A Minor Foreshadowing of Things to Come
The global financial and economic crisis of 2008-09 highlighted how dangerous it is to have large numbers of human beings living close to the subsistence level. Even in “ordinary times” – before the crisis – there were already around 18 million poverty-related deaths in the world each year and some 900 million people were chronically undernourished. In 2009 this number broke above 1 billion, for the first time in human history. And the renewed rise in food prices suggests that another new record will be set in 2011.
Getting an indication of the actual numbers of people affected depends on who you ask. According to the World Bank, poverty has been steadily declining globally and the crisis only means that it is declining at a slower rate. But according to the UN’s Food and Agricultural Organization (FAO) the number of hungry has been increasing steadily since the mid-1990s. The increase in recent years has been due to two major reasons. One is the increase in food prices (in turn partly driven by increased use of biofuels). A second is the global financial and economic crisis that has led to large job and income losses.
The crisis may be an opportunity to rectify the structural inadequacies of the global financial architecture. One structural inadequacy is that poor people and countries are essentially marginalized. The global rules are designed by the rich for the rich. The more important international agencies are dominated by the economically and militarily most powerful states, whose governments in turn are heavily influenced by large banks and corporations, industry lobbies, and other powerful special interests. The interests of the poorer majority of humankind have no voice or consideration in the design of this global institutional architecture.
Nonetheless, the 2008-09 global financial and economic crisis did not benefit the rich. This should drive home to global leaders that we have a collective action problem: if we continue business-as-usual, then large corporations and governments can buy for themselves and design for their own narrow advantage certain bits and pieces of the global financial architecture. The result however is that the overall architecture becomes incoherent. It becomes worse for everyone than it would have been if it had been jointly designed for some common purpose. This structural inadequacy has the nature of a prisoners’ dilemma and makes clear to even powerful agents that it is not in their own best interest that agents like themselves should have too much control over the design of the global financial and institutional architecture.
With regard to the marginalization of the poor, progress is hampered by the fact that people do not care. Powerful politicians, powerful leaders of corporations and rich people do not care how many are starving, how many are dying from lack of medication, from diseases, from hunger. This was evident, for example, in the case Rwanda during its 1994 genocide. Around 800,000 people were being slowly hacked to death over three months. Everybody was watching, everybody knew what was happening. It was on the evening news. Everybody just said ‘this is not my concern’.
With regard to the second structural inadequacy, the collective action problem, there is more reason for hope because amongst the rich and powerful in the world were many who have lost a lot of money. They themselves may come to realize that a global institutional architecture whose parts are designed by the highest bidders, is not something that is even in the collective interest of the very rich. So it is beneficial even for them to accept restraints on themselves in return for other rich and powerful agents accepting similar restraints. And they have to allow the international financial architecture to be designed for a common purpose. Of course, the common purpose that the rich and powerful want is one that would serve their collective interest. But here I think the public sector of developed countries needs to enter and demand that at the very least international institutions need to be designed so as to reduce human rights deficits as far as is reasonably possible. Human rights fulfillment is not a very high standard. It is a standard which at the current level of economic and technical progress we can easily meet.
The opportunity offered by the crisis to make headway in this respect may be threatened by the way in which banks have been bailed out. It sends a wrong signal for the future. It sends the message to big banks and big investors and people who hold responsible positions in these banks and corporations that if you take a gamble, and all goes well, you will be extremely well rewarded, and if things do not go well, at least you will not be poor. The bail-outs greatly diminish the perceived downside risk that might deter these banks to continue to practice what they have been practicing in the past. To deter banks a solution must be found in politics where politicians, partly driven by voter discontent, will realize that they can no longer sell out to big businesses and banks. In the US you can see it most clearly. The US laws and regulations are for sale. They are for sale in the halls of Congress where rich corporations give money for election campaigns and buy themselves political support to promote or prevent legislation. It is also clear in the regulators. There is the ‘revolving door’ where people who work in industry at a very large salary then take on a much lower-paying position in a regulatory agency where they regulate the very company they used to work for. And then five to ten years later they go right back to their old company and get very highly paid – in recognition perhaps of doing a good job while being regulator.
The political solution referred to requires a coalition of two different groups. One group is ordinary people who are paying the very large bill for the irresponsibility of their politicians and of the leaders of the global economic and financial system. The other group is part of the economic, business and financial leadership, those who also recognize that this crisis, and the instability it brings about, are not in their own interest. They are realizing that they could make even more money if there were less risk of crisis. They are realizing that they have more to fear from the ‘rule-purchasing’ activities of other rich participants than they have to gain from their own successful rule purchases. They may realize therefore that it is better for them to accept restraints on their behaviour as long as others are also subject to the same restraints. They should realize that the current system does not even serve the interest of the rich as well as they thought it would.
The international financial system’s legitimacy is in question. It was in question even before the crisis. Anybody who had eyes to look, could see that the world economy was organized in a way that would see on a regular basis 18 million people or more killed every year due to poverty. So anybody who had eyes to look could see that the system is illegitimate – deeply illegitimate. These deaths are not in any way necessary. The global poor have perhaps 2 to 3 per cent of global income. In order to cover their basic needs they may need another 1 percent of global income. So it is entirely possible, easily possible, to re-arrange global institutions in such a way that we do not have this enormous death toll and suffering amongst the world’s poor. And in light of the magnitude of the underfulfillment of human rights the system was clearly illegitimate to begin with. It is just that perhaps now people are waking up.
Another issue to mention in this context is the environmental threat. This also suggests that the global economic system is an illegitimate one. It is unsustainable. Within twenty to thirty years ours will be a much less habitable planet. And of course, who will pay the bill first and foremost? It is again going to be the poor.
There is a very considerable danger that many people — the rich and mighty and those who work in their behalf — are working very hard to create a sense of ‘oops…this was some minor blip…don’t worry about it…the system is basically sound, we don’t need fundamental changes’. This thinking needs to be countered. The global system is in crisis, has been in crisis for a long time. If we continue with the system as usual then this crisis will just be a minor foreshadowing of things to come. Much greater crises will hit in the next twenty to thirty years, also because resources will run out. One can envisage a desperate struggle for resources between the most powerful countries and agents: the Chinese, the West.
Thus what we have now is a global system that is run by very powerful agents that have a very short-term orientation. They are locked in a prisoners’ dilemma where nobody can afford to be public-spirited because that just allows for others to take advantage and change the rules for short-term advantage in their own favour. What ordinary citizens need to do, in both rich and poor countries, is to try and redesign the global institutional architecture with a more long-term orientation – where we look at least a century ahead- and try to work out a system that is sustainable over the medium term. The only way to do that, the only principles on which to base such as system, are principles that require us to achieve human rights fulfillment at the very minimum and then to improve the system so that it serves the interest of all human beings. It is the only beneficial system, rather than a system where bits and pieces are designed for one or another powerful agent.
In attempting to achieve this we have to start with citizens. Politicians will not on their own take the long-run view unless it is also in their interest. It is the task and responsibility of citizens to try and put these issues of global justice and sustainability on the table and to pressure our governments to take them seriously. We have to keep the feet of the politicians to the fire and say ‘look, you’ve made this promise. You have to fulfill it’.
Universities have an important role to play. Take the example of training and educating the leaders of the financial sector. They get trained in economics departments or business schools where they are told that modern economics has solved all the problems of crises and poverty. That poverty is a thing of the past, melting away like snow in the summer sun, and that in a few years it will not be a problem anymore. That the rising tide will lift all boats. In this sense economics departments and business schools are effective conveyors of ideology. As a consequence the leaders of finance today are typically unaware of global poverty and hold on to erroneous views about how well the global economy has been working. This happens because economists and business school professors are living up to their reputation as homo economicus: they are always telling us in their economics classes that humans are maximisers of their own self-interest. As it turns out, most people are not — but perhaps most economists are. And an economist who say the current system is in crisis would not make anywhere near as much money as the economist who says the present system is wonderful, helping the poor, and so on.
Many students in our universities are of course, aware of these global problems. Indeed for me it is really fantastic to see so many young people taking these problems so seriously and trying to contribute towards solving them. The problem is that their individual efforts will not make any difference as long as the current global institutional structure remains the same. Their efforts will simply be overwhelmed by the negative impact of unjust international institutional arrangements. So many start out idealistically, with good will, but, twenty years later, they become jaded. This is because social institutions have not improved and so they can see no real success. They see millions and millions of people still in poverty. They become disillusioned. This is why it is so important to achieve large structural changes to the global economic and financial architecture. We need real changes and real success to inspire the next generation.
 Edited transcription of an interview conducted by Jean-Marc Coicaud as part of the UNU Conversation Series on The Global Financial and Economic Crisis, for the full interview see http://www.ony.unu.edu/economiccrisis.