In the liberal system, the rich, following their own greed and ambition, invest and risk their money thus creating employment and wealth. Eventually, some of this wealth reaches the poor, helping them to escape poverty.
In general terms, with important exceptions, we can say that this has been the system dominating the world for the past two centuries, resulting in:
– Billions of people that have managed to escape extreme poverty.
– Exponential and sustained global economic growth to the point of bringing the planet to an unsustainable situation.
– Exorbitant accumulation of wealth in the hands of very few, to the point of bringing the democratic system to a serious crisis due to the enormous concentration of power that they have managed to accumulate.
Today the whole system no longer works this way:
Firstly, the global economy doesn´t seem to grow any more. As the pie remains the same size and the rich insist in even bigger portions, the only way they can manage to do it is by reducing the portion size for others.
Secondly, the global economy is no longer a casino where the rich go and gamble but a casino where the rich are “the House”, which “always wins”. Today, when the very rich throw the dice they win either way and the masses pay the losses.
How do they manage to avoid losses and stack the “economic odds” in their favor?
The main mechanism used is by putting pressure on institutions like the International Monetary Fund or the European Central Bank to lend huge amounts of money to governments to bail out their stressed banks, in order to be sure that these banks are in a position to pay back the money invested by the rich. This is how the private debt of distressed banks becomes public debt of entire countries, making a serious breach to the liberal theory that these institutions supposedly defended.
This is what the rich did in the 80´s to collect the loans given to Latin America, in the 90´s to collect the loans given to Asia and what they have done recently to collect the loans given to the distressed banks of US and Europe. They have always managed to succeed by saying that if they do not get back that money it will be the final and definitive crisis… and they were right in what they said.
Not satisfied yet with the repayment and protection of their gambles, they press again the same institutions (IMF, ECB, etc …) to stop lending money to the governments, who are now in trouble from rescuing banks. The rich now require these governments that prior to receiving further loans they must pay back what they owe, not spend more than they earn, privatize their public services, cut public spending and, of course, reduce capital taxes. This creates new and vast investment opportunities open to the global wealthy investors in these countries. See below an example of a politician defending these ideas in the European Parliament:
The second important mechanism is the ability of the rich to invest in the most profitable places, which are basically countries where capital taxes are lower and where the labor, financial and environmental regulation is weaker. This makes all countries compete fiercely to attract money by reducing the tax on capital and further deregulating their economies.
It is important to bear in mind that these decisions that the very rich make are not “evil” decisions that are part of an international plot to ruin the poor and destroy the planet. The rich do not see them as moral choices but as purely technical and economic decisions that meet the rules of the game.
In short, as the global economy is stalling and as the very rich never seem to loose, we can´t call the global system “liberal” or “neo-liberal”, not even “quasi-liberal”. What we have is a global “oligarchy” that imposes its interests without any ideology.
And how do we fix it? There is no solution without international cooperation. We need a global agreement to be sure that in every country, without exception, the following conditions are met:
– Capital pays its due taxes.
– Workers rights are respected.
– Financial regulation is put in place to prevent new financial bubbles and crisis.
– Rigorous environmental regulation is set to protect the environment.
If all countries respect this agreement we will have the best of all possible worlds and we will see how financial investments actually reach the countries that are most in need and how countries manage to create and maintain their welfare systems. On the contrary, If only one country skips any of these four conditions, it will attract all the money in the world. So the incentive to breach the agreement is huge. But if as a result all countries follow the same strategy, and none respect the agreement, we would have the worst of all possible worlds. This is the games theory of the Nobel Prize winner John Nash.
This is what has to be discerned at the UN General Assembly, where the new sustainable development goals will be approved.