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April 2002 • Vol 2, No. 4 •

The Threat of Economic
Collapse and World Poverty

Why the ‘Monterrey Consensus’ was an exercise in futility

By Nat Weinstein

The weeklong United Nations conference in Monterrey, Mexico, held last month was one of those cases in which “the mountain labored and gave forth a mouse.” Nonetheless, it provoked an examination by the American mass media of the terrible plight of hunger and miseries suffered by the great majority of the world’s peoples in Africa, Asia, Latin America and the Middle East.

“Central America’s Cities Grow Bigger, and Poorer,” is the title of an article that appeared in the March 17 New York Times. David Gonzalez, the reporter, paints a depressing picture of the human misery, the desperation, the hopelessness behind statistics such as the one indicating that nearly half of the people of the world live on less than $2 a day, and a fifth survive on $1 or less. (That doesn’t include the scores of millions earning 3, 6 or 9 dollars a day in the neocolonial world and as much as 50 dollars a day in advanced industrial countries like the United States.)

Severely compounding the misery of the poor in Central America is the fact that there has been a steady exodus from the countryside to already long overpopulated cities. Gonzalez explains that peasants “are abandoning the land because of civil wars, natural disasters and plummeting agricultural prices.”

Agricultural prices have been driven down to the point that even a bare subsistence economy for peasants in Central America, and everywhere else for that matter, is excluded. Thus, they flee to the cities even when they know there are no jobs, no homes, and not even enough empty space to nail a few discarded crates, and cardboard boxes together to provide something in the way of shelter.

The Times reporter gives us a glimpse of how the stark reality of their lives looks to the system’s victims in Central American cities:


Armina de Jesús lives on a road where signs warn ‘Enter At Your Own Risk’ after an earthquake unleashed tons of rock on it last year. But she cannot afford to move, since it took her 12 years to build the shack that barely survived the quake. …

Slums have sprung up following one simple rule: where there is space, take it. As a result, the spread of poor communities in high-risk zones is a hallmark of the region’s urban growth. … Here in El Salvador, recent arrivals live on riverbanks with only makeshift levees of discarded tires to protect them from surging waters. … Not one more soul can fit into the neighborhood called La Chacra in San Salvador, where a labyrinth of narrow streets is packed with homes. … In Honduras, which was hit by Hurricane Mitch in 1998, the hills around the capital, Tegucigalpa, are covered with settlements in landslide zones.

On the following day, March 18, the same newspaper followed up with a more generalized report, under the heading “World Leaders Rethinking Strategy on Aid to Poor.” More than 50 presidents and prime ministers along with representatives of the World Bank, the World Trade Organization, the International Monetary Fund and other such institutions and individuals were gathered together in a weeklong meeting organized by the United Nations and held in Monterrey, last month.

The Times described the discussion at the UN conference as based on the general acceptance of the premise by all present that social disorder in the world today results from the fact that the rich nations are getting richer and the poor nations, poorer. Thus, Han Seung Soo, the president of the UN General Assembly, summed up the reason for the conference by quoting a line by the Mexican poet, Octavio Paz, who had correctly noted that the world’s richest nations could no longer afford to be “islands of abundance in an ocean of universal misery.”

The Times report noted that some of the “most fierce critics of the wealthy world were its own leaders.” Thus, the prime minister of Belgium was reported to have said that “the collective selfishness of the rich world” has contributed to “the despair of hundreds of millions of people—alone, dispossessed, powerless.”

Whether or not these willing participants in the struggle to save capitalism mean what they say or why the say it is of no consequence—they are compelled to lift a corner of the curtain hiding the truth, and that’s what counts.

Even the Americans have been forced to give a dollop of lip service to the widely accepted connection between “terrorism” and poverty. Thus, even U.S. President Bush reportedly took some distance from his previous statements to the contrary by declaring to the assembled delegations: “We fight against poverty because hope is an answer to terror.”

While the rich nations have agreed that each of the rich countries raise the amount of aid they contribute to the poor countries, the figure agreed upon—an amount equal to 0.7 percent of their national economies—would not even put a dent in the misery of much more than half the world’s suffering masses.

(Kofi Annan, the United Nations secretary general, was reported to have “persuaded” the industrialized countries to promise to cut poverty in half by 2015, a goal he said would require $50 billion a year or more, including tens of billions from the United States.)

Months passed before any response came from the United States government. However, just prior to the UN conference, President Bush broke the American silence. He pledged his administration’s support for a raise in the U.S. contribution from 10 to 15 billion dollars annually by 2006—that is, from 0.1 percent to 0.13 percent of its national product—that is, a little less than one-fifth the percentage pledged by the other rich nations.

US budget: $15 billion to aid the poor, $437 billion for war

Corporate America, for whom Bush speaks, showed that its claim to be the world’s foremost advocate of humanitarianism, amounted to pure, unadulterated hypocrisy when we contrast the U.S. pledge of $15 billion a year in aid (by 2006) to the world’s impoverished peoples with the $437 billion set aside in the U.S. federal budget for current direct military expenditures (planes, ships, guns and bombs, etc.) for fiscal year 2003! That’s 26 percent of the total $1,696 trillion federal budget for weapons of mass destruction. Moreover, another 20 percent of the U.S. budget ($339 billion) is allotted to pay for the cost of past wars (veterans’ benefits, interest on debts, etc.)1.

Despite the entirely inadequate increase in aid pledged, when Bush arrived on the closing day of the conference, he demanded concessions from the poor nations before any aid is delivered. “Pouring money into a failed status quo,” he said upon his arrival, “does little to help the poor, and can actually delay the progress of reform. We must accept a higher, more difficult, more promising call.” (Emphasis added.) He proceeded to cryptically allude to these conditions saying that those countries that wanted aid must first make certain “political, economic and legal reforms.” By this is meant the removal of any remaining barriers to the penetration and takeover by imperialist banks and corporations of sectors of the economies of the poor nations not already under their control. And it is also a demand placed on the governments of the already poverty-stricken countries that they see to it that more “austerity” (i.e., reductions in living standards) be imposed on the people.

In other words, Bush is demanding concessions from the poor countries that would more than pay for imperialism’s so-called “aid.”

In any case, only one of the governments of the poor countries (Cuba) has refused to sign the “Monterrey Consensus,” an accord misrepresented in the mass media as committing the rich nations “to the goals of doubling development aid to the poor and halving world poverty by 2015.”

The key words here are “doubling development and halving world poverty.” But two times a little more than zero is still not much more than zero. The aforementioned Times report on the Monterrey conference notes further that “most people in Latin America, the Middle East and Central Asia are poorer than at the cold war’s close … Africans live no longer and have no higher incomes than they did 40 years ago.” And as the report suggests, since this has been the case since 1990, foreign aid by the five richest countries to the poorest will continue to be reduced and poverty will only get worse.

So if poverty has deepened in the last decade, which was one of rapid expansion, what chance is there for poverty to be “halved by 2015” in the very uncertain period ahead? The very least that can be said is that even if a new period of expansion occurs, as has recently been projected, there is no reason to expect anything better than what happened in the 1990s. 

The Recession that Wasn’t

Let’s take a look at the sudden discovery that the recession has come to an end. Whether or not it has indeed ended, however, it is the ever-present threat of global economic collapse and world capitalism’s desperate efforts to forestall it, that serves to block its movers and shakers from mitigating the suffering of the great majority of the world’s peoples.

And as we shall see, as rich as the advanced industrial countries are, any significant contributions they might make to help the world’s desperate poor, will have the effect of adding to the negative economic forces undermining global capitalist economic equilibrium. That’s why they can’t and won’t give meaningful aid to the world’s poor—as will be shown in more detail below.

It seems that capitalism’s economic experts, closely monitoring the course of economic affairs in the United States, have concluded that the recession—which some bourgeois economists had been predicting might be longer than any since the end of World War II—was suddenly declared to be over—and some are saying that maybe it never was. Meanwhile, those downsized are still mostly without jobs and the global recession continues with the world’s poorest countries seeing their currencies fall in value and their debts steadily mounting.

Ordinary mortals, however, no matter how expert they may be, have historically been unable to tell the precise moment that the enormously complex capitalist economic system can be said to have entered a period of expansion or contraction. That’s why the economic experts did not formally label the most recent economic contraction with the word “recession” until many months after it was determined to have begun. But suddenly, we have been told that the recession is over; based for the most part on events that had occurred during only a period of weeks.

No less a curiosity is the decision by the congress last year to defeat a bill designed to spend the country out of the recession.

This curiosity was made less curious on March 23 by a report in the New York Times by one of its writers on economic matters, Louis Uchitelle. He reported his discovery that at the time the bill to revive the economy was defeated in congress last year, President Bush’s administration had used its executive powers to spend many more billions of dollars than were provided by the defeated bill. That undoubtedly created the “evidence” that the recession had ended.

So what does it mean? Was there or wasn’t there a recession; and if there remains any reasonable doubt about that, as is certainly the case, why the rush to judgment?

We get a clue as to what’s really going on when we take note that the bill to revive the economy that failed to be adopted last year was quietly enacted into law months later. The amount of spending to revive the economy was doubled with less risk of unnerving investors and consumers and thus be counterproductive. In other words, it happens that capitalists set great store in the role of psychology in determining the course of the economy. And there is indeed a grain of substance to that, but psychology can only play a very subordinate role in affecting the course of the capitalist economy.

The tendency of capitalists to overweigh the need to manage the herd instinct of capitalist investors and many ordinary consumers is endemic. We see it a little more clearly when we look back at another time when the country faced a developing major economic crisis:

A lesson from the Great Depression

John Kenneth Galbraith, the highly respected bourgeois economist, closely examined the course of the Great Depression in his book, The Great Crash—1929. As we shall see, capitalists are very sensitive to psychological effects upon the economy. Consequently, bad news tends to be concealed when the confidence of those who invest in the stock market and consumers in general has been shaken by any events—political and military, as well as economic—that might give rise to economic pessimism. Listen to what Mr. Galbraith had to say about that:

The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune.

[Galbraith, here, is referring to stock market investors who tended to shed their holdings when stock prices periodically collapsed to new lows and buy stocks when the herd instinct caused investors to plunge back into the market to ride rising stock prices to recoup their previous loss.]

The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. [“Margin call” refers to those investors who may put up as little as 10 percent of the price of shares they purchase. If the given stock rises in value, they can sell and earn a profit many times greater than their investment. But if the stock falls in price 10 percent or more, depending on the credit rating of the buyer, the bank or other lender will demand enough extra cash so that the lender doesn’t lose any portion of his 90 percent stake in the stock.]

In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains.

In another section of his book, Galbraith deals with the role of speculation by large corporations, like Enron for instance. He notes that they tend to take ever-bigger risks when the economy and the stock market is booming. Describing the extent of speculation that was largely invisible during the boom of the 1920s, he makes this interesting observation that will no doubt be confirmed in the period immediately ahead of us today. Galbraith writes:

It was the crash, and the subsequent ruthless contraction of values that in the end, exposed the speculation by Kreuger, Hoson and Insull [firms in charge of investment funds] with the money of other people. Should the American economy ever achieve permanent full employment and prosperity, firms should look to their auditors. One of the uses of depression is the exposure of what auditors fail to find. Bagehot once observed: “Every great crisis reveals the excessive speculations of many houses which no one before suspected.”

We have not yet experienced another Great Depression. And while the troubles of Enron and its auditor, Anderson, confirm Galbraith’s observations to a tee, we are only at the beginning of a global economic crisis that is far from over.

Once again, why capitalism cannot end world poverty

We can now see a little more clearly why “all the king’s horses and all the king’s men” that are in charge of the banking and other financial institutions in charge of regulating the economy and preventing another major global economic, political and social crisis like the one that erupted some 73 years ago, cannot control the anarchic movement of many trillions of dollars that are circulated through hands of billions of independently operating individual human beings in the course of a year. They cannot ameliorate the terrible human social crisis plaguing the neocolonial world today, nor are they able to forestall or even moderate the coming of the second Great Depression.

They can’t because even the world’s richest countries can’t afford to spend anything like the amount of money it would take to ameliorate the suffering of the great majority of the world’s impoverished masses. And if they did, the consequences for the future of capitalism would be even more deadly.

That poses the further question, why not? Obviously they do have the wherewithal in terms of granting the so-called underdeveloped nations genuinely long-term low-interest loans that would permit them to develop a modern industrial economy. More importantly, their economic transformation from underdevelopment to an advanced industrial society would enable the borrowers to repay society as a whole by adding proportionally to the real wealth of its people.

But the effect on society as a whole has nothing to do with the forces that move capitalist economic affairs. This is simply and plainly because the production of goods designed to satisfy human needs is not the force motivating and guiding the course of capitalist production.

Thus, we now come to the heart of the matter. The economic crisis that is now threatening world capitalist equilibrium is already the result of too much industry, too much food, too much clothing, too much shelter, and so on and so forth. Any normally intelligent and knowledgeable capitalist understands, all too well, that helping the underdeveloped world enter the 21st century and self-sufficiency would guarantee the swiftest descent into the second coming of the Great Depression.

Where would the advanced capitalist nations sell their abundance of commodities that already has every capitalist and every capitalist nation increasingly at each other’s throats? Witness the American champion of free trade’s recent decision to place heavy tariffs on imported steel. Why, because of two things: First there is too much steel being produced, more than the global economy can absorb. And second, the U.S. basic steel industry has become less efficient than that of its international competitors—including those in the semi-developed countries like Brazil. But this is only because Brazil’s labor costs (in terms of wages paid individual workers) are far below that of any of the advanced countries.

There is one last important, but paradoxical, factor that helps explain why imperialist-financed aid to the neocolonial world is excluded and, in fact, imperialism has no choice but to do as President Bush has demanded in Monterrey last month—to impose conditions that increase, not decrease, the rate of exploitation by the rich countries of the poor countries.

It is a direct consequence of world capitalism’s desperate efforts to keep the rate of profit from taking a quantum leap down into the cellar. And this is what lies at the roots of the fatal contradiction driving the global capitalist economy—willy-nilly—toward economic disaster; we refer to the inexorable tendency of the worldwide average rate of profit to fall.

The paradoxical dual character of commodities

What we see in the workings of capitalism creates the false impression that technological development—the expanded use of machinery to take the place of human labor power—increases the rate of profit. But the fact of the matter is that those technologically advanced enterprises that can produce more goods—autos, radios and televisions, food products, etc., with less human labor power—when measured by their use-values, do indeed produce greater wealth.

But when measured in dollars, that is, their value in exchange, the source of the paradox (i.e., the contradiction) is revealed: The rate of profit for the individual capitalist is increased; but the average rate of profit for all capitalists everywhere decreases in inverse proportion to the individual capitalists increased rate of profit.

And finally, just as rampant speculation by certain sectors of big business during economic booms increases invisibly, but only tends to become generally manifest at the end of each boom-bust economic cycle, so, too, is the tendency of the rate of profit hidden during booms and only becomes generally manifest during busts2!

That’s why capitalism can’t solve the problem of global hunger and misery and why another, even more destructive depression is unavoidable. And every measure utilized to postpone the inevitable is reduced in the final analysis to an increase in the already fantastic public and private debt.

This is no secret to the most astute bourgeois economists, many of whom have actually studied Karl Marx’s earth-shaking analysis of capitalist economy. They are well aware that debt has been mounting ever more dangerously since World War II. The best minds among the ruling capitalist class know that they will not emerge from the next global economic collapse unscathed—if at all.

It’s because of this that a global war by U.S.-led world imperialism against the increasingly revolutionary masses in the neocolonial world that began toward the end of the Second World War went under the name of the Cold War. But now that the Soviet Union can no longer be used to justify the U.S.-led counterrevolutionary imperialist war, it has been renamed, the War on Terrorism.

Even more ominously, American imperialism, first and foremost, has shown a capacity to risk the very existence of the human race in a desperate but hopeless effort to save their system and their privileges. That is, the American ruling class has clearly thrown caution to the winds in an effort to increasingly take up the slack in the economy by means of a steadily increasing war budget. And unfortunately for all of us, the logic of devoting 46 percent of the federal budget to war production and its subsequent costs leads to actual war.

In short, the alternative before the human race is indeed as it was posed by Marxists long ago—either Socialism or Barbarism! Or, as the latter alternative was reflected in the title of the movie describing the horrors of the Vietnam War, either a world socialist society without borders and without capitalist inhumanity—or “Apocalypse Now!”

1 Budgetary figures derived from War Resistors League, 339 Lafayette Street, New York, NY.

2 For a more detailed analysis of the tendency of the rate of profit to fall, see the May 2001 edition of Socialist Viewpoint, Vol.1, No.1, “Is Global Economic Collapse Inevitable?”





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