The description of the unregulated market as ”the free fox in the free hen house” was popular in the 1920s and 1930s — the last period of global capitalism, which led to the Great Crash. The past fortnight has seen equivalent conditions developing. They arise from two events that should surely end the illusions that surround the ideology that deregulated global capitalism is good for us.
The first is the collapse of WorldCom, following the Enron scandal, plus Xerox, IBM, Merrill Lynch et al. They reveal the corruption at the heart of corporate America. They involve not only the companies themselves, but also the accountancy, legal and investment banking industries, found to be actively hiding the truth.
The second is the G8 Summit, which was presented to Africa as the basis for collaboration with the G8 in the New Partnership for Africa’s Development. We in Africa were to offer ”good governance” — trans-parent, democratically responsive and honest institutions — in exchange for a latter-day Marshall Plan in the form of aid and trade.
What was mooted in advance was a threefold package. First, trade: a reduction in the barriers to Africa’s exports to G8 countries and cuts in the $1-billion subsidies to G8 farmers, which enable them to undercut African farmers. None of this was offered.
Second, between $15-billion and $20-billion was to be offered in extra debt relief to Africa — partly to make up for the fall in commodity prices. Instead $1-billion was offered.
Third, $25-billion to $35-billion was estimated as necessary in aid and investment to put Africa on the path to poverty reduction. Only $6-billion, to be made available by 2006, was offered.
Compare that to the summit’s principal handout — $20-billion to Russia, to help safely decommission its nuclear weaponry. Clearly a worthy cause, its pre-eminence was dictated by the war on terrorism’s need to ensure that nuclear devices do not leak from Russian establishments.
We in Africa need to get smart about what the American model offers us, and what we can expect from rich countries. ”We have undertaken a policy of very substantial macro- economic reform. But the rewards are few,” says Minister of Finance Trevor Manuel. He did not add that that policy of reform is derived from advice given to us by the rich countries, which have substantially benefited from our compliance.
We, by contrast, have lost employment, capital and the right to set our monetary, fiscal and exchange rate policies to suit our own development needs — which are not the same as those of the G8.
And to what end? Global connected-ness ensures we all go down when the American bubble bursts. Do we want that degree of dependence? And do we really think the type of capitalism we are now seeing in the West is superior to any other?
Do not get me wrong. There is only one sensible way for prices to be set — through the market mechanism. And there are substantial benefits to trade. But there are many forms of economic relationships that can offer both. It is the unregulated free market, the enforced compliance with one model of economic development, that lead to corruption, monopolies, the triumph of the strong and the dependence of the weak.
Government regulation is always needed to protect the weak from the strong. That is what governments are largely for — to ensure the fox is unable to take advantage of the domesticated hens. That is why we have rules in any human endeavour — to prevent the law of the jungle. Regulation is civilised.
Moreover, it is time we accept that the rich democracies cannot and will not defy their agricultural lobbies or their steel workers or other sources of voting support to give our exports serious markets. Chinese garlic has already attracted tariffs of 400%; the Japanese impose 1 000% tariffs on rice. Of course they do. Their own electorates are more important to them than ours.
And despite huge increases in wealth, aid flows have fallen from 0,8% of gross domestic product in the 1960s to 0,1% in 1999 in response to pressures in rich countries.
South Africa should abandon illusion. We must reclaim our diversity and self-responsiveness. We need to restore those barriers to trade where their removal has disadvantaged us, and thus protect our labour-intensive industry until it is ready to compete globally.
We need to deny access to our markets — for goods and capital — to outsiders unless and until they offer us equally valuable access to theirs. We need to tell them we will believe the benefits when we see them. Until they are able and willing to take on their sectional interests we must give our full attention to the interests of our own people. That will restore some of our power.
Margaret Legum is with the South African New Economics Foundation in Cape Town