previous year.

According to the Food Research and Action Center, the food crisis will be felt most acutely by the 35 million Americans who are already struggling to put food on the table. About 11 million of these are thought to have "very low food security"--a little euphemism there meaning that someone in their home went hungry for lack of money for food.

Food pantries in Massachusetts that used to serve fewer than 40 families a month are now serving over 200. In New Hampshire, the state that generally has the fewest people resorting to food banks, they had to use emergency relief supplies as regular handouts because their demand went up by 40 percent at the same time their supply went down by 30 percent.

What else to read

For updated statistics on world hunger, visit the United Nations' Food and Agriculture Organization Web site. The FAO's report "State of Food Insecurity in the World" is available online.

You can find more useful analysis of the roots of the food crisis at The Oakland Institute Web site.

The International Socialist Review has a special feature on the global food crisis, including Sharon Smith's "The revolt over rising food prices," an eyewitness report on "Haiti's food riots" by Mark Schuller and Hossam El-Hamalawy's "Revolt at Mahalla" on the eruption of class struggle in Egypt in connection with the food crisis.

And it's not just the unemployed who are visiting food banks. Forty percent of the 13 million working-age adults who are served by Second Harvest, which is one of the big umbrella groups of soup kitchens, come from households where at least one family member has a job.

The same week the Economist ran that story about the silent tsunami, the New York Times ran a story under the headline, "Wall Street Winners Get Billion-Dollar Paydays." It talks about John Paulson, who runs a hedge fund and made $3.7 billion last year. According to the Times, he "reaped that bounty, probably the richest in Wall Street history, by betting against mortgages and complex financial products that held them."

Now, the article makes it sound like Paulson went to Vegas and had a good run at the craps table. But in fact, he didn't. What actually happened was that he guessed correctly that the mortgage industry was going to collapse, and he was positioned by his already considerable wealth to take advantage of that, so he short-sold stocks against the mortgage industry.

Short-selling is when an investor with a lot of money borrows a lot of stocks on something they think is going to go down in price, sells the stocks at a high price, and then buys them back at a low price and pockets the difference. In other words, Paulson cleaned up on the fact that millions of people in the U.S. are losing their homes.

Other brokers did this short selling at the same time that they were collecting big fees from just straight-out selling these securities to people. That's what hedging is--you hedge your bets. This article didn't say that Paulson did this, but I wouldn't be surprised if he did because that's what these people do.

So the era of cheap food is over, 3 billion people live on less than $2 a day, and Wall Street "winners" are getting billion-dollar paydays. These phrases kept playing in my head because, whenever I introduce the subject of socialism to people who are not already socialist, the most common answer I get is, "It's a good idea, it looks good on paper, but it just doesn't work."

My question to them is: If you're concerned about something working, under what definition of the word "working" does capitalism work? Because it seems to me that a system in which 3 billion people are living on less than $2 a day, that has produced an end to cheap food, and that allows one person to "earn" $3.7 billion in one year is a system that is failed and broken and must be replaced.

The current food crisis is not a silent tsunami, it is not a natural disaster, and there is nothing silent about it. Those affected by it have responded loudly and angrily. In Haiti, for example, there were protests to remove the prime minister and put a cap on rice prices, and there were strikes by textile workers in Egypt and by garment workers in Bangladesh that have wrung real concessions from their governments.

Here in the U.S., where the standard of living is higher, but not nearly as high as formerly believed, there haven't been substantial protests, but I think we need to start following the lead of our brothers and sisters all over the world who are fighting back. The situation at home and abroad should be taken as a call to action.

NEXT, I want to talk about the food crisis in relation to the financial crisis. I want to argue that these two together constitute a crisis of neoliberalism as an economic model, and this crisis makes rebuilding the left an even more vital and urgent project than it has always been.

I'll start by defining neoliberalism. Neoliberalism is a collection of policies and practices that have guided the way capitalism has functioned in the world since the late 1970s. It is both an ideology and a model--an ideology of perfect capitalism, and a model of how to carry it out in the real world.

In theory, it means allowing the market to perform its own adjustments and corrections without state intervention. But like most things having to do with capitalism, in practice it is hypocritical. In practice, it has meant the increasing integration of business with the state and the constantly increasing use of the military to achieve corporate ends.

Neoliberalism has not freed the market from government. Rather, it has freed governments from any responsibility for taking care of ordinary people or the health of the planet.

This freedom has been accomplished by removing tariffs, standards, regulations and laws--that is, environmental standards, worker safety laws and anything else that might restrict the free flow of capital and investment between nations. It has been accomplished by smashing unions and reducing spending on social services like health care, education and care for the elderly. And it has been helped in doing so by the privatization of state-run industries and a renewed emphasis on individual responsibility.

It is an understanding that the best way to run capitalism is the one that predates the Great Depression of the 1930s. Hence, the name "neo"--as in new or recent "liberalism," not as in progressive on social issues, but as in free from restraint. Naomi Klein sums it up well in The Shock Doctrine, in a chapter on neoliberal architect Milton Friedman:

The starting premise for this set of ideas is that the free market is a perfect scientific system, one in which individuals acting on their own self-interested desires create the maximum benefits for all. If something goes wrong in this perfect system, it is because the market is not truly free.

Now, according to this perspective, so-called free markets are the most efficient and socially optimal way to achieve growth, corporate globalization benefits all, privatization allows competition to remove inefficiency, and finally, the only thing the government needs to do is supply infrastructure. And it actually should turn it over to business as soon as the cement is dry.

The other thing the government can do is uphold the rule of law, as it pertains to private property and contracts. That means courts to adjudicate between squabbling capitalists. That means police to protect the rich from the poor. That means providing an army to go into other countries and take over or facilitate coups if they won't play by neoliberal rules. That means a state that is of business, by business and for business.

The U.S. has enacted these neoliberal policies in a number of different ways. One is through supposedly international, but actually American-run institutions, such as the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO). Another is through "free trade" agreements, such as the North American Free Trade Agreement (NAFTA), which is largely responsible for the decimation of the Mexican economy.

They put these words "international," "world," and "agreement" in relation to neoliberalism as if it had anything to do with internationalism or agreement, as if these treaties were really agreements that were entered into openly by two free parties. They must think we're very stupid.

For an example of how the IMF works, look at Argentina in 2002. Argentina was one of the last victims of the so-called "Asian flu"--another "natural disaster" according to the ruling-class press--which was really a world economic crisis that broke out in Thailand in the late 1990s. Argentine exports dropped by 15.6 percent and foreign investment dried up, leaving millions unemployed and pushing the country into recession.

Many countries hit by the crisis, Brazil for example, followed the advice of the IMF and devalued their currencies with the idea this would increase their exports. The Argentine government, however, wanted to protect its own banks, so it did not lower the value of its currency, and that made its exports drop even more.

This was a bad situation, but that's not all. Argentina was hamstrung in its efforts to fix these problems by the IMF. On the one hand, there was the debt itself. Argentina had a large debt to the Fund, and it had to continue paying it off even though it was going through a crisis. So money that should have gone to helping the people of that country actually went to foreign banks.

But it was also hamstrung by the conditions that were attached to the loan. That is, the Argentine government was forbidden by the IMF from doing the kinds of things governments usually do when their countries go into recession. It was forced to cut taxes, decrease government spending, increase privatization and reduce spending on social services. All these policies contributed to the downward spiral of the economy, making it worse rather than better. One economist described it as driving the entire economy to the wall.

THE IMF makes similarly harmful demands when it comes to agriculture by forcing developing nations to open their markets to U.S. agribusiness. But I also want to note the food crisis is not the only crisis for which these U.S.-dominated institutions are responsible.

The international AIDS crisis also coincided with and was exacerbated by the adoption of neoliberal policies known as Structural Adjustment Programs (SAPs), promoted by the IMF. In the 1960s and '70s, most post-independence African governments increased spending on health care, attempting to develop public health systems that would make up for the inequalities of the colonial era. As a result, the infant mortality rates went down, and life expectancy went up.

In the 1980s, however, these same nations faced a debt crisis and they became dependent on loans from the World Bank and IMF. The conditions attached to these loans required African countries to enact the same economic changes later forced on Argentina: cutbacks in government spending, and the privatization of government industries and services.

These adjustments were supposed to make the African economies stronger and more independent, but actually, they made them weaker and more dependent on foreign loans. They also undermined Africa's health care system by forcing governments to make drastic cuts to health care spending, which fell by 50 percent in the 42 poorest African nations during the 1980s.

This pattern was repeated later in Asia. Thailand, which was lauded for its effective AIDS prevention programs in the early 1990s, saw government spending on AIDS prevention cut in half in the late 1990s at the behest of the IMF. This lack of health care infrastructure in developing nations was mandated by the World Bank and the IMF, and if you want to predict where the AIDS crisis is going to get worse, all you need to do is follow the IMF. When it went to Eastern Europe after the fall of the Stalinist regimes in the early '90s, that region took the lead in the fastest-growing incidence of AIDS infection.

When all else fails, the U.S. will use its military as it has done in Iraq, or its spy agencies in conjunction with other countries' militaries, as it did in Chile in 1973, to get its neoliberal way.

Here in the U.S., the advance of neoliberalism can be traced back to the early 1980s, when business and the government launched a full frontal assault on labor unions that has continued unabated ever since and has eased and abetted the gutting of everything from pensions, to health care, to safety regulations, to wages, to social programs and the safety net, with several administrations and both parties playing active roles in the process.

Recently, the U.S. ruling class proved itself willing to apply the full array of neoliberal prescriptions on its own soil in what Naomi Klein calls the "militarized gentrification" of New Orleans. This consisted of using the National Guard and mercenaries to get rid of public housing, get rid of public education, get rid of people and in particular poor Black people, and then let the market for luxury real estate sort it out.

THE AIDS pandemic, hungry people, homeless people, massive profits for multinationals, charter schools and Blackwater--that is what neoliberalism looks like.

It is important to note that neoliberalism has not always been the model of choice. There is a model that came up after the Great Depression, Keynesianism, that ran on a different idea.

The idea behind neoliberalism is that the market will sort itself out. You just let it rip, you deregulate things, you smash unions, you basically take things away from people in a very bold, straightforward, frontal assault kind of way.

After the Great Depression and after the Second World War, there was a turn toward the idea that capitalism is full of contradictions, it's going to necessarily create inequality, and that the harshest of those contradictions need to be eased away by the government. It was never strictly followed--one of the main provisions of Keynesianism is that you want full employment, and that obviously has never been attempted, let alone achieved in the U.S.

The ideas of Keynes, that you had to do something about the inequalities capitalism produced, were popular until the early 1970s. But they mostly provided the ruling class with ideological backing for making concessions to the working class. Because you have to remember that they didn't give away anything without a fight. Every single time something was given to the working class in this country, it was because working-class people fought for it.

In the early 1970s, the world economy slumped, Keynes' ideas were rejected, and the ruling class took up the idea again that the market is perfect, and if there are any problems, they must be because the government is intervening. And they used that as an excuse to let things rip.

The food crisis is being accompanied by a financial crisis of the type that has not been seen since the 1930s, and it's a direct result of one of the main tenets of neoliberalism: deregulation. The two together constitute a crisis of neoliberalism, both as an ideology and as a model.

It is hard to argue that opening your markets to foreign corporations is a good idea when hungry people are protesting outside your palace and striking in your factories. It is hard to argue the deregulation of finance is a good idea when millions of people are losing their homes because rich bankers have been playing the slots with their mortgages. And the housing crisis is not just in the U.S.--it is actually international, and it is worse in parts of Europe than it is here.

It is hard to argue your system is the best system ever when millions of people are homeless and hungry, and people like John Paulson are cashing $3.7 billion paychecks, and they're doing so because of the deregulation of finance and the misery it has produced. And I'm not even going to go into the people making fortunes speculating on food, except to say that the hedge fund managers, having made all the money they can out of creating homelessness, are now off to see what they can get for exploiting hunger.

It has gotten harder to make these arguments--that doesn't mean the ruling class is not still making them. According to Laura Carlson of the Americas Program, World Bank president Robert Zoellick, IMF director Dominique Strauss-Kahn and former WTO president Pascal Lamy have all used the food crisis to argue for a reinvigorated Doha round of the WTO to deepen the free trade system. Basically, they want more of the same--that markets should be opened up more, there should be more free trade, more deregulation.

However, people were resisting these prescriptions before the current crisis, and I see no reason to think they will settle for them now. I think the ruling class is saying the same old things because it hasn't yet figured out what else to say. This means that concerned people like ourselves have to be very clear about what we think the solution should be, and we have to take a stand now. There is an opening for us to say things that are different from what they are saying, and to get our voices heard.

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