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Catalyzing worker co-ops & the solidarity economy

The Global Wall St. Crisis, Naomi Klein, and Fair Trade Economics

October 26, 2008
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Journalist Naomi Klein is a dynamic critical spokesperson in addressing the longstanding crisis of neoliberal and neoclassical economics.  In two articles excerpted below she refers to The Wall St. crisis and its underpinnings in economic theory.  In the first, she describes the right wing's brazen response through insisting on further measures to benefit its patrons.  In the second, she mentions the Berlin Wall, invoking the hopeful image that this event will result in a new awareness of the problems of neoliberal capitalism.  I hope she is right, but I am fairly confident that it will not be enough.  Solidarity Economics and Community Development Economics are the kinds of ideas that I think are necessary.  Jobs created by start ups encouraged by government incentives, national and local, along with sufficient regulation of markets.  She gave a speech at the University of Chicago presented on Amy Goodman's Democracy Now, excerpted in part below.

     The discussion of alternatives to the big banks are important to mention, and I like to specify that ShoreBank community bank, many credit unions, and Amalgamated Bank owned by unions represent important examples of these efforts.  The whole cost accounting and steady state economics of Herman Daly, economic heterodoxy in general, the Journal Review of Social Economics, the International Journal of Social Economics, Anna Milford's Fair Trade and Cooperative Economics, the International Society for Ecological Economics, Redefining Progress, the New Economics Foundation, and GreenAmerica's (aka CoopAmerica's) Green Pages are important examples in these considerations. 

See also below: an abstract of Anna Milford's article in the context of the coffee commodities' markets after the excerpts from Naomi Klein; an excerpt from Herman Daly;   

First excerpt:

I wrote The Shock Doctrine in the hopes that it would make us all better prepared for the next big shock. Well, that shock has certainly arrived, along with gloves-off attempts to use it to push through radical pro-corporate policies (which of course will further enrich the very players who created the market crisis in the first place...).

The best summary of how the right plans to use the economic crisis to push through their policy wish list comes from Former Republican House Speaker Newt Gingrich. On Sunday, Gingrich laid out 18 policy prescriptions for Congress to take in order to "return to a Reagan-Thatcher policy of economic growth through fundamental reforms." In the midst of this economic crisis, he is actually demanding the repeal of the Sarbanes-Oxley Act, which would lead to further deregulation of the financial industry. Gingrich is also calling for reforming the education system to allow "competition" (a.k.a. vouchers), strengthening border enforcement, cutting corporate taxes and his signature move: allowing offshore drilling.

It would be a grave mistake to underestimate the right's ability to use this crisis -- created by deregulation and privatization -- to demand more of the same. Don't forget that Newt Gingrich's 527 organization, American Solutions for Winning the Future, is still riding the wave of success from its offshore drilling campaign, "Drill Here, Drill Now!" Just four months ago, offshore drilling was not even on the political radar and now the U.S. House of Representatives has passed supportive legislation. Gingrich is holding an event this Saturday, September 27 that will be broadcast on satellite television to shore up public support for these controversial policies.

What Gingrich's wish list tells us is that the dumping of private debt into the public coffers is only stage one of the current shock. The second comes when the debt crisis currently being created by this bailout becomes the excuse to privatize social security, lower corporate taxes and cut spending on the poor. A President McCain would embrace these policies willingly. A President Obama would come under huge pressure from the think tanks and the corporate media to abandon his campaign promises and embrace austerity and "free-market stimulus."

We have seen this many times before, in this country and around the world. But here's the thing: these opportunistic tactics can only work if we let them. They work when we respond to crisis by regressing, wanting to believe in "strong leaders" - even if they are the same strong leaders who used the September 11 attacks to push through the Patriot Act and launch the illegal war in Iraq. 

 Second excerpt:

But I think we also need to look particularly at this moment, who this ideology benefits directly economically, keeping it alive in this moment, and how, even in this moment, when everybody is saying, you know, this is the end of market fundamentalism, because we?re seeing this betrayal of the basic tenets of the non-interventionist government by the Bush administration?you know, I believe this is a myth and that the ideology has just gone dormant, because it?s ceased to be useful. But it will come roaring back, and I?ll talk a little bit more about that.

But, you know, I was interested that yesterday the Heritage Foundation, which has always been a staunch Friedmanite think tank, that they came out in favor of the bailout. They came out in favor of the bailout; they said it was vital. And what?s interesting about that is, of course, the bailout is creating a crisis in the economic?in the public sphere. It?s taking a private crisis, a crisis on Wall Street, which of course isn?t restricted to Wall Street, and it will affect everyone, but it is moving it, moving those bad debts, onto the public books.

And now the Bush administration has already left the next administration, whoever it is, with an economic crisis on their hands, but with this proposed transfer, they?re dramatically increasing that crisis. So, we can count, I would argue, on the Heritage Foundation refinding their faith, refinding their faith when it becomes necessary and useful to once again argue that the way to revive the American economy is to cut taxes, cut regulation, to stimulate the economy?and, by the way, we can?t afford Social Security; we?re going to have to privatize it, because we?ve got this terrible debt and deficit on our hands. So, the ideology is far from dead, and what we are, I think, seeing with this proposed monument to Friedmanism is really a way of entrenching it and making sure that it is always available to come back, to come roaring back.

So, I said I would talk a little bit about Friedmanism and the links to the current crisis. And, you know, it?s pretty direct. Milton Friedman is pretty much accepted as the godfather of deregulation. And this was?this ideology was the rationale for turning the financial sector into the casino that we see today. You know, Milton Friedman was clear about this. He believed that ?history took a wrong turn,? and that?s a quote; it?s a quote from a letter he wrote to Augusto Pinochet. He said, ?History took a wrong turn in your country, as well as mine.? And he was referring to the responses to the Great Depression. In Chile, it was the rise of import substitution and developmentalism. But in the United States, he was of course referring to the New Deal.

And I think that the Chicago School of Economics is properly understood as a counterrevolution against the New Deal, against regulations like Glass-Steagall, that was put in place in 1934 after having seen people lose their life savings to the market crash, and it was a firewall, a very simple, sensible law that said if you want to be an investment bank, if you want to gamble, gamble with your investors? money, but the government isn?t going to help you because it?s your own risk. You can fail. And if you want to be a commercial bank, then we will help you. We will offer insurance to make sure that those savings are safe, but you have to restrict the risks that you take. You cannot gamble. You cannot be an investment bank. And a firewall was put up between investment banks and consumer banks.

And now we look at the way in which this crisis is supposedly being solved, and what we see, actually, is a wave of mergers in the banking sector, a wave of mergers with the banks getting bigger and bigger until ultimately?you know, the Financial Times was predicting today that eventually the United States will have three big banks, just like Japan does. That?s where it?s heading. And, of course, all of those banks will be too big to fail. So they all have this implicit guarantee; it?s not just Fannie and Freddie. It?s any function that is too important to fail has this implicit guarantee.

Anna Milford abstract:

Coffee is one of the most important Third World export commodities, and 70% of the producers are small-scale farmers. Coffee producers are often poor and marginalised, and their situation is aggravated by fluctuating market prices and collusive behaviour among intermediary coffee purchasers. Coffee co-operatives may potentially increase the incomes of these farmers by distributing a larger share of the final price to the co-operative members. Co-operatives can also have a pro-competitive effect on imperfect market situations, and thereby increase income levels also for non members. Moreover, they have the potential to educate and empower marginalised farmers. However, lack of finance and problems with free riding, costs of control and a too short time horizon are problems faced by co-operatives. Because of that, benevolent governments or NGOs have tried to support co-operatives with finance and expertise, but often with an unsuccessful outcome. The Fair Trade system distributes money to small-scale coffee producers via carefully selected co-operatives. The study of Fair Trade co-operatives in Chiapas shows that they are successfully functioning organisations, and that they do seem to have a pro-competitive effect on an imperfect market situation. But the co-operatives also have many disadvantages compared to their private competitors. This means that they could probably not have reached their level of success without the premium received from the alternative markets (Fair Trade and organic). Thus, the support from the Fair Trade system seems to strengthen agricultural co-operatives.

Herman Daly excerpt:

What happens, according to ecological economics, is that the economy grows mainly by transforming its environment (natural capital) into itself (manmade capital). This process of transformation takes place within a total environment that is finite, non-growing, and materially closed. A throughput of solar energy powers biogeochemical cycles, but that energy throughput is also finite and non-growing. As the economic subsystem grows it becomes larger relative to the total system, and therefore must conform itself more to the limits of the total system - finitude, non-growth, and entropy. Subsystem growth is ultimately limited by the size of the total system, even under neo-classical assumptions of easy substitution of manmade for natural capital. But if manmade and natural capital are complements rather than substitutes, as ecological economics claims, then expansion of the economic subsystem would be much more stringently limited by that complementarily. There would be no point in transforming natural capital into manmade capital beyond the capacity of remaining natural capital to complement and sustain it. What good are more fishing boats when the fish population has disappeared? The fish catch used to be limited by number of fishing boats (manmade capital) but is now limited by the remaining populations of fish in the sea (natural capital).

     Every visit to the health food store, every dollar to support a more progressive bank or credit union, and every green and just product or green and just business identified and even started, reinforces a real democratic process to combat the unfair and dirty process of the neoliberal circles. 

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