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SEVEN STEPS TO OVERCOME THE ECONOMIC CRISIS

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GENEVA, Oct 26 2011 (IPS) - There has been a growing wave of protests against the casino capitalism that brought us a series of economic crises and a growing gap between rich and poor, within and between countries. Inspired by the Arab spring, mass protests erupted in Israel, then the “Occupy Wall Street” movement began and is now spreading throughout the US, Europe, Japan, and Korea- so far only as protests without proposals.

I use here the method of the NGO I represent, TRANSCEND: diagnosis, prognosis, and therapy.

Diagnosis: the entire world is suffering from growing pathological inequality. “The bottom 90 percent” -an interesting US category- have an annual average family income of around USD 31,000, whereas for the top 0.1 percent, income is well into the millions. As a consequence, there is not enough buying power available to get the wheels of the real economy turning, though there is more than enough liquidity at the top to get the finance economy overheated. At the bottom, people suffer and even starve. The imbalance between finance and real economy is destroying the whole economy.

Prognosis: three US bubbles are waiting to burst as a result of the contradiction between a galloping finance economy and a stagnant real economy; between the excessive (unpublished) amount of money circulating and its real value; and between debt service -paying interest to rich owners of government bonds- and people service -paying for necessities like health, education, welfare, and infrastructure. This is just the beginning. The US will probably be forced into a major devaluation, like highly-indebted Argentina in 2002.

The basic therapy would be a better balance between bailout and stimulus, and between elites and civil society. US politicians are more responsive to corporations financing their campaigns than to voters. The result is corporatocracy, not democracy. Obama ignores voters and bails out his chief donor, Goldman Sachs. We need to replace “too big to fail” with “too big to exist”, so we have not a few big but very many small banks.

Here are seven steps recommended to end the crisis:

[1] Civil society should create the maximum number of small savings banks that offer investment credit -also backed by their capital- but do not speculate. The big banks will try to undermine this, so groups of small banks may need to form cooperatives for mutual support. Investment is tied to specific companies, whereas speculation is searching around for profit. A long-term commitment is needed for production to take off, as opposed to the drive to reap short-term profits. We can learn from Islamic banking, which limits lending to 30 percent of a bank’s capital reserves.

[2] Civil society should boycott irresponsible, unprofessional banks that offer credit that far exceeds their own capital reserves. A listing is needed of banks by their level of irresponsibility, including executive bonuses. The worst deserve to sink and pave the way for many smaller ones. Iceland has emerged from the financial crisis by letting the worst banks sink. The voters have twice refused to make Iceland’s population hostage to credits given to those banks. Those creditors have to pay for their own recklessness when giving credit to equally reckless, unprofessional bankers.

[3] Irresponsible bankers should be barred from their profession for several years, or for life, as doctors are in case of serious malpractice.

[4] Homeowners who took out a mortgage not exceeding a reasonable potential for repayment should be bailed out, if necessary, instead of irresponsible banks. This would imply the cancellation of many foreclosures, to be protected nonviolently by civil society.

[5] The focus should be on the suffering at the bottom, often made up of minorities, the old, women, and the infirm. Alleviating misery is the first priority; economic growth is second. We need agricultural cooperatives using modern, 3-dimensional, hydroponic food production near the consumers instead of destroying the soil with artificial fertiliser and erosion; polyclinics with generic drugs; education by retired professors instead of schools with exorbitant tuition fees that few can afford; construction of affordable housing.

[6] Lift the bottom by having the needy satisfy basic needs. Lift communities, not individuals, through private, public, civil society, and technical sector cooperation. Make generous credits available for micro-companies in the fields of basic needs and employ the most needy themselves. As they lift themselves up they will pay back the credit, get increased buying power, and by their numbers stimulate the economy in general. Learn from Chinese capi-communism.

[7] Forbid short selling (and short buying), which has been found to be destabilising and toxic for the economy.

In the longer run we must shift the focus of the whole economy from material growth to health, education, and basic needs. We have been terrorised by fetishism with the GNP, which swells with every illness and accident and is decreased by conserving nature. The purpose of society should not be not turnover and profit but rich human lives! The world should switch to the UNDP’s Human Development Index and promote long lives high on creativity, love, and joy and low on morbidity. And stop putting older people in retirement ghettos, complaining of the aging population and pushing aside the wisdom needed to balance youth.

In short, lift the bottom up through stimulus; bail out the worst hit; and let incompetent institutions sink. Currently, incompetence and greed are not only rewarded with bailouts but also stimulated as those at the bottom suffer and sink further. This is unsustainable. (END/COPYRIGHT IPS)

(*) Johan Galtung, Rector of the TRANSCEND Peace University, is author of “A Theory of Development” (www.transcend.org). This column is based on a keynote address at the Dialogue of Civilisations, Rhodes Forum, 9 October 2011.

 
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