Have We Bought Enough Yet?
By Mike SeccombeSeptember 3, 2012
The author and activist philosopher John Ralston Saul traces how we in the West became Walmart societies, with lots of stuff and not much substance. We bought ourselves here, and we can bring ourselves out.
John Ralston Saul has every right to say 'I told you so'.
He was way, way ahead of the pack in recognising that the international financial model he calls "globalism" was unsustainable. Now that it is collapsing, you would excuse a little smugness. But ask him if he feels vindicated and he is far from smug.
"Well," says the 65-year-old Canadian novelist and essayist, "it's a pretty lousy vindication.
"Yes I was right and I've been right since the early Nineties, and it's turned out exactly as I feared, but there's not much joy in all that."
The fact that others have now come in large numbers to recognise the problem is of no great satisfaction in the absence of a solution.
"What's distressing is the incapacity of our system to respond," he says.
He notes that the people who devised the dysfunctional economic system are now the very ones charged with fixing it. And while the fixes they propose may serve to entrench them and their interests, they are ultimately unsustainable because they are toxic to the broader society.
Saul took a little time out of his multi-purpose visit to Australia — he was at the Melbourne Writers Festival in his capacity as president of PEN International, he had a new novel to promote, and speaking engagements on the economy — It's Broke: How Can We Fix It? — to explain a little more to The Global Mail.
We started with the threshold question: if the system's broken, who broke it?
"I guess we all broke it, really. In the 1970s there was a crisis and the people who had put the society together over the preceding 50 years were unable to deal with the crisis. They failed — the Keynesians failed. And there were these marginal people sitting round, who were laughed at as bad economists, and they threw themselves into the breach and took over."
"So you can blame the people who rushed in and filled the void or you can blame the people who were there and didn't deal with the crisis. You can blame you and me because we didn't do anything about making sure they weren't able to do all this stuff."
Clearly, though, Saul mostly blames the people who filled the void, the people who called themselves neo-classical or neo-liberal economists and who he calls neo-conservatives. After the crisis of the 1970s, their views — advocacy of free trade, open markets, privatisation and deregulation, smaller government and a bigger role for the private sector —quickly came to dominate political thought. He calls that idea of a deregulated international marketplace, in which goods and finance travel far more easily across borders than do people, "globalism".
So complete was the hegemony of its advocates, says Saul, that ultimately "everyone, whether they are Labor or Liberal or social democrat or whatever … adopted their language."
Even now, he says: "The biggest problem we have is that we don't have anybody [in a position of power] on the democratic/humanist side who believes it's possible to admit to being wrong and to change direction."
Globalism, Saul long argued, weakened nation states in the name of economics, and took away the democratic power of citizens to determine their futures.
This was perhaps a bit theoretical, at least as it might apply in the major developed countries — although familiar to those elsewhere, as in Asia and Latin America, for example — until relatively recently.
But now, with corporations accorded the democratic rights of people in America, where banks get bailed out but home-owners don't, with the bond traders serially picking off European nations, and with citizens of struggling countries everywhere increasingly subject to externally imposed fiscal strictures, Saul's prediction has become distressingly real.
"We've now had 40 years or so of neo-conservatism, of globalism … and it's clear they're doing a very bad job and were in a very deep crisis and they have absolutely no idea what to do," he says.
"Their only answer is austerity."
And, he says, there is not "a single example in history" of austerity restoring prosperity.
"These people seem all to have been very badly influenced by 18th-century medicine. They actually believe that bleeding people works," says Saul.
"It's also very low-level Judeo-Christian morality. Very low-level stuff. Punishing people for their sins."
And punishing the wrong ones.
He points to the United States, where the Global Financial Crisis began with a mortgage crisis. The financial sector made stupid — and often downright corrupt — loans to people who could not afford to repay them unless a real-estate bubble kept inflating. When it deflated instead, it set off a chain-reaction around the world.
The US government reacted by throwing money at the banks. According to figures prised out of US officialdom by Bloomberg last year, the total was USD7.77 trillion.
But why bail out the banks?
Because, Saul says, of a gross misunderstanding of debt "and what you do about debt when it's actually out of control."
In the case of the US housing crisis, he says, "Obama could have, instead of giving money to these large mortgage holders, said 'We will pay off all mortgages up to $300,000.' It would have cost far, far less than what they gave the banks."
Those home owners, again feeling flush, would then have borrowed and spent, as before, which would in turn have gone through to the banking system; a trickle up rather than trickle down approach.
"So you would have re-launched your economy. You'd have done something solid — people would own their houses. That's real. It would be real that they would not owe money and that the banks would not have gone bankrupt," he says.
Alternatively, the government could have simply cancelled the dodgy mortgage deals.
"That would have had the same re-launch of the citizenry, but you'd have cleaned out half the banks. That wouldn't have necessarily have been a bad thing," he says.
It would have been, if you like, an act of creative destruction, because "as I keep pointing out, the amount of money traded, the amount of financial instruments traded, versus the amount of real goods traded, has gone from something like 50 times in the Seventies, to something like 150 times.
"There's just never been so much money. Actually, we have a kind of invisible inflation."
So, cancelling mortgages would have made a lot of money — debts — disappear, but real assets would remain. As he put it in a piece in The Sydney Morning Herald:
"When faced by unsustainable debts, the fools, the weak, the degenerate civilisations become obsessed by what they owe. They convince themselves that money is real, not an agreed-upon convention. They become its slave. And they destroy themselves. Successful civilisations make these impossible debts disappear — clearly, intentionally, massively."
"History is filled with examples of this being done on purpose," he says.
Iceland provides one example. Relative to the size of its economy, the collapse of Iceland's financial sector was the most spectacular of the entire GFC. But the government did not bail out its banks; it let them fail. And it forced a big hit on foreign creditors.
Iceland suffered a sharp recession and a massive drop in the value of its currency, but guess what? Its economy is growing, unlike most of Europe, and its unemployment rate is way lower than most of Europe and the United States too.
"I've written about this a number of times in the past," says Saul.
"In about 2000, Argentina welshed on its debts, that's what got it going again. Welshing on your debts is a way of re-launching your economy. There's a whole chapter on this in [his 1992 book] Voltaire's Bastards."
One of his favourite examples, pointing to the failure of the globalist model, and the re-emergence of nationalism (in both its best and worst senses) is Malaysia.
During the Asian financial meltdown of the late 1990s, Malaysia ignored the prescriptions of the globalists, the IMF and World Bank — what Saul calls the "crucifixion theory" of recovery — and pegged its currency, raised tariffs, enforced capital controls and … made a stunning economic turnaround. (Malaysia, incidentally, has become one of the most prominent practitioner states of Islamic finance.)
So is Saul suggesting the basket-case economies of Europe should do something like Iceland or Argentina or Malaysia, and default?
Apparently, yes, although he is a little Delphic.
"They could have said … 'Let's look at Europe as a whole, and look at this as the replacement for a war,' where everything's cleared out. Like you push a reset button," he says.
"You would reset a lot of the rules and clear out a lot of the debt.
You would do it in such a way that places like Greece and Spain could get going again, but there would be new rules that were very tough. What they did instead was try to bring in some tough new rules, but … they offered punishment in return."
With the resultant rise of extremism, populism and broad social dysfunction.
"What did they think would happen?" he asks. "It's so very naïve. It's cheap 19th-century Protestant moralism at its worst."
The irony is that now, just as the inherent contradictions of the global orthodoxy — that promised to spread international democracy but instead weakened national democracies, which vastly increased the supply of money but cut services, which delivered most to those who already had most, which produced more goods and greater insecurity — are being more widely noted, Saul thinks it is already over.
"Globalism basically came to an end in about 2000, and we had five to ten years in a vacuum, before we were hit by a moving truck. The financial crisis … was not a crisis in and of itself, it came out of the earlier crisis, the failure of globalism."
"Now," he says, mixing his metaphors, "we are frozen in the headlights."
A system which over-produced goods now finds that it can't get growth going again, absent over-consumption of those goods.
"I think most people are quite insulted by the idea that their principal purpose in life is to consume, to be stimulated to consume.
"There is no human relationship in it," he says. "It is based on a very utilitarian idea, that actually we don't want human relationships, we want goods.
"Is that what should drive society? Are there other things that could drive a society that is in surplus production?"
He has various suggestions: look for quality rather than quantity in what we consume.
"We've convinced ourselves that the winner will be the one who charges the least. Walmart doesn't work as a theory of how to launch a society to prosperity."
He suggests we stop our wasteful ways: where is the efficiency in a fishing industry, for example, which throws back, dead, more than half of what it catches?
He suggests we try alternative means of organising production, co-operative rather than corporate.
He says we've got to stop educating people narrowly for "the workforce". The splintering of learning into smaller and smaller fields and greater specialisation, the "management" approach to education, narrows people.
Above all, he insists we have to somehow re-engage the citizenry.
Whatever is to come next, to replace the failure of globalisation and the paralysis that has followed it, will have to come from people other than those now leading society.
"You're looking at an elite structure that is either in favour [of the current model] and doesn't understand why it doesn't work — that's the neo-conservatives — or is against and is terrified to do anything, or even to admit that they're against it," he says.
"If you want out, you've got to get democracy to work. You can't have major political parties that have 20,000 members, as you do in Australia. That's nothing.
"If you actually want to change the direction of society you actually have to take power."
That's easy to say. Hard to do.
Then again, a bunch of bad economists managed it, 40 years ago.