Money is immaterial and can travel around the globe at the speed of light. It is essentially emitted by banks, not governments: printed money accounts for roughly 3 per cent of so-called liquidity. For generating knowledge and information we have platforms, not factories, and for managing money we have bits and computers, not safes. The main instrument for appropriating consumer surplus is the expansion of debt, not salary reduction: inequality is exploding. We are all connected – individuals with our computers or cellphones, banks, research centres, even each document has its digital name, every person, paper or institution can be instantaneously reached from anywhere. We call this the digital revolution, and it is no less transformative than the industrial revolution compared to the rural economies of the past. The times, they are a-changin’.
Well, not everything is changing. If we have shown fantastic technological and intellectual capacity, on the other hand, we can be seen as the same old morons when it comes to organizing ourselves into a civilized society. If we look at the arguments that have convinced so many people to vote for Trump in the US, Duterte in the Philippines, Bolsonaro in Brazil, Brexit in the UK, Erdogan in Turkey and so many others, we can only lament our irrationality. Franz de Waal is very right in studying not the human in the primates, but ‘our inner ape’. We are only human, and this is hugely dangerous. We presently wield technologies that widely surpass our social convivial capabilities. Technologies expand with impressive inputs of intelligence and creativity, but homo sapiens and homo demens are both part of our nature. We are here at the centre of our challenges: our technological feats radically outrun our capacity for governance. Our institutional time does not correspond to our technological rhythm: as a society, we have become deeply out of tune.
And we also have lost a good part of our territorial references. Corporate decisions, money, information, ideas and all the digital flows of this immaterial economy cross the world practically at the speed of light, generating a global economic space, while the political and social spheres, the reference territory in which we organize our decision-making process, are still basically fragmented into the 193 nations of the UN. Our values and social references still belong in great part to our oikos (family and home), but the real economy is global. When a government puts pressure on a global bank’s subsidiary, the bank simply moves to another more business-friendly country, or to a tax haven, unless it decides to topple the local minister of finance or president to maintain business as usual. And since we have no functioning global governance capacity, a huge part of what happens on this small and shrinking planet is out of control. When you do not control where the money comes from, or where it goes to, what are you doing in government? And of course, what is the use of voting? Let alone deciding who for. The political-decision and the economic-decision spheres currently belong to different territorial scales. And since each territory has deep cultural roots and historical links, sorting out the governance challenges has become hugely complex. We have become territorially dysfunctional.
Many of our solutions vitally depend on global initiatives. When my father, Władysław Dowbor, was born in 1900, the world had 1.5 billion inhabitants. We are now 7.5 billion strong. I am not speaking of medieval times, but of my father’s day. Our population expands by 80 million every year, equivalent to a nation like Egypt. And all of us with one aim in life, which is to have more, to run after every carrot the media and corporations wave at us. We know this cannot work, the ecological footprint is obvious. We presently have all the statistics we need, and yet we have, as humans, a huge difficulty to apprehend and bring to our decision-making process the long-term and the systemic view. We continue our business as usual way of life in a radically non-business as usual world. Our consensus-building capacities do not correspond to our times or our territories.
In fact, unless we radically improve our social and political governance, individual and short-term decisions will always be stronger than respect for the common good. Every captain of a modern fishing ship is perfectly informed and conscious of the global overfishing catastrophe, but the immediate reward will dominate the diffuse environmental risks. Well, if he can get away with it, obviously. And if he cannot, he will organize and try to change the law, or shift his flag to Liberia. Or get his government to lift the ban on whale hunting, as Japan did. Whether it means intensifying the use of coal in Poland or clearing the Amazon forest in Brazil, we are facing basically similar challenges. And why should I change my way or life, if it represents only a drop in the ocean? Or why should my corporation adopt clean technologies, if my competitors do not and are striving? And why should my government regulate polluting activities, if business can just migrate to another country? Our way of life is obviously unsustainable, not because we do not know what is happening or what must be done, but because our decision-making process is deeply flawed. This behaviour, associated with modern technologies, generates what has been rightfully termed as a slow-motion catastrophe. As Stiglitz has it, we have to ‘rewrite the rules’.
If we wanted to present all our environmental woes, Jerusalem’s Wailing Wall would not be big enough. Climate change is here, of course, and it so clearly shows our capacity to dissociate present activities from unpleasant future results. The shortage of water, both due to over-extraction and contamination, is another existing drama. The loss of top-soil fertility is to be found everywhere, combining erosion caused by wind and water, chemical pollution and unsustainable monoculture, or deforestation as now in Indonesia. We lost 52 per cent of vertebrate life in from 1970 to 2010, 40 years! The disappearance not only of bees but of insects in general has only recently been brought to the attention of the general public. In Brazil we have contaminated our rivers and generated ecological disasters by the sheer will to extract more profit from mining and export-monoculture. A great part of the Gulf of Mexico has no more life, and the same is true of most of the Baltic Sea. The plastic disaster is another global challenge we are striving to face, and it is deeply ingrained in practically every commercial and industrial activity.
How is Brazil coping? Well, our Brazilian president has refused to host the next COP meeting and has authorized practically all the chemicals in agriculture, while our new minister of foreign affairs states that climate change is a Marxist conspiracy. In Poland, it seems you can get away with anything if you mention God and the family. Coincidentally, Bolsonaro got elected on the same God and family anthem. The problem, of course, is not how stupid or stubborn an important head of state or minister can be, but that this kind of person comes to power. Because it means that our political renewal and representation system is out of order. We have simply lost the reins on what happens in the social decision-making process. This means we not only have to cope with the problems, but with the coping capacity itself.
While the absence or weakness of our environmental sustainability initiatives are leading us to natural disasters, the inequality gap is widening and exploding throughout the world. In income terms, we have all become much richer: if we divide our $80 trillion GDP by 7.5 billion inhabitants, we are producing $3,500 of goods and services a month for every four-member family. What we produce would allow a reasonable standard of living for everybody. We basically have a governance problem, a huge political challenge, rather than an economic one. If we consider wealth, the picture is absurd: those representing 1 per cent of our population have more than the rest of the world, and 26 families have more than the 3.5 billion members of the poorer half. This is obviously the elephant in the room. How did we get to such a degree of inequality? It is simply a financial snowball effect: a billionaire who invests $1 billion in financial instruments that yield a modest 5 per cent a year earns $137,000 a day, which in turn generates further profit. With his hands in his pockets. This is the new financial capitalism. I have called it ‘the age of unproductive capital’.
The fact is that in this age of impressive technological and productivity progress, we have not managed to build a corresponding political decision-making process. The picture is stark, with billions still cooking on wood-stoves, or having no access to electricity or even food, not to speak of basic sanitation. This is not new, of course. But the difference is that we have the financial and technological means to face the situation, and particularly that poor people are not what they used to be. Nowadays, billions of people across the globe are well-informed about and increasingly angry at a system that excludes them, while each TV and cellphone shows them their families could have access to a decent school, running water or even healthcare. These billions are presently conscious of being excluded. How do the rich react? Well, by building walls and fences, or placing more ships in the Mediterranean. The very fact that the president of the most powerful nation on earth that has 800 military bases throughout the world proclaims a state of national emergency because of Mexican refugees on his country’s border is more worrying than ridiculous. Some walls seem to creep into our minds. The Ming dynasty might have taught us something.
Inequality is obviously an ethical scandal. We cannot continue to accept that 25,000 children die every day from absurd and preventable causes. Or that 850 million go hungry in a world that wastes one-third of its food production through mismanagement. Or the ludicrous prices of basic pharmaceuticals protected by so many never-ending patents. On the reverse ethical side, we have corporations and huge fortunes getting away with tax evasion – tax optimization, the banks call it – and huge gains without any corresponding productive contribution. This simply does not work, on either side. People are getting indignant everywhere. Well, not the 1 per cent, of course.
But inequality is also a political challenge. No country can balance its politics, or ensure basic social stability, with deep social and economic inequalities. The US, plunging headlong into lopsided development after the many decades of prosperity building, is feeling the pain. But countries like Brazil, one of the ten most unequal, simply cannot be governed. And what of Argentina, or Venezuela, or so many other countries where inequality has reached breaking point? A better life cannot be reached by individual enrichment alone: if we live in the midst of political and social strife, no one is comfortable. Well, some will buy a villa by Lake Geneva, of course, fleeing the reality they are destroying.
And inequality is an economic idiocy. It is not complicated to look at what works, instead of repeating ideological absurdities. When money goes to the top of the pyramid, it expands financial fortunes and tax havens. When it goes to the bottom, it is immediately transformed into consumption, which generates demand, which in turn stimulates production and jobs. Both consumption and production generate taxes, which cover whatever the government has invested in. This is how the New Deal helped the US out of crisis in the 1930s, or the welfare state helped other countries in Europe, not to speak of South Korea or China. Spreading prosperity is what makes the economy grow.
What works in ethical, political and economic terms is to guide our resources to meet the sustainable well-being of the population at large. Not by some magic trickle-down theoretical invention, but directly. What do families need? Money, of course, for current purchases. But also access to ‘social consumption’ – healthcare, education, security, parks, clean rivers, trees in our streets and so forth. So individual income is only part of the story. To give an example, in the US, health services depend largely on pocket money, and it costs an average $9,400 per capita a year. In Canada, where health is based on free universal public access, much better results are met at the cost of $3,400 per person a year. Some things are regulated more efficiently by markets, such as bicycle prices. But others work much better when provided as public services, as has been proven in Canada and Nordic countries. So instead of stalling in the public/private ideological debate, it makes much more sense to take a closer look at what works best and in which institutional framework. As a society, we have become too complex to be locked into ideological simplifications.
Whether we are in the US, Brazil or Poland, or in whatever other country on this noisy and conflicted planet inhabited by 7.5 billion human beings behaving like grasshoppers in green fields, we have common challenges. But we have basically lost control of what we do with our hugely expanded capacity. The north in our economic and political compass manages resources in such a way as to reduce inequality sustainably. Sending a luxury car to Mars as if we were already in the twenty-second century, or building walls as if we were in the 2nd century BCE, demonstrates considerable disorientation. We should regain control over our resources, and fund sensible policies. We need a global New Deal, as well as internal new deals, of course.
If we are to face our dual challenge of sustainable development and inequality reduction, we must strengthen financial control. As money is no longer being printed in any great quantity, but emitted by banks in the form of credit, it is basically free of control. It crosses the world in fractions of seconds thanks to high-frequency trading. After the 2008 crisis some measures were finally taken to gauge the scale of this reality. The Tax Justice Network, an independent international NGO, was able to present us basic figures on tax havens: in 2012, when global GDP was about $73 trillion, we had between $21 trillion and $32 trillion in tax havens. The Economist rounded it up to $20 trillion, which means that while it took a huge heads-of-state summit in Paris to promise $100 billion a year to face the environmental catastrophe, what we have lingering in tax havens is more than 200 times as much. Neither paying taxes nor productively invested. What are we playing at? That is the question I asked in a book published in Poland, Co to za gra? (2017). And of course, we have the derivatives market with outstanding contracts estimated at some $600 trillion by the Bank for International Settlements. Our problem is not lack of liquidity, as we currently call it, but of the regulatory capacity to make money work for what is needed.
I have absolutely no authority to comment on the Polish financial system, although the country’s PKO Bank and cooperative systems seem relatively efficient, and I understand it has been strongly penetrated by the global speculative finance system. But the key issue here is that the financial system is not a sector of the economy, it is basically the right to decide what we will fund – productive investment or speculative allocations, infrastructure or health and education, and in what proportions. Thus control of financial intermediation enables us to orient our policy. If you do not control financial allocation, what on earth are you in control of?
In Brazil, we not only lost this control, but entrusted the whole financial regulation to a group of five banks. And we placed a banker at the head of the Central Bank of Brazil, and another one in the Ministry of Finance. The result is sobering and worth presenting in some detail, not because it is unique but because it is an augmented reality example of what can happen.
The annual interest rate paid by consumers in Brazil averaged 119 per cent in January 2019 while the corresponding rate for businesses averaged 52 per cent, with inflation at around 3.5 per cent. Average annual interest rates on installments for consumer credit are around 80 per cent, which means that consumers have to pay almost double the price if they are not able to pay cash. In the rest of the world these interest rates are of course in the single-digit range. The result is that we presently have 64 million adults (over 40 per cent of the population when you add children) who are considered uncreditworthy. Local affiliates of major international corporations take loans in international financial markets, but small and medium-sized enterprises (SMEs) are strangled by debt. The flow of interest paid to banks by families and SMEs represents 16 per cent of GDP – that is just interest, without reducing the principal sum. If we add the 6 per cent of GDP paid by the government to banks to service public debt, we are talking of financial intermediaries and rich financial investors draining 22 per cent of GDP while not producing a single nail. No economy can work this way.
Economists from other countries who visit me are astounded, and I have to show them original figures from banks and the Central Bank of Brazil. They ask me how people accept this kind of institutionalized usury. Well, to confound people, banks and lending institutions in Brazil present the figures in monthly rates (respectively 6.7 per cent and 3.6 per cent a month for families and business). And, of course, the legal side has to be taken care of: Article 192 of the Brazilian Constitution, which limited real interest rates, was taken down by the country’s corporation-elected National Congress in 2003. There is at present no legal limit; this is called a free market, with five banks handling 85 per cent of credit in the country. To put it simply, we have a government-supported cartel. Last but not least, nobody in our country has ever had a single lesson in their life on how money works, let alone about compound interest. We do, of course, have schooling on our glorious historical past.
The 40-plus million people whom the Lula government took out of poverty were the first victims, trusting their new credit cards and buying their first refrigerators on credit. Their debt exploded. In 2012 the next president, Dilma Rousseff, tried to bring down the interest rates in the official banks and on the public debt, but she was quickly pushed back, forced to place a banker at the head of the Central Bank, and finally ousted. What the World Bank called Brazil’s golden decade, from 2003 to 2013, collapsed. Happy times for bankers and rentiers are now back. The man currently in charge of the economy, Paulo Guedes, is co-founder of the BTG Pactual financial group, which has 38 branches in tax havens. The purpose of tax havens is tax evasion, financial speculation and money laundering. Another banker heads the Central Bank of Brazil. The economy the bankers brought down in 2014 is still waiting for a light at the end of the tunnel. Our GDP continues to languish below its level in 2012. Debt has surpassed low salaries as a means of appropriation of social surplus, and this money is only marginally being productively reinvested.
I have revealed in some detail the financial workings in Brazil, because it is important to appreciate how a modern economy, the world’s eighth largest GDP, can be easily taken over by both national and international financial mechanisms. And how this can lead to the political chaos we presently face. In a way, the financial takeover of national investments by private capital has reached absurd levels in Brazil, but of course this is far from unique. Joseph Stiglitz’s and the Roosevelt Institute’s research on financialization reach very similar conclusions, as do Michael Hudson’s studies as well as those by Thomas Piketty and so many others. Ellen Brown sums this up very simply: ‘Economic growth is arithmetic and can’t keep up with the exponential growth of debt growing at compound interest.’ Taking back control over the financial intermediation business is not a question of controlling finance as such, but of regaining control over what we want to fund in order to attain sustainable and balanced development. The Brazilian example only makes the functioning of the wolrd’s finances more obvious and understandable. In Brazil, we did not change how the banks operate, we simply changed the president. In times gone by, generals were needed to bring down a government. These days, with the banks’ support, a former captain is all it takes.
Our common challenges can thus be presented in one basic statement: we are destroying our natural world in the interest of a minority, and the financial resources to fund the reorientation of our priorities are squandered in tax havens and speculative activities. Unregulated capitalism is leading us up a systemically dysfunctional path. It is rooting blindly for new structures in the immaterial economy and functioning on a global scale beyond the reach of national politics but with an environmental, social and political impact. Technology is racing ahead while institutional change is just creeping along. We once had a Washington Consensus, all that magical thinking about ‘the end of history’, the sense that ‘there is no alternative’ and similar ideas that have been laid to rest. We are facing the challenge of managing not so much a new situation as a deeply flawed process of change.
We have a strong propensity to drown in short-term arguments over the different absurdities promoted by our populist governments. And we cannot blame the populations in the UK, in the US, in Brazil or in Poland for not knowing how to vote. We must find new ways. In this respect, the initiative of bringing together from different countries social scientists with common interests may be highly productive. The diversity of approaches would probably be very positive. I now see a number of researchers focusing on the megatrends that are transforming our societies: structural changes rather than the latest political blunder. This requires less ideological discourse, and much more realism as well as down-to-earth pragmatism. The technological and economic realities have outgrown our institutional framework. The global economy has outgrown national solutions. GDP is not a meaningful reference anymore, and the economic outlook is far from sufficient. Brazil is undoubtedly very different from Poland. But we all share the same predicament – our civilization is in deep crisis.
Ladislau Dowbor is a professor at the Catholic University of São Paolo. He studied economics at Lausanne University (Économie Politique) and has a doctorate in social economics from the Central School of Planning and Statistics (SGPiS) in Warsaw. He has organized economic planning and development systems in Asia, Africa and South America as a UN advisor, and has worked with central and local governments in Brazil. He has over 50 published books on economic and social development, such as Formação do Capitalismo no Brasil, The Broken Mosaic, Economic Democracy, Tecnologias do Conhecimento, The Age of Unproductive Capital, Co to za Gra? – Nowe Podejścia do Ekonomii.