Power Politics and Economic Growth

Article Summary

John S Veitch
The Network Ambassador

The financial meltdown occuring in the USA and around the world is a direct result of business interests being given free reign by the political class.
The first real sign that we were on a wrong track was perhaps the 1987 stockmarket collapse.
In China, the much praised economic development, is based on the promise that people will be given job opportunities and that in return for cooperation life will improve.
In Whitehorse village, people were asked to vacate their traditional land so that modern housing, shops, schools and industrial premises can be built.
Two years later the building was well advanced. Lots of new people came into the area to live.
The new people took the new jobs and their children were the ones accepted in the new school. The promise to the village people wasn't being honoured.

Arundhati Roy gives us another example from India. A big hydro dam project is planned on the Naramada River in central India.
There are 30 big dams, 135 medium size dams and hundreds of minor dams. Politicians talk about the need for electrical power and for water for agriculture.
In 2001 the project was in trouble. Two German companies and a Portuguese company looked at the project. They all chose not to get involved.
Arundhati Roy explains that there are 61 villages and 50,000 people in the area to be flooded. The private contractors failed in planning and in finance.
There was never any intention to meet the obligation of paying promised compensation.

Funds for "development" are usually offered on a conditional basis. Advisers often cost far too much to employ and their advice is usually poor and often biased.
In the worst cases the objective is to sell a lot of "assistance" on credit and create an ongoing political obligation to support the sponsor nation.
Joseph Stiglitz says, "The standard prescription for an economy facing recession has been expansionary fiscal policy - spending money on education and especially infrastructure."
The policy of the IMF, in country after country has insisted that when facing recession governments reduce expenditure and sell state assets.
Every economist knows that is the wrong strategy, so we might ask why the "wrong solution" is offered, and which countries benefit from that?

Economic Reforms - 1980's: Promoted by the Chicago School of economists, the Thatcher years in the UK, and the Reagan years in the USA.
In New Zealand, possibly leading the pack, politicians were putting this same philosophy into effect. I was in favour of the changes.

The New Zealand Experience - Rogernomics
Many state assets were sold into private hands. Subsidies to farmers and to industry were stopped. Social welfare benefits were slashed.
There were TEN very painful years, but we thought of it as the price of becoming economically viable again.
The results are a disappointment. Income disparity increased significantly. The social indicators in New Zealand, all moved in the wrong direction.
We discovered that selling government assets is a way for politicians to avoid future obligations falling on the government, obligations to provide future funding.
We were told that private industry would be more efficient and that the prices for services would be lower.
The idea that private enterprise is more efficient than government enterprise is an ideological red herring. Either can be efficient, and either can be inefficient.

In countries with high disparity of incomes between rich and poor, there is very little social mobility between generations.
Growing inequality of incomes breeds social resentment, and questions the value of the democratic system.
Progressive income taxes, free education and public health services, and direct payments to households with children are proven ways to reduce the income inequality.

In the year 2000 it was common to hear Americans say things like; "We're number one, baby" or "The USA is the greatest country in the world".
In 2009, few people think like that. So how did the future close? In my view, long standing principles were denied for short term objectives.
There is a long record of fraud and malpractice by politicians and members of the business elite who are never bought to trial.
When governments choose to apply or ignore the law in a biased way the concept of the "rule of law" is diminished.
When politicians promote a lie as the "truth" when they offer contracts to their friends and deny others, confidence in the system is eroded.
Add to this millions of dollars missing inside the Pentagon, and civilian contractors in Iraq and Afghanistan taking money for work they never did.
Finally we have a meltdown of the financial sector in the USA. The curtain has been lifted on the "efficiency" of the free market system.

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