Keynesianism and the Great Recession: An Interview with Walden Bello

Mar 02

From Triple Crisis “We need to work towards a post-capitalist system that aims at promoting equality, enhances instead of destroys the environment, is based on cooperation, and is engaged in planning to achieve short term, medium term, and long-term goals. In this scheme, finance would function to link savings to investment and savers to investors, instead of becoming an autonomous force whose dynamics destabilizes the real economy. A post-capitalist society does not mean the elimination of the market. But it does mean making use of the market to achieve democratically decided social goals rather than having the market drive society in an anarchic fashion.” This interview with Walden Bello is based on the study “Keynesianism in the Great Recession: Right Diagnosis, Wrong Cure,” available here from Transnational Institute. Q: What were the main ways in which neoliberalism created the Great Recession? A: Neoliberalism sought to remove the regulatory constraints that the state was forced to impose on capitalist profitability owing to the pressure of the working class movement. But it had to legitimize this ideologically. Thus it came out with two very influential theories, the so-called efficient market hypothesis (EMH) and rational expectations hypothesis (REH). EMH held that without government-induced distortions, financial markets are efficient because they reflect all the available information available to all market participants at any given time. In essence, EMH said, it is best to leave financial markets alone since they are self-regulating. REH provided the theoretical basis for EMH with its assumption that individuals operate on the basis of rational assessments of economic trends. These theories provided the ideological cover for the deregulation or “light touch” regulation of the financial sector that took place in the 1980s and 1990s. Due to a common neoliberal education and close interaction, bankers and regulators shared the assumptions of this ideology. This resulted in the loosening of regulation of the banks and the absence of any regulation and very limited monitoring of the so-called “shadow banking” sector where all sorts of financial instruments were created and traded among parties. With so little regulation, there was nothing to check the creation and trading of questionable securities like subprime mortgage-based securities. And with no effective monitoring, there were no constraints...

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Alternative views of the economic crisis: Walden Bello Interviewed by the BBC

Feb 09

Meanwhile, different debates were taking place at the "alternative" World Social Forum in Belem, Brazil. There, an eclectic mix of some 100,000 campaigners, thinkers, and working people came to starkly different conclusions about the causes of the downturn, and how best to address it. We asked four participants from around the globe to give us their opinions. Walden Bello is a university professor, senior analyst at Focus on the Global South, and president of the Freedom from Debt Coalition. Week after week, we see the global economy contracting at a pace worse than that predicted by the gloomiest analysts. We are now, it is clear, in no ordinary recession but are headed for a global depression that could last for many years. The origins of the present crisis lie in the strategies adopted by economic and political elites to resolve the crises of stagflation – the coexistence of low growth with high inflation – which followed rapid growth in the post-World War II era, both in the G8 economies and in the underdeveloped economies. Stagflation, however, was but a symptom of a deeper problem: the reconstruction of Germany and Japan and the rapid growth of industrialising economies like Brazil, Taiwan, and South Korea added tremendous new productive capacity and increased global competition, while income inequality within countries and between countries limited the growth of purchasing power and demand, thus eroding profitability. Dilemma This produced the dilemma of overproduction. One "escape route" from the conundrum of overproduction, and for maintaining and raising profitability, was "financialisation" . With investment in industry and agriculture yielding low profits as a result of over-capacity, large amounts of surplus funds have been circulating in or invested and reinvested in the financial sector – that is, the financial sector began turning on itself. The result has been a divergence between a hyperactive financial economy and a stagnant real economy. This was not accidental – the financial economy exploded precisely to make up for the stagnation owing to overproduction of the real economy. Profits, not value One indicator of the super-profitability of the financial sector is the fact that 40% of the total profits of US financial and nonfinancial corporations is accounted for by the financial sector...

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‘WSF had a prophetic voice’

Feb 02

Walden Bello has attended every World Social Forum. He is a senior analyst at Focus on Global South, president of the Freedom from Debt Coalition and a professor at the University of the Philippines.As the WSF was winding down in Belem in Brazil, Al Jazeera's Gabriel Elizondo spoke with Bello about his thoughts on this year's meeting. Al Jazeera: How has the 2009 World Social Forum different from the past years'? Bello: This represents the triumph of the World Social Forum over the World Economic Forum. Basically I think that what the forum has been standing for is the strong critique of neo-liberalism and warning the world of the kinds of difficulties neo-liberalism was bringing to the world. And I think that now this economic crisis has really shown that we had a prophetic voice. A consistent voice of critique that was being put forward. And what has happened now is in fact the sum of our fear, but at the same time I think that the WSF held out a hope; a hope that there could be a different world from the kind of neo-liberal capitalism world that Davos represented. And I think that people are now looking to the World Social Forum more than ever for the kinds of alternatives that we need, to be able to restructure the world now that neo-liberalism has failed, now that capitalism is in severe crisis, now that the whole system has lost its legitimacy. This voice that thousands here have represented now is a voice that is going to be heard all around the world as articulating the possibility of a different world. How do you respond to people who say the World Social Forum does not provide any solutions? I think there are a number of very strong themes that have emerged over the last few years. One is that there must be strong controls and regulations over the market. We have consistently held that belief. Two, that globalisation was creating a very fragile world and that we needed to be able to make more independent economies, to make internal markets the drivers of development, rather then the global market. Also that we needed controls on transnational corporations.  ...

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Walden Bello: ‘It is time to aim beyond capitalism’

Feb 01

In the context of the current global crisis, what is the WSF's most relevant task? We are at a very critical historical junction in which neoliberal capitalism unravels and I think that the WSF is a site where very serious discussions should be taking place, in terms of both anticipating what is the likely response of global capitalism as well as pushing forward alternatives to the current crisis. We must really put the task of WSF in the context of the really massive global crisis. So Belem is to be a crucial stage for the WSF's future. Yes, definitely. It would be extremely critical for global civil society at this point to respond to this crisis beyond the kind of stabilizing solutions you are beginning to see in Europe and the United States. The capitalist elites are in many ways already going beyond neo-liberalism, so I think on the one it is really important in Belem to come to a consensus about the crisis of capitalism and we ought to have very serious discussions on how to go beyond (such) solutions. I think we need to contend alternatives from within the system, like an expansion of social democracy for instance. How can the WSF come out with such a response and how could it possibly implement it? What you really need to look at seriously, in Belem, is identify not just a crisis of neo-liberalism but a crisis of capitalism. We're talking about the roots of the crisis being dynamic at the capitalist mode of production. The alternative to that is something we need to seriously come to grips with. We really need to frame our responses in terms of common universal values, like the question of justice, the question of equity, creating an alternative that really cares for the welfare of people. I think the discussion in Belem will really be very critical in terms of framing the alternatives. As for implementation, you really need to be quite innovative. We need to be looking at solidly linking our movement across different countries, interacting with respects to the alternatives that are being pushed. It can't be easy, but this kind of sharing experiences, creation of networks, the sharing of...

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Walden Bello interviewed by Alejandro Kirk on the World Social Forum

Mar 08

IPS: You have suggested that the WSF turns into a "new form". How do you see the future and shape of the WSF? WB: Taking stands on key issues like US aggression in the Middle East, Zionist oppression of the Palestinian people, and the poverty-creating neoliberal paradigm is vital to making the WSF vibrant and relevant. Refusing to take stands on the grounds that these will drive away some people is a sure way of ultimately making a movement irrelevant. The movements that advance and grow are those that are not afraid to take stands on the vital issues of our times. I am not talking about staking stands on 1001 issues but on the core issues of our times, maybe about six or seven of them. The WSF as an "open space" idea can either be implemented in a liberal direction or in a committed, progressive direction. Being partisan on issues that advance justice, equality, and democracy should be seen as a virtue, not as a stance to be shunned. IPS: What is the right balance between political action in the from of political parties and within the socal movement? How can this have an impact in Southeast Asia? WB: Political parties continue to be important vehicles for political transformation. However, social movements should see parties as one vehicle for transformation and should use other institutions and agencies, like unions and NGOs, to push their agenda. The vanguardist or Leninist party subordinating civil society organizations and movements to one overriding objective — seizing political power — is obsolete and dysfunctional. Transformation must take place along several fronts, and the process is just as important as the goal. Social movements must push for the instititutionalization of mechanisms, such as national assemblies of social movements, that could serve as a check on the bureaucracy, parliament, and other political bodies. Civil society should aggressively serve as a counterweight to both the state and the private sector. Civil society is a key actor in reinvigorating the democratic revolution, which has ossified into electoralism in most countries in the North and South. IPS: Since the first WSF, Latin America has experienced a spectacular shift to the left, in different shapes. What has this...

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“There Must Be a U-turn to Create Healthy Domestic Markets”

Jan 20

Born in the Philippines in 1945, Dr. Bello is the author of more than 10 books, including "People and Power in the Pacific" (1992), "Dark Victory: The United States and Global Poverty" (1999), "Global Finance: Thinking on regulating speculative capital markets" (2000) and "The Future in the Balance: Essays on globalisation and resistance" (2001). After receiving a Ph.D from Princeton, he was arrested several times in the United States, peacefully protesting the Ferdinand Marcos dictatorship in his home country. Bello is the executive director of Focus on the Global South and a visiting professor in Southeast Asian Studies at the University of California at Los Angeles. Dr. Walden Bello spoke by phone from the Philippines with IPS Canada correspondent Chris Arsenault. IPS: There seems to be consensus among economists that globalisation, as practiced by the Bretton Woods institutions, leads to greater income inequality but also to significant GDP growth. As one of Asia's leading critics of the Bretton Woods model, don't you feel that growth is necessary to pull people out of poverty, even if inequality is an initial byproduct? Bello: I think that when you aggregate it, in the number of countries where there has been significant GDP growth, on balance, there has been an absolute reduction in poverty. Certainly in the cases of Vietnam and China, there has been an absolute decrease in poverty. However, certain social groups, especially in the rural areas, and lower-class groups in the cities, have gone into even greater poverty. In all countries in South East Asia and East Asia, you have greater inequality in income distribution. In practical terms, a great imbalance has grown between the cities and the countryside; people in the countryside have lost in absolute and relative terms compared to the city. Furthermore, we have had tremendous rates of environmental destruction. The gains in terms of poverty reduction have been counterbalanced by these other trends. I am speaking only about East Asia in this regard; the other caveat I would say in regards to Vietnam is that Vietnam has done a better job in containing these contradictions compared to countries like China. IPS: You have written that, "in the Third World the pendulum has swung so far in...

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