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First, a few data regarding the current state of affairs since the Oslo agreement in 1993 :

The “road map” for peace is a plan to resolve the Israeli-Palestinian conflict proposed by a “quartet” of international entities: the United States, the European Union, Russia, and the United Nations. The principles of the plan, originally drafted by U.S. Foreign Service Officer Donald Bloome, were first outlined by U.S. President George W. Bush in a speech on June 24, 2002, in which he called for an independent Palestinian state living side by side with Israel in peace: “The Roadmap represents a starting point toward achieving the vision of two states, a secure State of Israel and a viable, peaceful, democratic Palestine. It is the framework for progress towards lasting peace and security in the Middle East…

The Middle East Peace process has been abandoned by the major protagonist, namely Israel.  We have witnessed a progressive right-shift in politics.

One of the emerging figures is Moshe Zalman Feiglin. In 1993, he co-founded Zo Artzeinu (“This [is] our Land/Country”) movement with Shmuel Sackett to protest the Oslo Accords. He is one of the founders of the Israeli civil disobedience movement that developed in protest against the accords. As a result of his activities, he was sentenced to six months in prison in 1997 for sedition, but the sentence was later commuted to community service.[1] In March 2008, Feiglin was banned from entering the United Kingdom by Home Secretary Jacqui Smith, on the grounds that his presence “would not be conducive to the public good”. Remarks reported to be from his interview in 1995 with Haaretz, Ada Oshpiz: Feiglin called Hitler “an unparalleled military genius. Hitler savoured good music. He would paint. This was no bunch of thugs. They merely used thugs and homosexuals. Nazism promoted Germany from a low to a fantastic physical and ideological status. The ragged, trashy youth body turned into a neat and orderly part of society and Germany received an exemplary regime, a proper justice system and public order”

The present administration includes Avignor Liebermann, another right-wing exponent.

Avigdor Liebermann is an Israeli politician and Member of the Knesset as well as the current Israeli Minister of Foreign Affairs and Deputy Prime Minister of Israel. He is the founder and leader of the Yisrael Beiteinu party, whose electoral basis are the immigrants from the former Soviet Union. A polarizing figure within Israeli politics, Lieberman is quoted as saying, “I’ve always been controversial because I offer new ideas. For me to be controversial, I think this is positive.”[3] Lieberman has called to redraw the border between Israel and the West Bank so that Israel would include large Jewish settlement blocs and the Palestinian state would include large Arab-Israeli population centres. He believes that Israel’s citizens should sign a loyalty oath or lose their right to vote. Some of his priorities are the complete judaification of Palestine and the expulsion of all Palestinians from Israel, unless they resided there before 1948.

Together with with Benjamin Netanyahou, we see no liberal and cosmopolitan exponents in the present government any more. Accordingly, in the first meeting with Pres. Obama, Mr. Netanyahou refused even to mention the road-map, a recognition of a Palestinian state or a two-state solution. The reason being, that Israel has long accomplished a significant change in it’s foreign politics. Their new priorities are a total breach with the UN resolutions, with the international agreements including USA and EU.
The latest political guidelines can be found for instance at http://www.biu.ac.il/Besa/, particularly Prof. Efraim Inbar. The present Israeli administration has definitively buried the road-map in favor of an administrative division of the Palestinian territories, which should be put under a custody of Egypt for Gaza and Jordan for the West Bank.
The official justification for this attitude is the political division of the Palestinian authority between Hamas and Fatah, resulting in the absence of a single authoritative negotiating partner.
The coming strategy involves mainly a cost-reducing conflict management replacing a peace-settlement for good. For this purpose, Israel has and is simply playing for time.
We are witnessing a regressive phase, where Israel utilizes it’s military and economic power for political goals  and is pulling back from the historical agreements of the last 20 years.

On the US side, we see an administration under a heavy influence of right-wing pro-Israeli forces, headed by Rahm Emanuel.

Even if Mr. Obama was earnestly trying to achieve peace ( and I believe that he is), he cannot succeed against the US lobbies and the present Israeli government.

A solution must come from the much discredited United Nations, because they are less manipulated by Israeli lobby groups, and because they have the legal authority over this conflict. If the EU, Russia and China, along with the Arab states form a coalition, then the ailing superpower US might in the end face reality :

They are the main financial donor behind Israel, US tax payers functioning as  the useful idiots. The yearly budget amounts to 3 billion US $, and this is just the official figure, thus probably this is only the tip of the iceberg. The military help is massive, around 20 billion $ fot the next 4 years. The US are promoting US-Israeli business relations. Under such conditions, Israel not only has no incentive to search for a peace-agreement, but they are reaping a financial benefit that is linked to the Palestinian conflict. War might be the better deal than peace, for Israel. The collateral damage is left for the international community.

For these reasons, the international community must find a solution, whereby Israel does not lose financially and Palestinians including the surrounding nations finally are rewarded a stable and just settlement. Both should be allowed to save their faces. For this, the Middle East needs a kind of Marshall plan to create a common basis for peaceful social and trade relations among all nations from the Maghreb to Afghanistan. A positive scenario to create a new dynamic.

It is an illusion to believe that military interventions in Irak, Iran, Pakistan, Afghanistan can lead to stability in this region without a settlement in Palestine.

The Islamic fundamentalists are an offspring of the Palestinian guerilla, which was itself a reaction to the brutal expulsion and pogroms before 1948. The terrorist attacks against British institutions are still remembered, as are the actions of Irgun-fighters ( one of them being Benjamin Emanuel, the father of Obama’s chief of staff).

This tragic conflict will never end, unless the pro-Israeli diaspora worldwide and particularly in the US realize, that Israel might be able to arrogantly ignore even more that the 137 Resolutions already decided by the UN. They might have a financial benefit compensating their economic losses coming from the conflict. But it will be impossible to achieve a quality of live that any civilized nation is aspiring to, because they are intoxicating not only the middle east, but also their own society down to each individual’s mental substance. They cannot have peace of mind and a harmonious outlook on a common future as a civilized nation. This is the price to pay, as long as Israel will refuse to grant the Palestinians their fundamental rights as a sovereign people and nation.

The world community is paying a high price too. Instead of a potentially prosperous region, we suffer the damages of endless violent conflicts, massacres on civil populations and an islamic terrorism that is increasingly following it’s internal dynamics, unaffected by rational motifs. Counterintelligence, warfare or state terrorism will not end terrorism, but justice for all peoples in the region will, hopefully.

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To protest against this scandalous show trial against Mrs. Aung San Suu Kyi as the legitimately elected representative of the Burmese people, we should not only demonstrate, but also e-mail and write our disdain against this regime of usurpers.

The UN should adopt a resolution condemning this vile act and threatening the Myanmar government with massive sanctions if Mrs. Aung San Suu Kyi is not immediatley released. The rulers of Myanmar must be accused of crimes against humanity and abuses of human rights.

Senior General Than Shwe is the head of state of Myanmar (Burma), serving as Commander-in-Chief of the Tatmadaw and chairman of the State Peace and Development Council (SPDC) since 23 April 1992. SPDC is the name of the former State Law and Order Restoration Council (SLORC), established in 1988. He is also the head of Union Solidarity and Development Association (USDA). These positions and titles effectively amount to Than Shwe being what is generally referred to as the “head” of Myanmar’s ruling military junta. More information on Than Shwe may be found on the ‘Than Shwe Watch’ section of the dissident “Irrawaddy” web and print publication at: http://www.irrawaddy.org/article.php?art_id=5597

If we respect Dictators, we despise their Peoples.

The military and political situation in Pakistan is deteriorating rapidly. According to latest news, the Taliban are recruiting large numbers of volunteers.

Hate preachers are openly calling for the use of nuclear weapons against their sworn enemy USA. Baitullah Mehsud, Pakistan’s top Taliban commander claims to control increasing parts of the country and that he could take over Karachi any time. This may be exaggerated. But it shows a worrisome discrepancy between the government’s reports of huge numbers of killed Taliban fighters and independent western reports. The NZHerald titles : Taliban fighters descend on Karachi. Taliban fighters seeking money, rest and refuge from US missile strikes are turning up in increasing numbers in Pakistan’s largest city and economic hub, Karachi, according to militants, police officials and an intelligence memo. The Taliban presence in this southern port city, hundreds of kilometres away from the Islamic extremists’ strongholds in the Northwest, shows how quickly their influence is spreading throughout the nuclear-armed nation.

Obama announced an intensification of operations in Pakistan and Afghanistan much too soon, thereby giving terrorists a precious lead time. We have witnessed an increase of violence even before troops had moved from Iraq into the new action fields. The Mumbai Attacks of November 29 might have been triggered by this US decision.

Could this be positive :  When Defence Secretary Robert M. Gates announced Monday that he was dismissing Gen. David McKiernan as the top U.S. commander in Afghanistan and replacing him with Lt. Gen. Stanley McChrystal, he signaled his support for an intellectual movement that in a few short years has come to dominate military thinking in Washington. Both McChrystal and his new No. 2, Lt. Gen. David Rodriguez, Gates emphasized, have a “unique skill set in counterinsurgency.” (from WaPo).

Pakistan with 173 million inhabitants, rampant poverty, sky-high corruption, a multi-ethnic mixture and a tradition of long-time war with India, frequent earthquakes etc is sliding deeper and deeper in a fatal doom loop. It’s government is under intense pressure from the US to cut the Taliban influence back. Unfortunately, we can’t rely on informations from this government. It is known, that they don’t even know the exact number and localization of their nuclear war heads themselves. Their relation with Taliban is more than ambiguous. With massive help from the US, the Pakistani government has supported and built up the Taliban for many years. Taliban has excellent contacts up to top level in the present administration. How radical and effective can the offensive of the government troops be, how will the Taliban react in this increasingly chaotic and uncontrollable situation ? The US might just prepare their own counterinsurgency strategy after a first round by the Pakistanis. This is certainly more promising than classical warfare. Still, it would be enough for one Taliban group to take control and to fire a nuclear missile, then what ?

The present situation is serious, but a look at the deeper causes points to the right strategy for solving the conflict : Islamic terrorism is essentially a religiously masked political movement against USA and Israel. Worldwide violence targets these two nations primarily, apart from allied nations. These movements are clearly a reaction to the chronic conflict in Palestine. The continuous humiliation of this population, the ongoing colonization of their territory is the primary motive for Islamic fundamentalism. Due to the nuclear shield of the US and their economic aid, Israel has no incentive to accept a negotiated solution. On the contrary, Ariel Sharon bragged publicly, that Israel is controlling the USA. This might be slightly exaggerated. But it is a fact that the pro-Israeli lobby has managed to control every US administration. Obama’s cabinet is headed by a pro-Israeli hard-liner. Because of the partisanship of the US, a peaceful settlement respecting the numerous UN resolutions calling for a creation of a Palestine state will never happen, unless the international community takes the initiative.

It is unacceptable that the limited conflict between 10 million people ( Palestine) is left rotting for 60 years because Israel simply wishes to annex Palestinian territories.

The long-standing provocation and humiliation of the Palestinians has led to a radicalization of the whole region. We have seen violent conflicts in most neighboring states. The world-community can accept a local conflict. But a generalized conflict involving the whole middle east and threatening us all with a nuclear armed strike or war, this must be stopped by all means. Israel might push the USA into a confrontation with Iran. How can we exclude that Israel will not proceed to preemptive strikes in Iran or Pakistan ?

The present middle  east strategy of the US is completely biased and controlled by Israel. When has this country been willing to engage in serious peace negotiations ? They have instead used their military arsenal in what the international community characterizes as state terrorism. This strategy will fail in the long term. The risks are unacceptable for us all. Therefore we need a coherent approach involving all superpowers and the UN. Israel and Palestine must become two independent states, colonies must be evacuated completely –  even the pope said it. More importantly, the whole middle east needs a joint aid for economic reconstruction, similar to the Marshall Plan. In this way, all nations can be integrated into a meaningful community.

Concerning Pakistan, short-term military strikes might weaken the Taliban. But is the government itself to be trusted ? This country needs to demilitarized and to be controlled by UN blue helmets. All nuclear weapons must be removed from this country that risks to become a failed state where warlords could suddenly gain access to atomic missiles.

The Taliban, is a pro-Wahhabi Sunni Islamic, predominately Pashtun fundamentalist religious and political movement that governed Afghanistan from 1996 until 2001. Since they are heavily involved in drug traffic and Iran has the largest Opium-and Heroin-dependent population worldwide, Iran has offered the USA strategic military help against the Taliban in Pakistan. Under Bush this offer was declined. Let us hope that Obama will change this counter-productive attitude.
Link drugs in Iran : http://www.unodc.org/iran/en/epidemiology.html

http://www.atimes.com/ind-pak/CL13Df05.html

Link WaPo : http://www.washingtonpost.com/wp-dyn/content/article/2009/05/15/AR2009051502069.html

Link NZHerald : http://www.nzherald.co.nz/world/news/article.cfm?c_id=2&objectid=10572859

Interviews with the economist Hans Christoph Binswanger

1. Compulsion and Urge

Hans Christoph Binswanger alternative growth theory 12. March 2007

He has have always been a maverick. In the seventies and eighties Hans Christoph Binswanger taught economics at the elite Swiss University of St. Gallen and became known as an ecologist and critic of uncontrolled growth. In 1985, his book “Money and Magic” presented a profound interpretation of Goethe’s “Faust”. It shows that Goethe – who was familiar with economic theory, since he was finance minister at the court of Weimar – interpreted the emerging modern economy as a kind of alchemical process : Instead of the futile effort to transform lead into gold, it creates wealth through the transformation of paper money, more precisely, by granting credit and the corresponding book money and paper money. Both processes finance and stimulate the production of goods.

Based on these insights, Binswanger asks what creates the coherence of a capitalist society. He identifies the two factors compulsion and urge.

Urge, because in this economic order the interplay of monetary and real factors creates a continuous impulse for growth.

Compulsion, because the system is stable only as long as it is growing.

Binswanger developed his theories starting from his critique of the prevailing neoclassical growth theory, in particular the assumption of the neutrality of money and lack of time reference. In contrast, Binswanger’s insight proved pivotal for the understanding of capitalism and of its peculiar growth momentum. In his interpretation, money is not just a means of exchange, but it takes the role of capital in the modern enterprise, functioning like a “promotion factor” wanting to multiply and thus driving economic growth. Why?

Companies need equity and borrowed capital from third parties. The investors expect to be compensated for their risks with profits and interest. Companies must therefore generate more revenue than expenses. How is this possible? In Binswanger “dynamic” model, which borrows from the neo-Keynesian term “growth on a knife edge”, this comes from creation of book money and credit money : Companies invest loans to expand their production.

Thus the total income of the economy in this period is higher than in the previous period – a surplus is generated, which will be distributed in the form of profit and interest. The increased production has to be deducted during the next period. To ensure that the available income will be sufficient and thus the income surplus will continue, both money creation and expansion of production must go on continuously. That is why modern economies are condemned to endless growth. Because if they do not grow, they will shrink. A stationary equilibrium cannot exist after Binswanger.

Is permanent growth possible? The response from the former growth skeptic is : yes – at least for the foreseeable future. For Binswanger, full employment is no obstacle to growth, since work can be substituted with energy. Is permanent growth desirable? Again, yes, but with conditions : yes, because there are still many people with unfulfilled basic needs, and because the human imagination creates new needs to increase the joy of living. It is limited, because this progress of civilization provokes ecological and social losses – according to Binswanger it is an open question whether positive or negative consequences of growth predominate.

Binswanger argues on a high professional level, but his model can be understood without advanced knowledge of mathematics. His attempt to define a “minimal growth rate”, at which the world economy is still stable, is rather irritating. Because the quantitative assumptions used in this calculation are so arbitrary, that the result could be any rate other than 1.8 %. The main strength of Binswanger’s approach is the central role of money. The concept is underdeveloped, in that the creation of money, due to an assumed illusionary nature of money, always adapts elastically to the needs. Binswanger believes that his theory of the growth spiral proposes a real alternative to the prevailing neo-classical growth theory. That is debatable. But it is certain that Binswanger contributes important insights on the fact that “alles sich zum Ganzen webt, eins im andern wirkt und lebt”, to speak with Goethe’s” Faust “.

BENEDIKT FEHR

Hans Christoph Binswanger: Die Wachstumsspirale. Geld, Energie und Imagination in der Dynamik des Marktprozesses. Metropolis-Verlag, Marburg 2006, 418 Seiten, 24,80 Euro. Book Title: The growth spiral – financial, energy and imagination in the dynamics of the market processes. Text: Frankfurter Allgemeine Zeitung, 12.03.2007, No. 60 / page 12

Link : http://www.faz.net/s/Rub2E8C985607B44756884B7A1383CD205C/Doc~E4F5F54B883904099B71A0FA7370351BD~ATpl~Ecommon~Scontent.html?

2. The Challenge of Faust

Hans Christoph Binswanger is professor emeritus in economics at the University of St. Gallen, Switzerland. His research has concentrated on monetary theory, and environmental and resource economics, for which he has received several prizes. He has authored numerous books including Money and Magic: A Critique of the Modern Economy in Light of Goethe’s Faust, translated by J. E. Harrison (University of Chicago Press, 1994).

In Part II of his greatest play, Faust (1832),* Goethe confronts the promises and pitfalls of the Industrial Revolution and the economic growth that it generated. As finance minister at the Court of Weimar he was well placed to comment on these developments, and his insights remain astonishingly relevant today.

Goethe’s protagonist is representative of modern man who, through science, seeks to subjugate nature and to build up a new economic realm of freedom and prosperity. Faust’s exultation at the “lovely moment” (verweile doch, du bist so schön) that this would bring expresses the delight of modern man at the sheer cornucopia of these new riches. But not all is rosy in this economic garden, for Goethe warns that these riches may be built upon an unsustainable illusion. After all, Mephistopheles, who is “the spirit, that evermore denies,” is Faust’s business partner! As we ponder whether the new riches that we have amassed are real or illusory, it is worth taking a closer look at how Goethe dramatizes this issue.

Faust declares his aims as he looks out upon the sea and its ceaseless ebb and flow.

Onward it sweeps by courses numberless,

Barren itself, to squander barrenness;

Now swelling, growing, rolling on, it drowns

In desolation leagues of wasted downs;

There riots, wave on wave, with wanton force,

Then ebbs–and nothing’s been achieved, of course.

I might despair, to see the aimless way

Such lawless elements exert their sway.

Yet no despair shall my resolve benumb;

Here I might struggle, here might overcome!

Subsequently Goethe shows how, through a combination of economic activity and technological progress, the subjugation of nature and of natural forces–symbolized by ebb and flow–is effected. The section of coastline that Faust had observed is enclosed by a dyke and transformed into a garden “like an Eden.” This subjugation seems miraculous, like an alchemical process: What had hitherto been economically worthless has been transmuted into something economically valuable.

Faust is a vigorous entrepreneur who drives his workers to their utmost. Yet Goethe realizes that entrepreneurial vision and human labor are not enough to achieve the great project. Money is required to pay the workers who, now far from home, have lost their means of subsistence. However, the limited supply of gold that can be mined is insufficient to supply the monetary requirement of the project. Faust has taken care of this with the help of the emperor, that is, the state, by founding a bank that issues paper money, a currency not convertible into gold:

‘Twere hopeless now the flying leaves to stop;

With lightning speed they spread through-out the land.

The state profits from the invention of paper money by using it to pay its debts. But Faust invests the money in the production of real goods and through this transaction creates an equivalence between manufactured goods and paper money, thereby turning valueless paper into an instrument of real buying power. The potency of this buying power derives from both traditional and new sources of energy. Faust no longer relies on human labor alone, but also on newly created, energy-driven machines because these are more efficient. The change seems almost magical:

Vain all day is their hacking, tearing,

Pick and shovel, stroke on stroke!

Where night-long great fires were flaring,

Stood a bank when morning broke.

The prerequisite for this is the renewed establishment of the laws of property which grants mankind the right of absolute power over nature, and now Faust unabashedly proclaims, “Property and dominion I want to gain.”

In Faust Goethe thus describes, with historical accuracy, the establishment of three crucial instruments that enabled economic growth and served as a motor for further development: (i) The creation of paper money, which began with the issuance of bank notes by the Bank of England at the end of the 17th century and forms the basis of our global system of currency, with its potential for constant expansion; (ii) James Watt’s invention of the steam engine at the end of the 18th century and the use of coal, which marked the beginning of the Industrial Revolution; (iii) the Roman property law of “dominium,” the ius utendi et abutendi re sua (the right not merely to use, but also to consume, one’s private property) in the Code Napoleon–the new civil code created by Napoleon at the beginning of the 19th century. This concept of ownership provides the necessary legal sanction for the increasing subordination of nature to the requirements of economic exploitation.

Goethe not only reveals how Faust, the representative modern man, realizes this massive project of economic progress, but also shows the existing and potential dangers associated with it. Human progress entails curbing nature by constructing an artificial world consisting of cities, industry, transport, and intensified agriculture, symbolized in Faust by land reclamation through building of the dyke. With great insight Goethe tells us that the intervention into the natural environment that this demands may have unforeseen consequences because nature reacts according to its own laws, which humans can never entirely predict. Unintended or unanticipated consequences may wipe out wholly or in part the successes gained by earlier interventions or cast retrospective doubt upon them. In Faust Goethe draws attention to three dangers, in particular: (i) Environmental damage may ensue, exemplified by a “foul morass” in the reclaimed land, because there is no outflow for the stinking water. This is a consequence of the short-sighted construction of the dyke, which has led to the formation of algae and the silting up of drainage channels. As attempts are made to correct these problems, new ones are created, which in their turn require further corrections. Thus Faust’s megalomanic project is never-ending! (ii) To realize his plans Faust needs more and more land. So he drives out the established population–exemplified in Faust by the old couple, Baucis and Philemon–from the dunes above the newly embanked land. The beauty of the natural landscape, which had evolved and been carefully maintained over centuries–everything we associate with the idea of “home”–is now ruined. (iii) New risks arise that could completely destroy Faust’s entire project. For example the dam, which Faust sets against the might of the ocean, could break! Faust knows this, but he believes that if all available forces are coordinated, then all possible dangers can be overcome:

Howe’er may rage the angry baffled tide,

Striving to sap, to force an entrance, each

And all rush swiftly to close up the breach.

But Mephistopheles disagrees:

Yet all your labor’s spent for us alone.

With your fine dams and bulwarks vast,

You’re but preparing a superb repast

For Neptune, the sea-fiend, to feast upon.

You’re trumped and done for every way,

Into our hands the elements play,

Destruction onwards is striding fast.

The real danger is that Faust–modern man–will not acknowledge the need for careful planning to forestall such damage as he pushes on relentlessly, not seeing what is going on around him. Goethe symbolizes this blind irresponsibility by Faust’s loss of eyesight. In other words, Faust is so obsessed with his plans to subdue nature that he loses sight of the realities that may require careful reflection and possibly a total rethinking of the project. Hence mankind compounds its natural limitations–its inability to fully understand nature’s complexity–with a blindness induced by hubris. The Rio conference on “Sustainable Development” (1992) demonstrated that we live in a finite, limited world and that development is only sustainable if we take account of these limitations. This is a challenge for Faust, a challenge for modern man. Here, too, Goethe was prophetic. In his comments on “Contemplative Judgement” he writes: “Our aim must be, through contemplation of the ceaseless processes of nature, to make ourselves worthy to share spiritually in her productions.” ** In other words, we must be careful observers of nature’s parameters and allow ourselves, more than ever before, to be guided by them. Instead of continuing our attempt to dominate nature with linear thinking, we must cultivate an intuitive sensitivity and responsiveness to her complexities. Science must respond to this reorientation by developing the corresponding technology. We need to develop products–consumer goods, machines, buildings–that produce less waste, last longer, are recyclable, consume less energy, and fit gracefully into the landscape and/or model themselves on natural forms (bionics).

This is only possible if economists, too, understand that less can be more, that in economic production what matters is not so much the amount produced but its increased utility, and that, accordingly, both quantitative and qualitative growth can benefit mankind without damaging nature. Perhaps Faust, or modern man, may never, as Goethe once hoped, achieve a moment so lovely that he would want to hold on to it forever. But if we strive to develop a more respectful relationship with nature, we may very well come closer to creating just such a moment.

Institut für Wirtschaft und Ökologie, Universitat St. Gallen, Tigerbergstrasse 2, CH-9000 St. Gallen, Switzerland.

Science 31 July 1998: Vol. 281. no. 5377, pp. 640 – 641 DOI: 10.1126/science.281.5377.640

Link : http://www.sciencemag.org/cgi/content/full/281/5377/640

3. The Spiral of Crisis

Interview: Marcel Hänggi

Maybe we can actually earn money while saving the banks, says the St. Galler economist Hans-Christoph Binswanger. But that will provoke the next crisis. And it will hurt the environment.

WOZ: If we believe the Swiss Federal Council, saving the UBS will cost us nothing : the UBS will pay the state credit back with high interests ; sub prime papers will be sold when they have some value. With a little luck, we will even make a profit. We all win, no one pays – a beautiful fairy tale?

Hans-Christoph Binswanger: All these rescue operations are based on the idea that we simply suffered a misfortune that we have to cope with. After this, the economy will go back to business as usual. The very problems that have led to the crisis, are not being solved.

WOZ : Can you expand on this ?

HB : The present structure of our economy inevitably leads to speculation that leads to the formation of bubbles, which then necessarily either burst or lead to inflation.

WOZ : Why?

HB : The normal course of business is that the central banks lend money to commercial banks, which the commercial banks in turn borrow to their customers. Because money does not need real gold or silver backing anymore, there are no limits to the creation of money. Firms borrow this money in the form of credits and buy work, energy and resources in order to produce. But if you can earn more money by speculation, money is not just used for the production of real goods, but increasingly for speculative purposes. You buy commercial papers in the speculative hope, that their value will increase, and the very act of buying increases their value. This is especially interesting at low interest rates. This mechanism does not create real values that correspond to the rising worth of these papers.

WOZ : Central banks lend money to commercial banks. Doesn’t the National Bank, by lending the money to UBS, simply do what central banks always do ?

HB : To a certain extent yes, but under massive strain, because the interbank market no longer works. This is done in the hope that the real economic growth will start recovering again – but this hope is, of course, speculative too.

WOZ : Apparently a lot of hopes are involved. The 6 billion that UBS receives from the federal government, must be returned with 12.5 % interest rate. That means that they expect the ailing UBS to create at least 12.5 % profit from this.

HB : The UBS need not earn 12.5% from every Franc, because they can themselves lend a multiple of this amount to clients. This presupposes, however, that the credit creation continues.

WOZ : This sounds very abstract. In simple terms : Will this work ? Can states save their banks and in the end even make a profit out of it ?

HB : This depends on nature.

WOZ : Nature? It is a question of distrust between banks, there is talk of adventurous financial constructs that have been evaluated incorrectly – it concerns symbolic entities. What’s nature got to do with it?

HB : It can work, if sufficient real growth is generated, if real values are created, corresponding to the expected increase of value. In other word : production has to increase. For this purpose, resources are needed. These resources must be cheap.

WOZ : Then there is at least one good news : Raw material prices are falling. Oil costs less than half as much as in July.

HB : The high oil price was to a large extent speculative. Once the financial crisis ends, prices for oil, metals, food and so on will rise again.

WOZ : Today, we speak of the financial crisis, a few months ago it was the raw materials and food crisis, while the ecological crisis is worsening. Are all these crises related ?

HB : The first three are monetary crises. The fourth is indirectly related, because by attempting to stimulate economic growth, the exploitation of natural resources increases, straining the environment even more. This leads to contradictory policies. German Chancellor Angela Merkel wants to protect the German automobile industry – but in fact we wanted to limit CO2 emissions because of the climate change.

WOZ : You said at the beginning, that speculation is stimulated by low interest rates. Particularly the U.S. central bank under Alan Greenspan pursued a low interest rate policy. This caused the dot com bubble to form. Therefore, has the solution of the last crisis led to the present one – and are we already blowing air into the next bubble?

HB : If we don’t change the system, we willingly accept the next bubble or subsequent inflation.

WOZ : We are now pumping money into the system, because banks are no longer liquid. But you just said that the crisis was due to exaggerated creation of speculative money. Is there too much or too little money in the system?

HB : Actually one wonders, where the money is. On the interbank market it is obviously lacking. One has often read these days, how much money has been destroyed due to crashing stock prices. Many complained that it could have been used in more sensible ways. But what was “destroyed”, never existed – that was only fictitious money.

WOZ : All say that there is no alternative to the rescue of the banks.

HB : This is probably correct at this moment. But the real question is to prevent this from happening again in the long term. Certainly, a lot is being done : equity capital requirements are being increased and manager salaries are limited. This is useful, but it is not enough.

WOZ : What else is needed ?

HB : I see mainly two approaches in the monetary area. The first one is the Vollgeld idea. Vollgeld means that the loans given by the banks must be fully covered. A commercial bank could lend only as much credit as they have received from the central bank. This would give the central bank more responsibility.

WOZ : Could one nation alone introduce it ?

HB : No, but a large country like the U.S. or the EU could take the initiative. It would need an international agreement, similar to Bretton Woods.

WOZ : And the second approach?

HB : One has to ask whether we can still afford joint-stock companies in their current form. The logic of incorporated companies leads to the re-investment of all profits to increase the share value, which encourages speculation. The alternative would be the foundation idea : The goal of the company should not be to maximize profit but to provide products. Economy should serve the society and see it’s objective in the satisfaction of needs – instead of being abandoned to it’s own momentum. It is primarily a question of the dynamics of money creation and incorporated enterprises. By controlling these aspects we could slow the spiral of growth. Zero growth is impossible in my opinion, but we should maintain economic growth at a lower level. This would make the economy more environmentally friendly and less vulnerable for crisis. It would also become more equitable, because there would be no more incentive for exorbitant incomes.

WOZ : Do you see a signs that the purpose of economy is being reconsidered in the current crisis ? Are there influential economists advocating the same changes as you do ?

HB : The second point I mentioned – foundations instead of incorporated companies – is claimed only by a certain Mr. Binswanger from St. Gallen (laughs). But the Vollgeld concept is well known and nothing new. A global conference in the style of a new Bretton Woods is being discussed. There is at least the framework, where such ideas could be introduced.

Hans-Christoph Binswanger Hans-Christoph Binswanger war bis zu seiner Emeritierung 1994 Wirtschaftsprofessor an der Universität St. Gallen. Zu seinen Arbeitsschwerpunkten gehören die Geldtheorie und die Umwelt- und Ressourcenökonomie. Er gründete das Institut für Wirtschaft und Ökologie der Uni St. Gallen, dem er von 1992 bis 1995 vorstand. Der freisinnige ehemalige Lokalpolitiker – Binswanger sass für die FDP im St. Galler Stadtparlament – ist einer der profiliertesten Kritiker der Wachstumsversessenheit der Wirtschaft, die unter anderem für die Umweltzerstörung verantwortlich sei.

In seinem Buch «Die Wachstumsspirale» (Metropolis-Verlag, Marburg 2006) leitet er geldtheoretisch her, dass die Wirtschaft einem Wachstumszwang unterliege. Der herrschenden Lehre der Wirtschaftswissenschaften, der sogenannten Neoklassik, wirft er vor, Wirtschaftswachstum nur scheinbar zu erklären. Die neoklassischen Ökonomen würden den Wachstumszwang ignorieren, weil sie im Wirtschaftswachstum nur etwas Positives sehen wollten.

Link :http://www.woz.ch/artikel/rss/17019.html

4. The Pressure for Growth

“The growth spiral” by Hans Christoph Binswanger.

The limits of growth were not achieved as quickly as the famous Club of Rome report from 1972 predicted. But the world was alerted and the use of resources was integrated in concepts like “sustainable development” or “qualitative growth”. One of the economists to have achieved this is Hans Christoph Binswanger – one of the founding directors of the Institute for Economy and Ecology at the University of Saint Gallen. Now the Emeritus has summarized his scientific career and presented a new economic theory in a book : it is called “The Growth Spiral. Money, Energy and Imagination in the Dynamics of the Market Process. ”

Christoph Fleischmann interviewed Mr. Binswanger :

HB : I admit that the economy pursues absolute values, maybe without perceiving it. Today this absolute goal is economic growth, and it is not being questioned. Previously, such targets would have to be justified, in contrast to the present situation.

Why economic growth is the primary objective of managers and politicians, this is what Hans Christoph Binswanger tries to explain. In his opinion, economics has not succeeded in integrating the process of growth into a meaningful theoretic concept. For this purpose, we should understand the meaning of money. For Binswanger, money is the motor of economic growth.

HB : It began with the Bank of England, which was founded in 1692 and started issuing paper money in 1696, which was originally redeemable in gold. And then of course it became possible to produce paper money worth more than the available gold and silver . The money volume created was the 20 and 30 fold of the gold treasure stocked in the Bank of England.
This means that more money was created than the equivalent in gold – a process that continues to the present time with credit creation. The equivalent should be created with investments, setting growth in motion. Therefore, capital is at the start not only historically, but also causally : entrepreneurs need capital, before they can start a production. And those lending the capital hope for profits in the future. The value of shares corresponds to the expected profit. These gains are projected in an endless future, or this unending future is reflected in the present value of these stocks. The imagination extends to infinity, these profits and the sum of all future profits crystallizing in the value of the share, determining it’s actual selling price. Shares basically have a value extending into infinity, but having a finite value today.

In other words: The shareholders are anxious to “immortalize” their shares and to increase the profits with continuous investments. This process is called an urge to growth by Binswanger. He explains how this process of profit and investment in joint stock companies accumulates and tends to increase the profits. Worse than the urge of growth is the compulsion of growth. This consists in the fact that companies, due to advances received in the past, are forced to continue growing, in order to justify the past investments with the present profits. Stability and zero-growth are therefore no longer possible.

HB : There is a real need for growth at a minimum growth rate that need not to be arbitrary. The growth rate should not fall below a minimum rate, because enterprises have to be financed with money capital.

In his latest book, Binswanger tries to calculate this minimal growth rate, his result is 1.8% for the world economy – certain regions might fall below this value. He is no alarmist : the limits of growth have not yet been reached, but he requires us to recognize the compulsion to grow soberly and to evaluate : are the consequences of this compulsion so threatening, that we need to step out of this growth-spiral ?

Until now, politics is trying to minimize the ecological and social collateral damages of growth, without limiting growth – by attempting sustainable growth. But Binswanger sees lucidly, that politics will always decide for growth, if confronted with a conflict due to the negative effects of growth. Those who want to change this very fact, have to alter the growth dynamic of economy at the root. This means to change capitalism as we know it.

HB : We should consider whether the incorporate company is still the most appropriate form of business management. Stock companies depend intrinsically on growth. This raises the question if we should not rather substitute it with a foundation model of business, which would then rather be oriented towards the product.

In Marxist terms: The utility value of a product would prevail over it’s exchange value. But Binswanger would never use these terms. He does not tend towards Marxist terminology nor to quick solutions. His aspiration is to design a better economic theory. But he formulates it as a critical theory, thereby not approving what he sees and thus transforming it into “iron laws”, . Binswanger send the questions arising from the status quo back to the society.

HB : We find ourselves in a dilemma, in that we are forced to continue growing at a minimal growth rate. We enjoy it on one side, but we also see that negative collateral damage associated with it – the destruction of the environment, resulting social problems. But we can not stop this process if we can not accept that then also some innovations that we have certain advantages that we have lost and we have not benefited from this global growth that is positive. But we cannot stop this process without sacrificing certain innovations and privileges. Worldwide growth is also positive.

Binswanger’s book is not an easy read. But by its clear structure makes it allows readers to ignore chapters with complicated mathematical examples and to read on, where Binswanger explains the development of the economy in simple and aesthetic terms. This book does not denounce loudly present trends, but elaborates fundamental categories. But exactly for this reason it is politically more explosive than many other publications.
Hans Christoph Binswanger, the growth spiral. Money, energy and imagination into the dynamics of the market process, (Metropolis Verlag), Marburg 2006, 434 pages, € 24,80.

Hans Christoph Binswanger, Die Wachstumsspirale. Geld, Energie und Imagination in der Dynamik des Marktprozesses, (Metropolis Verlag) Marburg 2006, 434 Seiten, € 24,80.

SWR 2 Forum Paper / 12.08.06

5. Shrink the Banks !

Answers to the economic crisis, by Hans Christoph Binswanger.

“You never have enough money,” is a common saying, but this time it is the contrary. While measures are being taken to save banks by making money available, it is also true that the present crisis was provoked by an excess and not a lack of money.

To understand this, some habitual thinking has to be questioned : For employees and workers it looks as if they were receiving the salary afterwards, for the work they have accomplished. And a few bank employees believe that their bank loans the same money that workers received for their work and then deposited there. Both assumptions are not quite correct : in a production process money derives strictly from the work, while the loan, as strange as it may seem, comes from “nothing”. In his opus magnum  „Die Wachstumsspirale“, the economist Hans Christoph Binswanger from St. Gallen proposes a new economic theory. He intends to explain the growth of economic in a better way than the prevalent neoclassic doctrine. The key concept therefore is the dynamic of money.

An entrepreneur wanting to produce something, needs money to buy work, machinery and resources. When banks provide money, the production cycle begins, according to Binswanger. And banks granting a loan don’t necessarily use only money that was deposited there by clients. By granting a loan, they create new money that did not previously exist. This new money starts by being a number in a balance, coupled with the hope for a profitable reimbursement in the future. The volume of money grows with the granting of credits. The growth of money therefore is not a consequence, it is the precondition of economic growth.

This money advance results in a constraint of growth : the profits made today by businessmen have to justify yesterday’s investments. Profits could only be made today, if enough purchasing power existed. Therefore there is a need for renewed investment in more human resources or higher wages. This investment will only show a return tomorrow, where another investment will be necessary. “Growth requires more growth”, Binswanger states lapidarily. Stability and zero-growth are no more possible.

For incorporated companies Binswanger sees another urge for growth : The stock company wants to keep the share value high, therefore not all profits will be paid out. A larger amount will be reinvested, to promote growth. The share value, which is also an object of speculation, is not determined only by the actual value of the enterprise, but also by the hope for future profits. “The value of shares is determined by this potential profit in the future. In the stock value the sum of all future gains is crystallized”. („Aktien sind so viel wert, wie man erhofft daraus gewinnen zu können. Im Aktienwert kristallisiert sich die Summe aller künftigen Gewinne“). This is true not only for shares, but for all financial products available for speculation. “If more money can be gained by speculating, then money is used not for the production of real products, but preferably for speculation. Stock is purchased with the speculative hope, that it’s value increases. The very act of purchase contributes to it’s increase of value. Thereby no real values corresponding to the increasing price of the stock are created. The speculative hope for profits triggers an increase of money volume : Those possessing shares with increasing prices, thus have gained money from nothing – or from the collective hope for the future, at least on paper.

The economy in it’s present state leads inevitably to the formation of bubbles, as Binswanger states, and thus to a multiplication of money without a correspondent real value, neither in the present nor in the foreseeable future. Bubbles explode sometimes or they lead to inflation. This means that the permanent and uncontrolled increase of money-volume has led us into the financial crisis. From here one could argue that by acting as a new creator of money through debt-financed economic stimulus packages, the government is casting out devils by Beelzebub. But Binswanger would not go as far.

In the crisis, the government has to start by acting. Certainly the money destroyed through speculative losses and falling stock values, was only “fictive money”. But from this virtual money depend many fundings of large enterprises with numerous jobs. IN the long-term the analysis of Binswanger leads to a way capable of reducing the constraint of growth and thus the risk of new bubbles. Binswanger believes that a capital-driven economy cannot renounce a growth altogether. But he pleads for a slower growth, to reduce the collateral effects of growth upon ecological and social systems. The economy would be more resistant to crisis. Incorporated companies are no business model for the future ; they are oriented towards permanent profit. It would be better to replace them with cooperatives or foundations. A foundation could be aligned on a specific goal : for instance to provide certain goods. It would need to finance all the expenses necessary for the production of these goods. But it would not have to yield profits of 10 – 15 % – what for ? This idea is quite attractive, if we consider how much the position of employees has come under pressure in the last decades because of these high expectations of returns. In any sectors there have been losses in actual earnings.

But Binswanger wants to attack the growth nearer to the root, that is in the process of money creation. He refers to the idea of Vollgeld, that was elaborated recently by the sociologist Joseph Huber from Halle : the creation of money, this means to increase the circulating volume of money, should be the monopoly of the central bank. This means that private business banks would need either possess earnings from clients or borrow the money from the central bank, before they could grant a credit. All money would then be Vollgeld, in the sense that it would be covered up to 100 % with earnings or a lean from the central bank. This does not mean that the central bank would need to have the corresponding worth in gold or other values. The central bank would continue to create money from nothing, but it would al least have the control over the circulating amount of money.

Now we face the question, how the central bank would handle the granting of credits : if it granted as much credit as requested from the banks, growth would not be limited substantially. Joseph Huber cannot tell, if his model could act as a limiter for growth. Binswanger in contrast believes it would. It could be imagined that the central bank would limit the money-volume by restricting the granting of loans. But what criteria should be applied ? Wouldn’t it act as an omnipotent economic planification instance ? Binswanger, whom nobody can malign as having socialist tendencies, remains cool : presently, private business banks decide, how much and to whom the lend. If a central bank would do it according to transparent criteria, this wouldn’t necessarily have to be a disadvantage.
The applicability of Binswanger’s proposals needs to be examined intensely. If we accept his diagnosis, then the conclusion is inevitable : the present politics of pumping money into the system makes the next crisis already appear on the horizon.

Hans Christoph Binswanger, Die Wachstumsspirale. Geld, Energie und Imagination in der Dynamik des Marktprozesses, Metropolis-Verlag Marburg 2006.

Link : http://www.christoph-fleischmann.de/pages/de/zum_mitreden/1181.htm

6. 1.8% Growth is Enough

Without speculation no growth and without growth no capitalism. This is the belief of the money-theoretic Hans Christoph Binswanger. He proposes a reform of the monetary system.

“Capitalism’s vulnerability for crisis is growing”

taz : Mr. Binswanger, will capitalism overcome this financial crisis without damages ?
Hans Christoph Binswanger: At least this is the impression we get. 2010 a recovery should begin. But with a difference : a certain nationalization of the economy is taking place, whereby governments are participating in banks or give state-guaranties for certain sectors. This will lead to a certain amount of corruption, because sectors with efficient lobby-groups have a particularly direct access to the administration.
According to the official opinions, governments are going to withdraw from economy as soon as the crisis is over.
No, nationalization will remain. At this moment, central banks are pumping enormous quantities of money into the market. The US prime rate has fallen from over 5% to 1%. As soon as recovery starts, there will be inflationary tendencies. At that point, interest rates should be raised. But if such corrections are made, the economy will collapse again. Capitalism’s vulnerability for crisis is growing. Governments cannot back out of responsibility any-more.
Then capitalism is in a permanent crisis and can only be saved through government interventions ?
It is rather noticeable that the time interval between each crisis is becoming shorter.
The famous hedge-fund speculator Soros believes that a kind of super-bubble, which had kept growing continuously since 1982, has exploded.
He might be right. Speculative tendencies are increasing. The problem with capitalism is, that one side it depends on growth, while growth leads to speculation.
Why should every growth end in a speculation bubble?
Take stock companies. They contribute massively to bubbles. For investors it is rational to be cashed out only a part of the profit as a dividend and to reinvest the rest, in order to make a higher profit later. The reason being, that the expectation of future gains leads to higher share values today. This increase of share price is higher than a fully paid out dividend. This logic of permanent re-investment has a tremendous impact, since growth is exponential.
And where does speculation enter ?
As soon as investments increase the probability of profits and share prices climb, speculation starts. Speculators need trends. With stagnating stock markets they would be helpless. As soon as profits are in sight, speculation is possible. The whole process is intrinsically linked with Incorporated companies.
But this time no stock bubble exploded, it was a sub prime bubble. Houses in the USA and GB were overrated.
Yes, but behind this market were banks, and they are organised as stock companies too. To raise their profits they granted credits carelessly.
Speculation involves all property assets : besides shares it concerns land, houses, resources and food products.
But still : is speculation really linked with growth ? You can also bet on falling prices – like short sellers.
You can only set on falling prices, if they have risen before. Upward speculation is infinite, downward only until zero. Growth remains the basis for speculation.
Governments want to regulate more strictly now. Will this prevent future speculation bubbles ?
This is just a cure of symptoms. Some highly complex commercial papers that nobody understands can be forbidden. But speculators will try new tricks.
The question is not if, but when a new bubble will form ?
I cannot say this with precision, I don’t have enough imagination for this. I would never have thought of structured mortgage papers, which partly caused the present crisis. But is absolutely sure that one of the next bubbles will involve resources and food products. The International Energy Agency has forecast that the oil price will climb to 200 $ per barrel. Such a trend simply must incite speculation.
If speculation bubbles belong to capitalism, then why are economists so astonished at the present finance crisis ?
In classical economic theory money is simply ignored. It is simply irrelevant. In fact the principal question in capitalism is : what is capital ? For 99.99 percent of the people the answer is intuitively clear : it is the money. Only 0.01 percent refuse to believe it : the vast majority of economists. Neoclassic economy conceives capital as the machines that are used. Money is merely the grease that lubricates the system – but in fact the machinery works without this grease. The financial crisis shows, that the majority is right : money matters. Capital is an advance of money that allows investments and thereby growth.
Do you plead for a capitalism without growth ?
Growth cannot be reduced to zero. We need gains, otherwise nobody will continue investing. The reason is that every investment carries a risk. For this risk a compensation in form of profit is due.
This sounds like a vicious circle : without growth there is no capitalism, but with growth the risk of finance crashes increases.
Capitalism has to be reformed in such a way, that is will be less aggressive and less vulnerable for crisis. IN my book “The Spiral of Growth” I calculated that 1.8% growth would be sufficient. This would also spare the resources and the environment. IN the long term the growth rate should be lowered even more.
But how do you want to bridle capitalism ? By removing the engine, by abolishing money ?
We cannot abolish money, otherwise there would be no more division of labour. But the money system should be reformed. A staring point could be the idea of Vollgeld, based on the proposition of Irving Fisher, the most famous US economist of the thirties. His concept was taken up by Joseph Huber and James Robertson. Accordingly, only the central bank has the right to create money.
Is it different from what we are doing now ?
Until now, the vast majority of money is created by private banks, by granting credits. The central bank has no alternative in the present financial crisis than to assume the rotten credits, in order to avoid a collapse of the system. Therefore the central bank should assume the entire responsibility for the creation of money. Thus the central bank would also gain control over the growth. In other words : only the central bank should profit, if the money volume increases and because economy is growing.
What would we gain ?
The central bank could transfer the additional money to the government, in order to reduce taxes or pay back debts. Money could also be made available to the citizen as a basic income. Simultaneously the finance system would be stabilized, because the central bank would have a much more direct control over the volume of money.
Until today you haven’t won over many disciples.
But at least certain concepts are being discussed. Like consumer vouchers that could be distributed by the government to stimulate growth. This goes in the direction of a basic income.

INTERVIEW: ULRIKE HERRMANN

Link : http://www.taz.de/1/zukunft/wirtschaft/artikel/1/18-prozent-wachstum-reichen/

1. Historical Background

Usually media deal with day to day political questions, politicians speak of global interests, CEO’s feel as global players. In fact, this reduces the horizon. We refer to the human sphere, a limited part of out planetary ecosystem. Mankind is a minor element of the biosphere. Other living beings are far more successful, take insects or bacteria. Even our domestic animals outnumber humans by large. Our present world-economy and international politics are the result of WW2 and postwar contracts mainly determined by the victorious alliance. The bipolar world has undergone an outright revolution since 1989 with the collapse of the socialist block. Today, the world is shaped by an uncontrolled expansion of one superpower that has somehow lost reality-control. The present economic crisis is the consequence of the erroneous equalization of freedom with uncontrolled economic activity. This vision has led to regard everything beginning from inanimate nature to our fellow human beings as elements in a giant business environment.

Why is there such a cleavage between Europe and the USA in this fundamental outlook on the world ? Mere political, religious or ideological categories are not adequate to explain this. A short historic flashback may help. Recalling the immigration story of the USA, people have fled persecution, intolerance or misery mainly in Europe and arrived in the new world hoping to find a haven of peace. In fact, they brought with them mentalities from their contemporary European society and tended to conserve these values and behaviors as a means of finding a cohesion in a shifting context. We can see many religious beliefs dating back to before 1800, political concepts from the 19th century and economic ideas from before WW2 determining the present US landscape presently. One ethnoreligious group was the Jewish community from central Europe that fled persecution from 1880 to WW2. According to Wikipedia : In the Middle Ages, European laws prevented Jews from owning land and gave them powerful incentive to go into other professions that Europeans were not willing to do. During the medieval period, there was a strong social stigma against lending money and charging interest among the Christian majority (based on Leviticus 25:36), who decried the practice as “usury”. As a modern system of capital began to develop, loans became necessary for commerce and industry. Jews were able to gain a foothold in the new field of finance by providing these services: as non-Catholics, they were not bound by the ecclesiastical prohibition against “usury”; and in terms of Judaism itself, Hillel had long ago re-interpreted the Torah’s ban on charging interest. In the modern world, intellectual professions have traditionally been considered particularly “Jewish.” These include banking and finance, law, medicine, science, social sciences, psychology, academia, and more recently computers.

While Europe suffered a complete destruction of it’s social framework and value system during WW2, many preexistent European values moved to the US society and are determining the present situation. These historic facts partly explain the difference in political development based on an individualistic approach, whereas Europe has gone in a more collective direction. Concerning 1989, the US have not gone forward, but have revived concepts from before the great depression. This explains ( in part) why the US have relied so heavily on the finance sector and committed some of the same errors, leading to the economic dohuwabohu.

2. Definitions of Nature

After these remarks, I would like to switch from politics to the next level. We tend to refer everything surrounding us to our human system of values, the anthropocentric vision. This is a spontaneous property of every living creature. Since we have been so successful, we have managed to partly overcome natural selection and immediate dependency on our ecosystem by culture and lately the technological instruments.

Resuming the presocratic origins of natural philosophy goes beyond the scope of this simple Blog. The stoic definition of nature was the all-embracing, the normative. Nature was also the antithesis of culture, metaphysics and technique. Christianity distinguished the natural and the supernatural. Galileo wrote : La filosofia è scritta in questo grandissimo libro che continuamente ci sta aperto innanzi agli occhi (io dico l’universo), ma non si può intendere se prima non s’impara a intender la lingua, e conoscer i caratteri, ne’ quali è scritto. Egli è scritto in lingua matematica, e i caratteri son triangoli, cerchi, ed altre figure geometriche, senza i quali mezi è impossibile a intenderne umanamente parola; senza questi è un aggirarsi vanamente per un oscuro laberinto. He thus introduced scientific thinking into our relation to nature. The term „Philosophie der Natur“ was reintroduced in the 18th century and led to speculations about the relation of man and nature.

Mankind has maintained an ambiguous attitude towards nature. It ranges from a romantic idealization to a possessive exploitation, from an introverted contemplation to ruthless destruction. Scientific approaches tend to focus on respectful analysis, while commercial activities bring about massive damages. This is reflected in the ongoing discussion.

3. Changing Concepts

The original definition of politics comes from the Greek polis, the city. Politics is the process by which groups of people make decisions. We tend to have an image of party politics, ideology, power struggle that unfortunately does not live up to this definition. Institutionalization and historic events have formed is.

One crucial moment was the French revolution of 1789, whereby the separation of powers was introduced, along with the principles “liberté, fraternité, égalité”. Aristocratic privileges were abolished, the state became secular. At this moment we have to redefine this concept, namely, we need to abandon religious and ideological concepts. Most constitutions call on some religious principle. More than this historical relict is not acceptable. We are experiencing wars, terrorism, massacres by governments and groups in the name of religion, in fact these are simply political movements usurping political power and legitimacy. The west and especially the USA have to refrain from building up a provocative counter position.

And politics has to be separated from the grip of economics. No country has been capable of maintaining a clear separation of powers allowing politicians to translate the will of the voters. Reality looks rather like a democratic election of representatives, followed by an intensive lobbying by all kinds of groups ( completely unrelated to the popular will and factual majorities) to bend politicians around. In fact the Goliath economy is always stronger than the political David.

Modern states need a redefinition of political powers creating a complete separation between politics, economic forces, religious groups to allow politicians to take their decisions to the best of their knowledge and without external pressure. This is of course wishful thinking, but it has to be the aim.

Going back to the idea of nature, we have outgrown the concepts inherited from our constitutions, the US was created in 1787, how could they foresee today’s state of affairs ?

Mankind is colonizing the solar system. This is our common framework. And the consequences are evident. Not our petty politics set the pace for our common action. The solar system with it’s physical laws, the planet earth with it’s chemical, biological and ecological laws is our existential support and determines the supreme guidelines. Mankind is ( a particular) subspecies of the biosphere, among many other living beings. We have to achieve a radical expansion of horizon. We have to abandon the wrong idea that we are the center and only purpose of creation. It is nature that created all life, including man.

Our decisions and actions have to follow these principles :

Is our activity compatible with an ecological equilibrium, is it sustainable, do we respect the principles of surrounding nature and do we make responsible use of fossile, natural and human resources, sparing and conserving all we can for future generations ?

Political left-right categories, telescoping new words into used and abused terms is simply not appropriate any more.

For this purpose, we have to integrate natural and social sciences into our national and international institutions.  These groups of scientists must have a well-defined role in the political decision making that goes far beyond their advice of experts. We don’t need panels and papers that are not translated into specific government decisions and actions. State secretaries, ministers need to be experts for all the problems we are facing today. This does not mean a technocratic government as we have seen.

It means that new positions are created, representing and institutionalizing the latest scientific knowledge. And this knowledge has to serve as the basis for the administration. Not complete layman opinions, not big corporate, ideological etc interests. For this to work, the voters need to be better informed and to exert much more direct power upon the politicians. Once every four years ( US model) is not enough, with Internet, people can express their will every day if necessary. And the political culture needs to evolve accordingly. Using low taxes, lean state arguments as the only yard-stick for all decisions is simply undemocratic and shortsighted.

4. Enlarging the Picture

Along this line, one nation cannot bring this about. We need international institutions ( I refer to the United Nations) that are not the punchingball of regional, religious, economic or ideological alliances. The UN is the victim and hostage of the veto powers and communities of purpose not devoted to the common cause. While we observe this tussle, time is running out. A clean beginning on fresh premises is needed.

A new organization replaces the UN and uses another approach to reach consensus. The historical facts of 1945 are simply not relevant for coming generations. Special privileges for veto powers are undemocratic. A tried and tested system would consist of two assemblies. The first one gives each member one vote. The second gives each nation a number of members according to it’s population. And an executive council must take operational decisions. But there is a special catch to this : These assemblies are only one part of a supreme organization.

Since the supreme entity is planet earth ( as long as we have no settlements elsewhere), each sphere has it’s representation :

the geosphere

the hydrosphere

the atmosphere

the biosphere

They must be regarded as legal entities obeying natural laws and placed above the narrow self-interests of mankind. Their equilibrium, their sustainable development, their survival is the supreme guiding criterion.

Each one of them is being represented in an planetary council, along with mankind.

This council has the responsibility and function to mediate between the natural and the human interests.

Again, experts of natural and human sciences  provide objective and unbiased criteria to reach a consensus.

This council is the authority granting rights to it’s members.

Each sphere is subdivided into logical substructures :

The hydrosphere consists of the different rivers, lakes, oceans and all regional and functional cycles we know.

The biosphere counts with the all living organisms from bacteria, flora and fauna. Mankind does not only have a political representation in it’s resurrected UN. All civil populations are members with their innate and inalterable rights based on their biological origin. Of course these civil populations and their individual members must be protected with their specific cultures, independently of their social, political, ethnical, gender etc attributes.

5. Conclusion

The main idea behind this ( I admit, quite Utopian ) concept is to free nature and civil populations from their dependency of national governments. As we know, even developed nations have a structural democratic deficit. Developing countries struggle on a much more elementary level in a larger context that is unfavorable to a peaceful and prosperous development.

Civil populations are invariably the defenseless victimss of dictators, rivaling warlords, economic competition, natural disasters, epidemics, poverty to name just a few. The presently available juridic instruments and institutions serve a noble purpose, but they are biased by the anthropocentric view. Governments have almost absolute power over their natural resources, economy, agriculture, population and therefore protection of certain minorities often can only be implored in order to be graciously granted by those in power. This view is wrong. Human rights are no luxury, no privilege. The ruling class cannot decide over life and death of their population on arbitrary criteria. It is exactly the contrary.

Every single human being receives his dignity and human rights independent and super ordinated to the political organization he or she is living in.

Since the first post a significant step has been taken by the US administration today may 12 :

Susan Rice : “We ran for the Human Rights Council because this administration and, indeed, the American people are deeply committed to upholding and respecting the human rights of every individual,” Rice said after a secret ballot by the U.N. General Assembly which cleared the way for U.S. membership to the council.

“While we recognize that the Human Rights Council has been a flawed body that has not lived up to its potential, we are looking forward to working from within with a broad cross-section of member states to strengthen and reform the Human Rights Council and enable it to live up to the vision that was crafted when it was created.”

It marks a change in U.S. policy by the Obama administration to join the panel, which includes China, Cuba, and Saudi Arabia as member states.  Twenty-six out of the council’s 32 resolutions have condemned Israel, a key U.S. ally.

President George W. Bush had previously rejected a seat on the council because of the questionable human rights records of the council members, which have included Sudan and Zimbabwe in the past. (from cnnwire.blogs.cnn.com).

This is a remarkable step to overcome the traumatic Guantanamo and Abu Ghraib episodes.

Returning to the basic debate, the UN were created to mediate between all nations, for law-and-order and for development causes.

The underlying interstate conflicts, the world-wide powerstruggle form the common ground. creating the need for such organisations. They are part of a strategy and a cultural process of conflict resolution.

First, the arms industries and defense budgets have to be taken into account.

The Stockholm International Peace Research Institute (www.sipri.org/) offers reliable  data.

[edit] World’s largest defence budgets

This is a list of the fifteen countries with the highest defence budgets for the year 2006. The information is from the Stockholm International Peace Research Institute [11]. Total world spending amounted to $1.158 trillion USD in 2006, with nearly half of the total amount spent by the United States. The actual budget for the PRC’s armed forces is unknown, the figure given is an official estimate of government fund allocation, with much of the net budget funds coming from extra-budgetary sources.[12]

Military expenditure in market exchange rate dollar terms, 2006
Rank Country Spending ($b.) %GDP[3]
World Total 1,158[4] 2.41
1 Flag of the United States United States 985.7 12.99
2 Flag of the United Kingdom United Kingdom 59.2 2.49
3 Flag of France France 53.1 2.38
4 Flag of the People's Republic of China People’s Republic of China 49.5[1] 1.88
5 Flag of Japan Japan 43.7 1.00
6 Flag of Germany Germany 37.0 1.28
7 Flag of Russia Russia 34.7[1] 3.54
8 Flag of Italy Italy 33.9 1.61
9 Flag of Saudi Arabia Saudi Arabia 29.0[2] 8.32
10 Flag of India India 24.2 2
11 Flag of South Korea South Korea 21.9 2.47
12 Flag of Canada Canada 14.6 1.10
13 Flag of Australia Australia 13.8 1.83
14 Flag of Brazil Brazil 13.4 1.26
15 Flag of Spain Spain 12.3 1.00

[edit] World’s largest arms exporters

The unit in this table are so-called trend indicater values expressed in millions of US dollars. These values do not represent real financial flows but are a crude instrument to estimate volumes of arms transfers, regardless of the contracted prices, which can be as low as zero in the case of military aid.

Supplier 2000 2001 2002 2003 2004 2005 2006 2007
Flag of the United States USA 7505 5801 4984 5581 6616 7026 7821 7454
Flag of Russia Russia 4190 5631 5458 5355 6400 5576 6463 4588
Flag of Germany Germany 1622 825 910 1707 1017 1879 2891 3395
Flag of France France 1033 1235 1342 1313 2267 1688 1586 2690
Flag of the Netherlands Netherlands 259 192 243 342 218 611 1575 1355
Flag of the United Kingdom UK 1356 1116 772 624 1143 871 978 1151
Flag of Ukraine Ukraine 280 649 440[13] 530[13] 600[14] 700 1000[15] 1200[15]
Flag of South Korea South Korea 100 240 140 140 410 260 260 844
Flag of Italy Italy 192 224 407 321 216 787 860 562
Flag of Sweden Sweden 46 7 120 158 73 116 803 529
Flag of Israel Israel 308 850 125 468 287 536 472 414
Flag of the People's Republic of China China 228 498 544 553 271 223 564 355
Flag of Canada Canada 83 129 182 279 305 193 227 343
Flag of Spain Spain 321 298 365 309 533 244 258 238
Flag of Switzerland Switzerland 104 120 109 139 201 166 144 211
Flag of Bulgaria Bulgaria N/A N/A N/A 250[16] N/A 190[17] 149[18] 192[19]

When looking at these figures, the economic dimension is immediately evident. Military budgets, arms exports and armed conflicts form a functional context. Particularly the USA defense budget is the fivefold of the average percentage of GNP, with all other major powers included. The same holds true for arms exports. Under this aspect, the wars waged by the USA since WW2 have not only an ideological and strategic, but also an eminently financial background. This degree of hypertrophy is unique and cannot be justified with a legitimate need of self-protection, strategic goals or other military arguments.

The antagonism is between the military-industrial complex with it’s economic-political lobbying on one side and forces representing common social interests.

In this field of force, the UN are perceived by a powerful part of the US business as running against vital financial interests of the former complex.

Hopefully today’s return to the HRC signals a change in paradigm that will be followed by a worldwide commitment to increasingly ethical and solidary strategies. The war efforts we have witnessed since WW2 are not only a major cause for UN interventions, they provoke humanitarian calamity and immense cost – the world-community suffers these damages while the US industry is profiting from armament sales. And many conflicts are being fought with US arms.

The contribution of the US towards the UN of 840 millions a year seems almost insulting if we look at their preeminent role in the major armed conflicts and their profits from massive arms exports. The UN receives one thousandth of the US defense budget to intervene in all conflicts worldwide (correct me if figure is wrong, thanks).

As I concluded in the first part, the UN should calculate the contribution of it’s members not based on the GNP, but based on the arms sales, the defense budget and most importantly, on the damage caused on civil populations, economies and ecosystems destroyed. Victims like Irak or the Palestinian Territories should receive active reparations and it’s UN member fee should be waved.

I plead for a consequent bookkeeping for all nations under these aspects. Damages have to be repaired by those responsible.

But there is another point. National economies have limited resources. What could the US finance with the amount spent into their colossal defense budget ? How can 46 million US citizen remain without basic health insurance ? How can a welfare case live with 190 $ a month, as I read 2 years ago ? The taxpayer and the voter has a legitimate right to determine where the budget of his government is being spent. In our communication age it is inconceivable that the most advanced nation of the world cannot give it’s people the opportunity to vote on such essential matters determining the wellbeing of every single citizen on a more regular basis, be it through the internet or other means. The US population has a right to benefit from a welfare state and a fully functioning infrastructure at home. To dislodge presumed terrorists on unsound grounds is not a primary necessity for them.

If the US wishes to act as the leader of the democratic world, then all their international interventions should be coordinated and agreed upon with it’s partners.

This is what the United Nations were created for.

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Global Warming

May 10, 2009

There seems to be an urge to question facts accepted by most scientists, governments and the general public. This discussion has led some to create very informative websites to oversee the present discussion (Ref 1). See for yourselves what is factual evidence. It is impossible to cite all news on global warming, climate change and on the melting ice caps (Ref 2). Yes, some are in German, talking of global. There are all sorts of curious anecdotes, one claiming that global warming can cause global cooling (Ref 3) Here is a nice resume of the global cooling debate dating back from 1975, when it was still fresh and not totally obsolete (Ref 4).

Starting in the USA, California is a leader in measures restricting carbon dioxide output, exactly because the major US state is convinced by the existence of the greenhouse-effect. Congratulations Mr Schwarzenegger, you got it. The Kyoto agreement has been signed by all nations, with one exception, the USA (Ref 5). The reason being purely economic. The USA is the major CO2 producer worldwide and the Bush administration maintained a negationist attitude in order to postpone an application that was judged potentially costly and damaging for the US economy. Now what damage can we still do, after the self-inflicted crisis ? So the obsolete attitude is being abandoned by the new administration, but public opinion seems to lag behind.

Scientists are unanimous in underlining the danger of the global warming for the animals living in cold regions, among them the polar bear (Ref 6), the melting ice leads to longer periods of starvation, populations are rapidly decreasing. Baby seals starve to death because the icepack is becoming too thin (Ref 7). For those still in doubt, look at the website of the http://www.ipcc.ch/. There is also a US authority that claims exactly the same, namely global warming due to anthropogenic greenhouse-gases : http://www.epa.gov/climatechange/ and http://www.climatescience.gov/ The BBC offers a cute slide show : //www.bbc.co.uk/climate/ The WHO is on the same line : http://www.who.int/globalchange/climate/en/ along with http://www.grida.no/ Finally, lets face it, the only global cooling we can seriously talk about is this : http://www.globalcooling.com/

Instead of clinging and perseverating in denying the overwhelming evidence of a global warming that is menacing ecological systems, food production and survival of fragile populations worldwide, let’s use our creativity to find efficient ways to reduce CO2 emissions and other activities detrimental to our common planet. We only have one and time is running out.

Ref 1 : climatedebatedaily.com/ Ref 2 : http://www.washingtonpost.com/wp-dyn/content/article/2009/04/06/AR2009040601634.html http://www.washingtonpost.com/wp-dyn/content/graphic/2009/04/07/GR2009040700774.html http://www.nzz.ch/nachrichten/wissenschaft/ohne_eis_keine_eisbaeren_1.683315.html nsidc.org/news/press/2007_seaiceminimum/20071001_pressrelease.html http://www.taz.de/index.php?id=zukunft&art=4226&id=wissen-artikel&cHash=e04a7e3a8f http://www.stern.de/news/klimawandel-in-der-arktis-immer-deutlicher-21126650.html http://www.sueddeutsche.de/wissen/510/314410/text/ current.com/items/89424378_rekordtemperaturen-in-der-arktis.htm http://www.wir-klimaretter.de/index.php?option=com_content&task=view&id=1300&Itemid=256 nsidc.org/news/press/2007_seaiceminimum/20071001_pressrelease.html Ref 3 : http://www.dinosauria.com/jdp/news/freeze.html Ref 4 : http://www.denisdutton.com/cooling_world.htm Ref 5 : en.wikipedia.org/wiki/List_of_Kyoto_Protocol_signatories Ref 6 : arctic-council.org/article/2009/3/climate_change_threatens_polar_bears http://www.stern.de/wissenschaft/natur/:Arktis-Eisb%E4ren/650567.html Ref 7 : http://www.focus.de/panorama/vermischtes/klimawandel-massensterben-von-ringelrobben-babys-aufgrund-der-klimaerwaermung_aid_378907.html http://www.stern.de/wissenschaft/natur/:Klimawandel-Robbenbabys/613661.html

How does upward redistribution work ?

The average consumer is under pressure to buy more goods than he can afford or needs. There is publicity, social and cultural factors that lead to an average spending of 140 % of the yearly income by each US citizen. This overspending explains the growing private debt ( sub prime, credit cards, individual credits) and it shows where the money flow is going. It went into volatile speculation and was partly destroyed, but it also found it’s way to the fortunate strata of the society. Through outsourcing to China manufacturing cost and jobs in the USA were reduced, China is also the major creditor (24 %), together with Japan (20%). Cheap liquidity was provided until interest rates started climbing due to mutual distrust among money lenders, and this led to the collapse of the system. This proves that this model is in contradiction with basic financial laws and is not sustainable.

After the crisis the administration is still following the advice of big finance, it is not acting in the higher interest of the US population. It avoids profound reforms and provides massive fresh liquidity again, to promote consumption rapidly. In the short term this is adequate and for the functioning of the economy, this is vital. In the longterm this will impose an intolerable burden on the US taxpayer and on the world economy. The consequence is either deflation ( no recovery), inflation ( in case of a recovery), if not stagflation.

What has to change

The change must happen at the level of the single citizen first. His spending pattern has to change. This is the inevitable prerogative. No more private debts should be produced, this means longterm austerity, leading to an expense of less than 100 % of the income. Of course, such an advice does not sound attractive. But is is practiced in other parts of the world with good result. People should spend only the money they actually possess and stop living on credits. All else is a recipe for disaster.

The second process is political. The US political system is taylor-made for the rich classes only, but this fact is a taboo wrapped up in images of the american way of life. The role of middle and lower classes is merely to finance the upper 10%, in political terms they are powerless. If 90 % ( 270 millions) of Americans are happy playing this role of living with unbearable debts for coming generations and with a continuous financial downward shift, then this may be fine.

Otherwise, the majority in the US population could seek a political change where the average income increases, job security is better, taxes get the money where it is and redistribute it towards those that really need it. Namely the middle and lower classes. They need effective instruments and measures against unemployment, a health care system for all, insurances for the disabled and provisions for retired people. And incentives to invest real money, (not debts) into longterm saving like the house, secure pension funds etc. I am talking about social security and a welfare-state that deserves this name.

The usual objection is : who will pay for this ? The typical question that only a millionaire can ask and answer. Does anyone object to billions being spent for a completely failed economic policy ?

Questions and Outlook

Does the wealth of the industrialized countries depend on the very poverty in developing economies ? Are they poor because we are rich ? Is the global toll of poverty ( malnutrition, diseases, war etc) indispensable for the good functioning of the global economy and particularly the US corporate and finance industry ? Would a less unjust, inhumane and arrogant world trade order destroy this world economy, does the affluence of a few depend vitally from 1 billion people living in apocalyptic misery ? The same question is valid for the US as a nation, where the mechanism is the same, but on a much higher material level.

Presuming that in the US the Gini coefficient became similar to the one in Japan, where there is much less economic inequality, how would this affect the economy ?

I start with a guess, that the GNP would remain the same, for simplicity. Now, if the middle class had a higher income and the upper class were „poorer“, I can conclude for sure that overall consumption would increase, benefiting the overall economy. This is because 10 persons earning 100 000 $ a year will consume more goods and services collectively than one person earning 1 million a year. Just consider food, housing, cars, clothes for 10 versus 1 households. The same holds true for any country.

From this fact I conclude, that without structural changes the present system in the US must and will increase the pressure on the classes indulging in mass consumption. This is the only way for your money to flow upward. The trend is inevitable : the poorer the people, the harder it is to make them spend. Because the middle class is getting poorer, the present system will simply offer new credits and push harder for consumption. This is the mentality of the governing class, they cannot exist without ever increasing gains and wealth, call it an ideological or mental problem. Because the US political and economical establishments are intimately linked, there is no democratic control over this mechanism. The natural limit of this development is a tiny rich society and an overwhelming poor mass, without any middle class, I expect this to happen in 50 years or so. By this time, low class Americans will know what is means to live in a third world country, back home…

Exactly for this reason, the US people will someday realize the striking parallel : the US and the world economy are both undergoing a process of wealth distribution that is sustainable neither economically nor ecologically. In the developing countries, the shocking consequences are apparent today. Famines are pushing people to hunger revolts. Rural populations are accumulating around cities, because traditional farming is not more possible. Epidemics, political instability, wars and mass emigrations into industrialized countries are the inevitable consequence. They can leave their ghetto for a richer country today, but can we leave our planet if we destroy it ?

Our iniquitous economic system is ransacking not only the American middle class, but poor populations worldwide.

The world economy should not be a poverty producing machine, it should allow people to live in dignity, just as the World Bank and International Monetary Fund are preaching on their websites as their mission.

A common effort is needed to force the WB, IMF ( and a few others) to do what they are supposed to do, and not exactly the contrary.

Useful links in the order used in the text :

en.wikipedia.org/wiki/File:Gini_Coefficient_World_Human_Development_Report_2007-2008.png

http://www.sustainablemiddleclass.com/Gini-Coefficient.html

http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

http://pgpblog.worldbank.org/why_doesnt_capital_flow_from_rich_to_poor_countries

http://www.cepr.net/documents/publications/capital_flows_2003_03.htm

http://www.worldbank.org/depweb/beyond/global/chapter4.html

http://www.ilo.org/global/About_the_ILO/Media_and_public_information/Press_releases/lang–en/WCMS_099406/index.htm

http://moattari.info/2008/02/18/gini-index-a-measure-of-inequality/

http://en.wikipedia.org/wiki/Worldbank

http://en.wikipedia.org/wiki/Confessions_of_an_Economic_Hit_Man

http://en.wikipedia.org/wiki/International_Monetary_Fund

http://www.globalpolicy.org/socecon/bwi-wto/critics/stiglitzindex.htm

Democracy can be defined in several ways. Politics, society, education, health, economics, to name a few. Let’s pick out the economic angle. Does a substantial part of the population have access to the common wealth ? For this purpose, an Italian named Corrado Gini invented the Gini coefficient in 1912. If this Coefficient is 0, then everybody would have the same part of the wealth. The nearer the number is towards 1, the more the money is concentrated in the hands of a minority.  You can find lists of countries ordered by their Gini coefficient on Wikipedia.

Unequality in the USA

From these mathematical facts we can conclude two things : in the USA wealth is distributed unevenly. Unlike Europe or Japan, but very similar to developing countries. And the Gini coefficient of the US is rising steadily. What does this increase mean ? It tells us that in the past 40 years, the flow of capital has been from the lower income classes to the top earners. A bottom-to-top redistribution.

Definition of trade balance

Now lets expand the view to the world economy. Countries have trade balances. A country has a positive balance if it exports more than it imports. The reason being the benefit from exports, while imports create a trade deficit. Foreign exchange reserves increase and decrease accordingly.
Countries therefore can be characterized as economically solid if they produce a trade surplus. Which countries are on the positive side ? The first 5 are China, Germany, Japan, Saudi Arabia and Russia. The first three due to their strong export industries, the latter two due to oil exports. Now lets look at the last 5 countries on the list : Italy, Australia, United Kingdom, Spain and as the number 181, the United States of America. Italy and Spain suffer from overall bad management, while the others are main players in the globalized economy.

Sustainability of Debt

The national debt must be considered in relation to the GNP and the ability to pay it back. Therefore absolute figures say little about the effective burden imposed on an economy by this debt. World Bank and IMF hold that “a country can be said to achieve external debt sustainability if it can meet its current and future external debt service obligations in full, without recourse to debt rescheduling or the accumulation of arrears and without compromising growth.” One measure is the ratio between the debt and the GNP. Examples : Zimbabwe 218.20, Lebanon 186.60, Japan 170.00, USA 60.80. Another useful information is the absolute debt of a country.

Relation between rich and poor countries

To assess the relation between the first and the third world, the net capital flow is a useful parameter. The world bank asks : why doesn’t capital flow from rich to poor countries ? You guessed it : it flows towards the rich countries. In poetical terms : When Rivers Flow Upstream.

How is the GNP and GDP evolving in comparison of industrialized and third world countries ?
World bank in 1995 : GDP and GNP growth rates in developing countries are on average higher than those in developed countries. Moreover, the difference became even larger in recent years because GNP growth in developed countries slowed from more than 3 percent a year in the 1980s to about 2 percent a year in the first half of the 1990s. Low-income countries, by contrast, appear to have performed much better during this period, with GNP growing by almost 6 percent a year in 1980-95. So, will the poor countries soon catch up with the rich? Unfortunately, the economic growth patterns described above do not mean that the world is on its way to “convergence”- that is, to the gradual elimination of the economic gap between rich and poor countries. Much faster population growth in most developing countries is offsetting comparatively faster GNP growth, causing GNP per capita growth rates in these countries to be low or even negative.

People in developing countries are not improving their economic situation. Accordingly, the gap between high-and low income nations is growing worldwide. Again a bottom-to-top redistribution.  And population growth is only a part of the explanation, it has something to do with the system itself.

The causes of inequality between industrialized and developing world are complex. Colonization and it’s sequels are fundamental, I will skip enumerating them.

Definition of the Bretton Woods institutions :

World Bank : The World Bank Group (WBG) is a family of five international organizations responsible for providing finance and advice to countries for the purposes of economic development and eliminating poverty. The World Bank’s activities are focused on developing countries, in fields such as human development (e.g. education, health), agriculture and rural development (e.g. irrigation, rural services), environmental protection (e.g. pollution reduction, establishing and enforcing regulations), infrastructure (e.g. roads, urban regeneration, electricity), and governance (e.g. anti-corruption, legal institutions development).
IMF : The IMF describes itself as “an organization of 185 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty”

WB and IMF have a strong control over developing economies (DE). Due to the mentioned trade imbalance, GNP of DE often cannot finance the external debt. Money is borrowed from the IMF. The universal currency being the US $ and DE often having high inflation rates, they risk enormous growth of the debt, if expressed in $ (Mexico, Argentina, Zimbabwe). They are also exposed to fluctuations of trade, agricultural production and of interest rates. Some countries were driven into bankruptcy. Several countries received debt reliefs. This interaction makes DE vulnerable to external pressure. IMF and WB being under US control, they usually exert pro-US political and economic pressure. According to a former „Hit-Man“, governments were removed with the help of manipulated IMF debts. It is probable that, apart from these extreme cases, pressure is being exerted regularly to enforce acceptance of global trade, agricultural and other policies.

As a result, there is a generalized aversion against these institutions among poor countries. Emerging countries like China and Brazil are actively pushing for a thorough reform to lessen the power of industrialized countries and increase democracy for poorer members. The moment is auspicious, due to the present crisis.

Consequences of trade policies

The financial measures of the IMF seem value-free. In fact, the IMF often enforces austerity measures to reduce debt and inflation. The consequences for the civil populations can be dramatic. Due to massive amortizations, no new investments are possible, even basic food and medicine might suffer shortage. One prominent critic is Prof. Joseph Siglitz (read the extensive collection of excellent papers).

Parallels

There is a remarkable correlation between the Gini coefficient of developing countries and the USA. Moreover, the income gap is widening worldwide. This seems independent of particular political systems, it seems to be related primarily to the globalized economy.

In the US, the middle class functions much like the developing countries in relation to industrialized countries. Due to inequitable conditions imposed by politics and the economic establishment, there is a continuous redistribution from bottom to the top. The US middle class is experiencing increasing poverty.
Between the richest 10 % in the US and their middle class we see the same functional relationship as the one between a developed and a developing country. The US middle class plays the same role within the US as Zimbabwe plays in world economy. There are more similarities in economic terms between rich US and Zimbabwean upper class citizens than vertically within each of the two societies. Economic stratification or class belonging is independent of national borders and follows a universal pattern determined by the actual overall economic rules.

Part 1 of 2