Dear Warren,
My apologies, I am unfamiliar with this particular Schiller Institute proposal – I should have stated previously, I’m commenting (positively) only on the general idea of creating a new global financial architecture with a greater role for
public, democratic influence over investment decisions. My position is much the same as Keynes’ a century ago: progress would be movement toward euthanasia of the rentier, and a socialization of investment.
How that would be done, in detail, is of course where the devil is. But I can’t think of a better place to start than a new “Bretton Woods” conference, in which government, bank, and civil society representatives could negotiate.
Whether “socialization of investment” comes in a minimal form, like the “window guidance” approach Japan used (quite successfully) to guide private sector credit creation to sectors the government deemed important, or in a more maximalist form, with the foundation
of a public investment bank with a democratically elected board of directors, is beside the point at present, at least to me. It’s like planning what we’re going to do on the other side of a river, before we’ve figured out how to cross it. Furthermore, I’m
already convinced that there is a serious potential for corruption in any shift to greater public investment or any form of socialization of investment decisions. But given our real-world baseline, a financial system that is a demonstrated, abject failure
at directing wealth towards the greatest social need we have – a healthy environment and an economic system that can be sustained for many future generations – potential corruption is a risk I’m entirely willing to take.
As for the poverty figures, GDP per capita is irrelevant unless the product is widely shared. (Cue the joke about our average net worth rising into the billions once Bill Gates walks into the bar.) On proportions of people living in extreme
poverty, I mentioned that the proportion has gone down marginally, but absolute numbers of the impoverished have increased. It depends on what baseline is set to define “extreme poverty” –
The Divide summarizes the literature on this well, but even
this short open letter does a good job.
All the best,
Peter
Peter Beattie
Assistant Professor; Assistant Programme Director, MSSc in Global Political Economy
The Chinese University of Hong Kong
+852 3943 9794
www.beatt.ie
Social Evolution, Political Psychology, and the Media in Democracy:
The Invisible Hand in the U.S. Marketplace of Ideas
(Palgrave Macmillan, 2019)
https://www.springer.com/gp/book/9783030028008
From: Warren Coats <wcoats@gmail.com>
Sent: Monday, July 4, 2022 5:07 AM
To: Peter Beattie (SSC) <pbeattie@cuhk.edu.hk>
Cc: Gerald Belsky <gbelsky@yahoo.com>; Chas Freeman <salon@listserve.com>
Subject: Re: [Salon] Call for an Ad-Hoc Committee for a New Bretton Woods - Thu, 30 Jun 2022 05:39:03 -0700 (PDT)
Dear Peter and Gerald,
Your Committee for a New Bretton Woods sets out many central planning, industrial policy, etc. proposals that have failed the test of history. You are right that China, having almost
19% of the world’s population was a major contributor to growth and the decline in poverty following the liberalization and increasing privatization of its economy in the 1980s. But with or without China the increase in living standards and decline in poverty
since the industrial revolution have been DRAMATIC. There is a huge amount of data documenting this but here are three representative tables.
https://www.humanprogress.org/dataset/real-gdp-per-capita/
https://www.humanprogress.org/dataset/share-living-in-extreme-poverty/
https://www.humanprogress.org/the-great-decline-in-poverty-over-time/
However, as a member of the existing Bretton Woods Committee and retired staff of the IMF, let me focus on banking and public sector banks. While I have led or participated in many
IMF technical assistance missions to countries suffering from the inefficiency and corruption of state-owned banks, the Soviet Union is the only country I know of that had a system of central bank allocation of credit of the sort you seem to recommend. Hopefully
I needn’t comment on how that worked out.
Governments have an important role in any country. My contention, strongly supported by historical experience and economic theory, is that the appropriate role is to provide the
legal/regulatory framework in which private actors can do their thing. This includes the enforcement of property rights and contracts, accounting and transparency rules and such things that promote market competition (infrastructure, education, and safety
net financing). Economic growth requires allocating resources most profitably and an environment that rewards useful innovations. With the proper legal foundation, this is (and historically as been) achieved best by private actors. If a private bank lends
to friends and relatives, it will lose to its competitors if its friends do not make the best use of that credit. Sadly, this has not been true of very many state-owned banks (the closest proximation to your central bank monopolist lender). One after another
struggling country has giving up their state-owned banks and the misallocation of the country’s resources that have contributed to their slow growth and continued poverty. Unlike private banks, which suffer loses when they lend to poor borrowers, state owned
bank losses (favors to relatives and friends) have been underwritten by the state (i.e. by tax payers).
Such concentrations of power at the top attract leaders who enjoy exploiting such power. The historical evidence is overwhelming. Create it and they will come.
Sincerely,
I believe the idea is that if “we [were] part of a global revolution against economic empire,” then Putin wouldn’t be directing it. A national bank with the power to create credit/money for public investment is certainly vulnerable to corruption;
but how is our privately owned and controlled banking system doing? Your point still stands, but it is most persuasive only when the baseline is an imagined ideal, not our present reality. And even were this proposed national public investment bank to match
Wall Street’s impressive level of corruption, we’d at least get some public wealth creation out of the deal.
More accurate than “[t]he growth of global trade has dramatically reduced global poverty” would be to say that the current global economic system has seen some poverty reduction, but that is overwhelmingly due to the contribution from China.
The proportion of people in extreme poverty has been marginally reduced, but in absolute terms, worldwide there are more people in extreme poverty today than there were decades ago. You are no doubt familiar with the so-called elephant graph, but look
what happens when you exclude China. For an opposing view to the celebratory narrative on poverty reduction – what we hear often from the NYT, “The”
Economist, TV pundits, etc. – I recommend Jason Hickel’s The
Divide. It’s essentially just a summary of reams of important research, but it is presented in a very readable narrative form. As with any argument, it may be wrong, but the ball is in the court of those propounding the celebratory view – and to my
knowledge, they still have not offered any serious rejoinder.
Assistant Professor; Assistant Programme Director, MSSc in Global Political Economy
The Chinese University of Hong Kong
Social Evolution, Political Psychology, and the Media in Democracy:
The Invisible Hand in the U.S. Marketplace of Ideas (Palgrave Macmillan, 2019)
Yes, we do need to resist America’s bullying and empire tendencies. But your approach goes in the wrong directions (e.g. a National Bank that controls credit is a time tested receipt for corruption). The growth of global trade has dramatically
reduced global poverty. Reshoring-buy American would bring that to an end without improving our own economy—quite the opposite. You note that “ a new economic order, based on development and
justice, is already being discussed among Russia, China, India, and the "BRICS-Plus" nations.” You seem to suggest that we should follow such a centralized and politically driven model. I don’t want Putin direction my economy or my individual life. Such people
raise to the top of such systems.
What is "screaming nuts" about establishing a New Bretton Woods economic system, when the current Trans-Atlantic financial system is hopelessly bankrupt?
The system will collapse either through a hyperinflationary blowout or a deflationary collapse as the central banks raise interest rates, causing mass bankruptcies. Something
new is needed, especially if we are concerned with the "General Welfare", not protecting the speculative bubble of a relatively few billionaires. In addition, the question of a new economic order, based on development and justice, is already being discussed
among Russia, China, India, and the "BRICS-Plus" nations. In so far, as the legacy of America, going back to the Declaration of Independence, is of an anti-imperial nature, shouldn't we be part of a global revolution against economic empire, instead of acting
like the British Empire?
Also, in so far as this question of a new just economic system that works for all nations, ourselves included, is directly related to the question of stopping the drive toward
global nuclear war, I would urge you to watch the Schiller Institute Conference, Sun., July 3, "This July 4, Declare a New Bretton Woods": This
July 4, Declare for A New Bretton Woods!! | The Schiller Institute
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This July 4, Declare for A New Bretton Woods!! | The Schiller Institute
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