<nettime> Ending Wall Street's Reign

[Robert Weissman <rob@essential.org>]

[from the Focus on the Corporation mailinglist -- see below]

For nearly two decades, the world has lived under the reign of Wall
Street. It is now clearer than ever that the king must be dethroned, and
the people made sovereign. 

There are certainly many contributing factors to the economic crises which
have spread in the past year throughout Asia, moved to Russia and which
now threaten much of Latin America and South Africa. But atop the list is
"hot money" -- foreign loans and investments which pour especially into
developing countries in pursuit of high returns but pull out at the first
sign of economic downturn. 

In the last two decades, countries around the world have opened themselves
to "hot money" under pressure from the International Monetary Fund (IMF)
and in response to a near-consensus among establishment economists, Wall
Street advisers, aid agencies and development analysts that openness to
unregulated capital inflows and outflows is the only path to economic
salvation. 

The last year has shown, instead, that failing to regulate capital flows
invites economic ruin. The basic problem is that, when foreign lenders and
investors fear a country may have difficulty paying back loans, they flee
en masse. With investors overwhelmingly seeking to exchange their rupiah
or ringgit or rubles for dollars or other dependable currencies, the value
of the developing country currency plummets, throwing the country into
economic crisis. For all the differences between Thailand, South Korea and
Russia, they have all suffered from this phenomenon. 

With developing countries across the globe facing enormous uncertainty,
two developing nations stand out for having weathered the economic storms
better than most: Chile and Taiwan. 

Their common trait? Both impose meaningful capital controls. In Chile,
foreign investors face a stiff tax if they withdraw their money less than
a year before putting it in Chile. In Taiwan, a mix of government measures
-- including instructions to banks not to lend local currency to foreign
banks and requirements that corporations report any large sums they are
taking out of the country -- has stabilized the New Taiwan dollar, a feat
the conservative Economist magazine calls "an extraordinary achievement." 

Now Malaysia is looking to follow suit. On September 1, Malaysian Prime
Minister Mahathir Mohamed announced that the government would establish a
fixed exchange rate for the local currency, the ringgit. Malaysia is
requiring the repatriation of all ringgit within one month, and afterwards
will not honor ringgit outside of the country as good currency.
Accompanying these measures are severe limitations on Malaysians' ability
to move ringgit out of the country, for investments or even in connection
with personal travel. 

"What is obvious is that people can no longer stay with the so-called free
market system," Mahathir said in an interview with the Malaysian newspaper
The Star. "The ringgit cannot be traded at all so that we can regain
control over the exchange rate involving our ringgit." The goal, he
explained, was to reduce the uncertainty caused by speculation. 

"We have asked the International Monetary Fund to have some regulation on
currency trading but it looks like they are not interested," Mahathir
said. 

Mahathir acknowledged that the currency regulations were likely to cause
some transaction costs for businesses that would need permission to
acquire currency for international trade, but he argued that these costs
would be more than offset by the benefits of stability expected from the
new regulations. 

The Wall Street/IMF approach has considered these kinds of measures a
retrograde throwback to the days of command economies. But with the
recklessness and failures of the Wall Street unregulated globalization
approach now apparent, countries are likely to become increasingly willing
to reject the orthodoxy. 

One particularly meritorious idea is the "Tobin Tax," named for Nobel
laureate James Tobin, which would place a tax on international currency
transactions as a way to discourage rapid churning in the currency
markets. The Tobin Tax, the Chilean, Taiwanese and Malaysian plans and
many other proposals for capital controls all deserve immediate and
serious consideration around the world. 

One of the unfortunate consequences of the near universality -- until
recent weeks -- of the faith in open, unregulated financial markets is the
dearth of experiments in imposing capital controls, or even academic
theorizing on the matter. Surely there is no guarantee that any particular
approach will work for any particular country, or for all countries. 

Nonetheless, it is clear that reclaiming citizen sovereignty from Wall
Street and its equivalents in Tokyo, Frankfurt, London and elsewhere will
require subordinating the needs of finance to those of people, and
imposing controls on the flow of money to protect national economies. 

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime
Reporter. Robert Weissman is editor of the Washington, D.C.-based
Multinational Monitor. 

----------

(c) Russell Mokhiber and Robert Weissman

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