A New Deal for the Global Economy

A New Deal for the Global Economy

The Current Crisis

“Money is a singular thing. It ranks with love as man’s (sic) greatest source of joy. And it ranks with death as his greatest source of anxiety.”[1]

[1] The current global crisis began as a crisis about money but quickly became a pandemic global economic crisis. People are losing their homes, their jobs, their livelihood, their retirement savings and pensions and more generally, their sense of security. In a worldwide poll, the Canadian paper the Globe and Mail reports, “The prospects of a deep recession and little hope for a quick recovery have left nearly half the consumers in the industrialized world bonded by a common sense of pessimism …” There is a “…general mistrust of governments to manage the financial situation and toward banks and stock markets to bring back stability.”[2]

[2] What began as a crisis in the sub-prime mortgage market in the United States, spread with viral intensity to the global economy. Some of the causes are clear. The commodification of money and the securitization of mortgages have played a part.[3] The commitment to reduce government regulation led to a lack of oversight of banks, insurance companies and other financial institutions at the state and federal level in the U.S. and elsewhere in the world. Corporate directors failed to understand many of these new instruments and make adequate risk assessments. Taken together, the current crisis was a ringing indictment of past liberalizing economic policies.

The Global Economic Deal

[3]Comparisons in the current crisis have been made to the Great Depression of the 1930s. Some have even argued that because of that experience, governments have learned. Yet still other commentators warn that this is unchartered economic territory. What lifted much of the global economy out of the depression of the 1930s was initially Roosevelt’s “New Deal” but more tragically, the Second World War. Following the war the pent up demand for consumer goods and level of savings resulting from war bond purchases ignited a period of economic growth.

[4] Following the war, world leaders wanted to avoid another catastrophic war, particularly with the dawn of the nuclear age. In 1944, the Bretton Woods Conference was held which led to the creation of the International Monetary Fund (IMF), the World Bank and the General Agreement on Tariffs and Trade (GATT) to help guard against a 30s style economic catastrophe. The U.S. emerged as the driving consumer market for the global economy. A tacit global economic deal resulted. The U.S. was recognized as an economic and political superpower who was allowed to pursue its political and economic interests – albeit with resentment and some opposition from the East Bloc – and in return other economies would benefit from U.S. consumption. In times of economic slowdown, American stimulus would help to jump start the global economy back to health.

[5] This global economic arrangement was not without difficulties and conflict. The Cold War and the many regional military conflicts were a major factor. Former colonial countries did not receive the full economic benefits even with the emphasis on “development” and were often not party to determining the rules governing trade within the GATT and later the World Trade Organization (WTO). The U.S. Marshal Plan injected $120 billion into the reconstruction of Europe between 1947 and 1953.[4] This led to the creation of “Eurodollars” circulating outside the control of the U.S. Federal Reserve. The U.S. dollar became a safe currency in times of uncertainty, which maintained the value of the dollar. Persistent trade deficits were tolerated, even when the U.S. abandoned the gold standard in the early 1970s under President Nixon. Nevertheless, there was a tacit agreement and at times, enforced compliance with this global economic deal. This grand global economic deal allowed many of us, particularly in the U.S., to live beyond our means with a sense of entitlement to a lifestyle subsidized by others.

[6] Following the war, churches were active in mobilizing resources for the reconstruction of Europe. By the 1960s, as many former colonies were gaining independence, churches argued and supported development projects that might lead to a more just distribution of the wealth and more control of resources for the global south. Similarly religious leaders argued for more respect for human rights and greater access to health, education and social security in their domestic economies. The ethical imperative was the creation of the “New International Economic Order” and the “Just Society” based upon fairness and the inherent dignity of people.

Breaking the Global Economic Deal

[7] With the Thatcherism and Reaganomics in the U.K. and the U.S., the global economic deal began to unravel. Thomas Walkom has argued that there were three phases to this unraveling: Phase One ­- “the destruction of the Welfare State,” Phase Two – “the dismantling of the very financial safeguards erected after the debacle of the 30’s” and Phase Three – the creation of new financial instruments to exact ever higher investment returns.[5] A “free market” was believed to be sufficient to address the economic, social and political needs of society. A policy framework with less regulation, tax reductions, cuts to social spending, trade liberalization and a host of other policies became the template for re-engineering national economies. In the global south these were imposed on poorer countries with the help of the IMF and the World Bank. In the industrialized countries of the north, elected governments forced these policies on their reluctant publics as inevitable. Much has been written about economic globalization which I will not try to repeat here. However, for the purposes of this discussion, what is important to note is that this also marked the beginning of the breakdown of the post-war global economic arrangement. In searching for some way out of the current economic meltdown, Walkom observes, “Ironically, what we are groping for is the kind of solution that we have spent the past 40 years dismantling.”[6] Or as one headline in a newspaper succinctly captured, “We’re All Keynesians Now!”

[8] More recently we have witnessed a growing militarized globalization and militant nationalism. The cooling relations between the United States and Russia and the thirty armed conflicts globally are symptomatic of nations increasingly willing to resort to the use of military force to pursue their interests.[7] Among the many tragic and destructive developments during the George W. Bush administration has been the militarization of international relations with the erosion of respect for international law and the role of diplomacy. Again more has been said about these developments than is possible here, however it is important to observe that these developments have eroded confidence in U.S. economic leadership in the midst of this current economic crisis. The growing U.S. debt from the war in Iraq, the fuelling of the ongoing arms trade, the abrogation of basic human rights, and the contempt for international institutions such as the United Nations have further undermined confidence by governments, markets, and the wider public in the ability of the U.S. to jump start the global economy this time around.

[9] Church initiatives have during this time worked to resist this undoing to the global economic deal. Canadian churches opposed the Canada-U.S. Free Trade Agreement and the North American Free Trade Agreement because of the implications for workers and social programs such as health care. Churches raised questions about the Multilateral Agreement on Investment (MAI) which reduced the capacity of governments to oversee investment and central banks to exercise monetary policy. More recently there has been concern of Trade Related Intellectual Property Rights that would commercialize the global commons and threaten the traditional knowledge of indigenous communities. The ethical imperative during this time was to articulate an alternative globalization that focused on people, communities and creation itself. The very effective Jubilee Campaign which put debt cancellation for nations in the global south on the agenda of G-8 leaders illustrates this belief by churches that another world was possible.

A New Deal for the Global Economy

[10] The global economic deal that has operated since the Second World War was not a great deal for many people. To be sure it benefited some people. Built on convenient economic beliefs and weak ethical foundations, many leaders acceded to its inevitability. The events that began in August 2007 showed how weak the foundations of this enterprise actually were. The nationalization of banks and financial institutions and the magnitude of the “bailout plans” exponentially dwarf any previous initiative. The $7 trillion package is more money than the U.S. has spent on all the wars since the 1940s including Iraq.[8] The decision by those who would never have considered such heresies only months before was if not unexpected, stunning in the speed of the reversal of direction. The dramatic failure and collapse of a fraudulent conservatism with the suffering it has wrought on average people, families and communities points to the ethical and spiritual crisis at the heart of this economic mess – the crisis of trust. What is required to help us find our way out of this economic catastrophe is a new global economic deal that takes seriously the slow, difficult, and arduous task of rebuilding trust that enable economies and societies to function.

[11] Trust is essential to healthy human communities and essential to the functioning of economies. People have confidence that they will be paid, that the products work and are safe, and that the commitments made to them will be honored. This was evident in 18th and 19th century England where the Society of Friends (Quakers) controlled a large part of the economy including half of the iron works, a share of the banking sector including Barclays and Lloyds, and a large share of the transatlantic trade due in large measure to the fact that not only could they be trusted to keep their word but because they were fair traders bringing in innovations like fixed prices and standard measures.[9] But trust involves more than just interpersonal relationships. People need to trust that those in positions of leadership and the institutions they have created together are committed to safeguarding their well being and those they love and care about.

[12] What began in the United States is a global crisis of trust. All of us will be responsible for building trust if only to hold our leaders accountable to the huge amount of our public resources that have had to be committed. It will involve getting back to more authentic “economic fundamentals.” John Dillon of Kairos points out that the “classic definition of economics is ‘management of the household.’”[10] Understanding our economy as a “public household,” albeit a very extended one that involves people, families, communities and creation itself, may help us to re-conceptualize our economic life on the foundations of God’s economy of “right relationships.” Ethicists and people of faith have an important contribution to creating a new deal for the global economy. The ethical imperative in these difficult times will be to insure that economic and public policies will address some of the following middle axiom questions. Will our policies ensure that human rights are respected? Will our policies move us away from militarism and reduce the arms trade and the availability of weapons? Will our policies address poverty and job creation with incomes that provide a livelihood? Will our public policy choices preserve the environment and safeguard public access to resources such as water? Will our policies protect human health and provide access to health care and education? Will our policies ensure the basic human needs for food security and housing? Will our policies require greater corporate social responsibility and accountability? Will our policies include debt forgiveness and aid to poorer countries? And will our policies lead to greater civic engagement and participation and allow people to make choices that affect their communities and countries?

[13] A new deal for the global economy is possible. Healing the breach of trust will take time, patience and perseverance. Finding a way forward will demand a new kind of leadership, one that has the wisdom of knowing how God’s economy can work for all.

Endnotes

[1] John Kenneth Galbraith, The Age of Uncertainty (Boston: Houghton Mifflin Company, 1977) p. 161.

[2] “Consumers outlook grim, poll finds,” The Globe and Mail, January 14, 2009, p. A9.

[3] Money is no longer just a means of economic transaction but is bought and sold as any other commodity in speculative markets. In the U.S., primarily mortgages were bundled and then sold as securities to various funds held by banks and individuals. In comparison, banks in Canada kept the bulk of their mortgages on their own balance sheets.

[4] The Globe and Mail, Report on Business, February 2009, p. 39.

[5] Thomas Walkom, “Latest financial crisis exposes capitalism’s basic instability” (The CCPA Monitor, Vol. 15,

No. 6, Ottawa, Ontario) p.14.

[6] Ibid., p. 15

[7] See the Armed Conflicts Report 2008, Project Ploughshares (Waterloo, Ontario, 2008) at http://www.ploughshares.ca/libraries/ACRText/ACR-TitlePage.html (February 20, 2009).

[8] The Globe and Mail, Report on Business, February 2009, p. 39.

[9] James Surowiecki, The Wisdom of Crowds (Toronto: Random House of Canada, 2004).

[10] John Dillon is an economic justice researcher at Kairos, a Canadian ecumenical justice education and advocacy organization supported by Canadian churches and religious communities. See http://kairoscanada.org/en/ (February 20, 2009). These remarks were part of a presentation to the General Synod of the Anglican Church of Canada, July 6, 2001.