Summary by Umberto Mazzei
Geneva, October 24, 2014
Development is a political problem. It depends on who rules the society. Elites or majorities? Financial capital or human beings? The marketplace or society?.
It is a big mistake to decouple the economy from its original sense of political economy, making believe that economy is a technical issue. John Kenneth Galbraith once said that “an economist who overlooks power issues is completely useless” and Prebisch pointed out that “the accumulation and income distribution is the result of collisions of forces and relations of power”. Bastiat said, 200 years ago, “When plunder becomes a way of life for a group of men … they create … a legal system that authorizes it and a moral code that glorifies it”.
Latin America has been dominated by elites that excluded majorities from progress. Their poverty is the result of perverse power relations. The Citizens Revolution in Ecuador has reduced poverty by 8 Gini points and the average economic growth in seven years was 4.3%. During that time poverty declined from 37.6 to 25.6% and extreme poverty from 16.9 to 8.6%. In Latin America the best indicator of good economic policy is the reduction of poverty and of extreme poverty.
Instead of reducing wages, to supposedly create jobs, and increase the exploitation of workers with labor flexibility, Ecuador increased wages and closely surveilled employers conduct. It’s a delicate balance, because without employers there is no employment. The problem is handled with quite a novel approach: a dignified wage, one that allows a family to get out of poverty. The law requires utilities to be distributed only after paying a dignified wage to its last worker. The effects have been better than expected, because the minimum wage has parified with the dignified wage. It was a way to give primacy to human work over capital, unlike traditional socialism that proposed the abolition of private property.
Ecuador bought back much of its foreign debt in the secondary market and debt service was reduced to 5.3% of the state budget. Concerning oil policy the old concessions system was substituted by service contracts, which fix a fee per barrel and the rest goes to Ecuador. Tax revenues tripled to 20.8% of GDP, thanks to lower evasion and more efficient tax collection. That allowed to have the highest level of public investment in Latin America, with 15.7% of GDP in 2013, and also improved competitiveness by 15 notches in the ranking of the World Economic Forum, with a public debt of only 24% of GDP.
The use of social resources demonstrates the power relations within a society. Inequalities had created such instability in Ecuador that it had 7 presidents in 10 years, but today it is one of the most stable democracies. Before creditors, bankers and international bureaucracy were in command. A sign of change is that Ecuador is the world leader in employing people with disabilities. According to the Human Development Index of the UN, Ecuador rose from mid-range to high human development. It is the result of a social investment that grew from 4.8% of GDP in 2006 to 11.4% in 2013.
The global crisis happens because of the global power of the Empire of Capital, specially the financial one. In 2008 the lack of intervention, regulation and supervision of the international financial system, especially in the US, brought one of the worst crises in decades. That crisis reduced the value of the middle class assets but, after the crisis, the very rich and the banks were richer than ever. It is also at the root of the European crisis. The complicity of an alleged economic science and a international financial bureaucracy, masquerades ideology as science. Austerity recipes are repeated against humans and in favor of capital. These policies were already implemented by President Hoover in 1929 and showed that they are not the solution. Why repeat the mistakes? Because the problem is not technical but political. The problem is the power relationship. The solution is to restore citizen control over capital and of society over markets. The solution is only political.
Higher education, science, technology and innovation are key to development. Ecuador now spends 4.3 times more in education and 4.5 times more in health. The basis for democracy is a high quality public education, a massive one with free access. To reinforce this effort, Ecuador made an agreement with the International Baccalaureate Organization, a Swiss organization. There are already 220 schools undergoing the accreditation process. With the vast worldwide generation of knowledge, countries that do not generate knowledge will become increasingly ignorant in relative terms. In Ecuador the higher education budget reached 2% of GDP, more than double the average in Latin America (0.8%) and higher than the OECD average (1.7%). Today Ecuador has 71 universities and that way it has managed to achieve quality with equity. Improved education is part of an effort to improve the low productivity of our economy, but without falling into the trap of basing the organizing of society on technology needs. Einstein said, ”The day that technology overcomes human interaction, the world will have a generation of idiots”.
Culture provides informal institutions that tend to dominate formal ones. The cultural approach to explain development is analyzed since Max Weber (1905) and it’s a culture of innovation, responsibility and excellence what really stimulates development. The culture of Latin Americans enables them to withstand extreme conditions and we may speculate that if we put a US citizen and a Latin-American in the jungle for a year, the Latin-American has more chances for survival. But if you put 200 North- Americans and 200 Latin-Americans in the jungle, after a year the US citizens will likely have a school, planted crops and built a church … while the Latin -Americans will likely still be discussing who’s the boss. Organizing and planning of collective action, for whatever reason, has not developed much in Latin America.
There is so much talk of solidarity, that we even have a surplus, but we must learn to be efficient and on that issue Anglo Saxons are better. Their pragmatic sense of responsibility pushes them to analyze errors and make corrections. In Latin America errors are vented by throwing stones at the US Embassy , because errors are never our fault. It is the source of the Dependency Theory: if we are poor is because they are rich; defects are made virtues, as to say that being poorer is being more democratic.
This lack of self-criticism and of a willingness to change is more pronounced in the native population, who has been victim of historical injustices. But being a victim does not necessarily give moral high ground or makes people wiser, nor disclaims responsibility for the current situation. The ancestral rhetoric makes a virtue of immobility and makes misery a part of their culture. The challenge here is to change in order to overcome poverty, but without losing identity.
There are new unfair forms of international production division. Before it was an exchange of commodities against industrial value-added goods, now it is one of privatized knowledge against freely available environmental goods. In principle, knowledge is a public good, from which it should not be possible to exclude some or have a consumption rivalry. Patents, nonetheless, are institutional barriers that establish both things, even if social well-being would gain with greater access. A dramatic example of this forced exclusion is the very high cost of some medicines. The seemingly pragmatic principle of knowledge privatization is but the subjugation of human beings to capital.
There are more efficient ways to encourage the production of knowledge. One option would be greater participation of academia and the public sector. Another is that states compensate the creation of knowledge for profit, to make it a public good. The problem with this kind of options is that they are contrary to particular ideological criteria and to the power of capital.
Many developing countries produce public goods, but they are public environmental goods, such as all the clean air produced by the Amazon rainforest, for which the big global polluters do not give any compensation. It is said that environmental goods are free of charge, but environmental protection has a high opportunity cost. The international power relation, in this case, would be clearly understood if we imagine the inverse situation, if the big polluters were developing countries and the generators of public environmental goods were rich countries. They would surely be demanding a fair compensation.
The world order is not only unfair, it is immoral. Everything is geared to serve the interests of capital. Just by giving compensation for public environmental goods there would be a redistribution of income in the world. The big polluters do not sign the Kyoto Protocol, but punish with jail when patent royalties are not paid. Prison for royalties is like going back to jail for debt. In Ecuador, there is not anymore imprisonment for not paying royalties, but there an attempt to limit our sovereignty by requesting sanctions against us, at WTO, because of that. There is another action that tends to limit our sovereignty, it is carried – as García Linera says – by some NGOs, which are actually agents of foreign governments, encouraging a sort of colonial environmentalism, that delegates on indigenous peoples the role of Amazon forest keepers. That is like condemning them to misery.
The great opportunity to develop with sovereignty for Latin American countries is through the use of their natural resources. It will generate the resources to invest in human talent, science, technology, and innovation, in order to overcome the extractive economy.
Free trade seeks to impose open markets at any cost, claiming that it is beneficial for all. It is a fallacy closer to religion than to science, something that does not stand a theoretical, empirical or historical analysis. Developed countries did exactly the opposite of what they preach today. The protection of infant industries has been the key to development in most nations. The first to advocate it was Alexander Hamilton. Only when, after World War II, the US industrial supremacy became obvious, like England in the nineteenth century, they began to promote free trade. Developing countries should imitate what the rich countries did, not what they say now.
The existence of an international market operating in a vacuum of power and issuing the right prices is a fantasy. As Paul Krugman says, that theoretical model is not valid. The phenomenon of globalization seeks only global consumers, planetary markets. It is an opening, but only for goods and capital, particularly financial. The collective action that ended the inhuman excesses of the Industrial Revolution is not possible in globalization, which seeks to gain competitiveness by precarizing the labor factor. It makes impossible for developing countries to have stable growth and employment. The high mobility of capital causes a financial speculation that destroys national policies. For many years now, the need to put brakes and controls on the movement of capitals has been pointed out, as recommended by James Tobin – the Tobin Tax – whose product could finance development projects.
Treaties of Reciprocal Protection of Investments are another colonial tool that puts capital above human beings and can subject a sovereign country to external arbitration, ignoring national legal procedures. A report by the Transnational Institute (TNI) and Corporate Europe Observatory (CEO) is appropriately entitled “When Injustice is Business”. It describes how a small group of legal offices, arbiters and financial speculators, are enriched with arbitrations that cost citizens billions of dollars. We are organizing to fight against such exploitation and UNCTAD should intervene. Unasur is already creating an arbitration center for South America.
The world order is not only unfair but also immoral because it is dominated by capital and the interest of foreign powers, which are also dominated by capital. As long as it keeps on unchanged there will be restricted or fictitious democracy and lack of governance in the world. The challenge for humanity in the twenty-first century is to unchain the vast majorities from the control of the few, to achieve the supremacy of humans over capital and of society over the market.
For the Big Homeland, as we call Latin America, the road to that goal is through integration. Unasur means 500 million people in 17 million square kilometres. United it would be the fourth largest economy in the world, with 5.9% of the WDP, a third of the world’s fresh water, the first place in food production, and with oil reserves for a hundred years.
The new Regional Financial Architecture of Unasur is our option to solve the paradox that 760 billion of our US dollars are deposited in major financial centers and we continue to depend on foreign loans and foreign investment. Liquidity and wealth is transferred to the big financial centers rather than to use our savings for our region. In order to change such absurd situation we created the South Bank and South Fund. In addition, we must develop compensated trade to minimize the use of extra-regional currencies, which, like feudal coining rights, transfers wealth to the issuer of the currency, while on our way to a regional currency and regional minimum wages.
Ecuador will preside CELAC next year and its proposals will hinge on four main areas: planning for Integration; the New Regional Financial Architecture; regulation of transnational capital; and Human Rights guarantees.
I want to reiterate before parting, that I consider education a right, but also the best means to achieve a good life and to make such way of life sustainable. All attempts to synthesize in simplistic principles and laws – by the names of dialectical materialism or rational selfishness – such complex processes are doomed to failure as the advancement of human society is unstoppable.
I believe that science and technology can generate much more well-being and become stronger engines for social changes than any class struggle or pursuit of individual profit. Ecuador has decided to base its economy on the only inexhaustible source of wealth: human talent, knowledge and innovation, in order to achieve a sustainable and sovereign development.
Freedom without justice is similar to slavery. That justice will not come from the invisible hand of the market – as Joseph Stiglitz says, so invisible that no one has seen it. Justice will come from the visible hands of a society consciously taking its decisions through political processes. There are no optimal institutions, but we already know that too much collective action kills initiative and too much individualism kills society. Both are necessary for a Good Life.
Both extremes, the minimal state of classical liberalism and the statism of classical socialism, have failed. One of the great mistakes of the traditional left was to deny the markets. The markets are an economic reality. But one thing is to have a society with markets and another is to have market societies, where life, people and society itself are treated as goods. The market is a great servant but a very bad master. We did get rid of the obsequious technocrats of blind orthodoxy; now we dare to think, to create our academic agenda. Raúl Prebisch would be glad to know that we have, again, a Latin American school of thought.
Summary and translation from Spanish by Umberto Mazzei, from IREI Sismondi.