RE: U.S. AID TO RUSSIA: WHERE IT ALL WENT WRONG

Sun, 11 Oct 1998 09:09:28 +0200
=?iso-8859-1?Q?Arno_Mong_Daast=F8l?= (arnomd@online.no)

I quite agree Richard!
I have copied two chapters on the historical / political role of credit from
my article on Russia below (http://daastol.com/rus97.html )

In general I still agree with what I wrote two years ago.

Arno

Richard wrote
The thesis that "something went wrong" is highly questionable. The West
has been doing its best to destroy the Soviet Union ever since it was
created, and now a formula has finally been found to grind it into the
dust.

I'll post an article by Michel Chossudovsky, a Canadian economist, which
analyzes IMF policy generally.

Rkm

A short story on credit

There may be reasons to pay some attention to the character of the IMF
(International Monetary Fund), since it has not only been central in setting
up destructive policies in the developing world, but has also been
instrumental in securing Russia a new position in this club. In order to
arrive at a deeper insight of the character of this policy it may be of
interest to start with a small historical introduction. Credit has
historically been a most important instrument in state-building, warfare and
a crucial tool in the international power-game (Wallerstein, 1978, p.44;
Marx, 1972, I,4,1050; Braudel, 1985, p.241; Kennedy, 1989, p.89). Anderson
explains how this advantage of credit has been used by Britain,
In the 1730s the philosopher George Berkeley described it as 'the chief
advantage England has over France; and three decades later an expert on
commercial questions spoke of the strength of England's public credit as
'the permanent miracle of her policy, which has inspired both astonishment
and fear in the States of Europe'. ... These comments had much
justification: of the costs of the four great wars fought by Britain in
1702-83 three-quarters were raised by borrowing. It was borrowing moreover
at relatively low rates of interest: the ability to raise money cheaply was
a major British advantage in the country's struggle with France. (Anderson,
1987, p.108)
Writes historian Carroll Quigley,
Credit had been known to the Italians and the Netherlanders long before it
became one of the instruments of English world supremacy. ... This new stage
of financial capitalism, which continued to dominate England, France, and
the United States as late as 1930, was made necessary by the great
mobilisations of capital needed for railroad building after 1830. ... The
third stage of capitalism is of such overwhelming significance in the
history of twentieth century, and its ramifications and influences have been
so subterranean and even occult, ... This system had its centre in London
for four chief reasons. ... great volume of savings ... oligarchical social
structure ... aristocratic but not noble ... skill in financial
manipulation, especially on the international scene. (Quigley, 1966, pp.
48-50).
Zara Steiner notices that,
It is the present view of some historians that it was Britain's financial
and commercial role and not its manufacturing base that was, and remained,
the real source of her wealth. The City of London played the dynamic role in
overseas expansion and stood at the centre of Britain's global prestige.
World trade was invoiced in pounds and financed by London. (Steiner, 1994,
p.48)
There are reasons to regard the years since the fall of Bretton Woods as a
reversal of the historical process from monopoly capitalism back to pre-1931
financial capitalism. From Pax Americana and almost back to Pax Britannica.
Anthony Sampson calls the domestic British phenomenon in the 1980s a,
return to the freedom and internationalism of the Edwardian times before it
broke apart seventy years ago. (Sampson, 1993, p.115, in the section called;
'The City Transformed').

The new credit cartel

The IMF has used this instrument forcefully in Russia, and has been able to
direct the development with small means actually being paid out, as the
IMF-loans have been used as a carrot and a whip to pressure debtor nations
into compliance. IMF has attached certain conditions to its loans - the SAPs
(structural adjustment programs) - which for any involved nation, in
general, concerns deregulation of internal and external economic affairs:
prices are to be deregulated, tariffs and subsidies are to be reduced and
companies are to be privatised. The flip coin of this policy is that, on the
other hand, the money- and credit-supplies are to be tightly regulated. That
is the limit to this liberalism; do not liberalise credit and money: make
credit cheap and available; to some extent a deflationary policy, which
Quigley claims historically is a hall-mark of financial capitalism (Quigley,
1966, chapter on Financial Capitalism). In particularly, one should not,
make it more readily available to some activities rather than to other
activities. When this is being combined with liberalisation of the financial
markets, one may conclude that this policy regards growth in speculation and
consumption as, in practice, better than growth in investments in
infrastructure. The method of attaching conditions is old and was practised
with the Phoenicians and their apprentices, the Venetians. It usually
concerned different kinds of foreign access to local markets and to local
companies, as it does in the case of Russia. This policy generally favours
foreign interests.
The IMF's power is far larger, but also more indirect than is usually
noticed. Practically speaking all banks and nations of the industrialised
world demand that the debtor country conform to the "advice" of the IMF.
Thereby, these countries through the IMF, in practice establish an
international credit-cartel which can dictate conditions and thereby the
internal domestic policy of any debtor country. This is on an international
scale.
On the national scale the policy implemented is again precisely limiting
the availability of credit. What this amounts to therefore, is more or less
a world-wide dictatorship through the resource of credit, perhaps the
strongest instrument of power there is. The policy is also, since it makes
this resource scarce, to the benefit of those who already have this
resource; the creditors. So, to some extent this amounts to a world
government run by the creditors - who are not democratically elected but
representatives of banks and their investors. There has for a long time been
a recognised goal of the free trade school to establish a world government,
in order to secure global free trade. This was pointed out by List and
Roscher (List, 1841, p. 120ff; Roscher, 1882, § LXVII ), concerning the
ideas of J.B.Say and Quesnay. With the establishment of the United Nations
and the closely related IMF, WTO and the World Bank, together establishing a
universal credit cartel, this may have come through. What we seem to have,
therefore, is a theoretical goal among free-traders of a world government,
and the actual establishment of this by a "union" of creditors.
On the board of the IMF, interests are represented according to the size
of investments, as contrasted with democratic principles. First, the US and
secondly, Britain are the nations with most influence at the board of the
organisation. Their representatives may not only be bankers, but also
politicians put in at the board of the IMF. They are likely to be subject to
prevalent ways of evaluating matters within the board of banking experts.
Their way of thinking have, however, changed over the years. During the
years of Pax Americana, in the 1950s and the 1960s, due primarily to the
revival of the American System-tradition of economics under F.D.Roosevelt,
there was considerable support in these world economic organisations for
construction of infrastructure in the developing countries. One of the
founders of the World Bank, the American Harry Dexter White, represented
this line and wanted the World Bank to become a financial supporter of
public goods which private investors would not fund. There was always
another tendency, at the start represented by Lord Keynes, who wanted the
World Bank to perform more according to standard private bank criteria and
only perform as a guarantee fund for private investments. Keynes argued
against,
"the absurd notion of debtor countries being responsible for international
investment." (Oliver, 1975, p.151; Gavin and Rodrik, 1995, p.329)
This tendency today prevails (Daily Telegraph, 1996). This policy may
represent a more narrow-minded banking policy, paying more attention to the
short-term bottom line of accounts, than to long-term growth potentials.
This tendency gained ground, in particular from the end of the 1960s. It
started with the devaluation of the pound; followed with the establishment
of British off-shore banks; the end of the Bretton Woods system; and the
rigged oil crisis in 1973 and Paul Volcker's US interest-rate hike in 1979,
which both turned oil rents into third-world debts, and into interests for
the Anglo-American banks. The general liberalising policy during the 1980s
put the candle on the cake. The change in "development" policy from
promotion of technology and grand infrastructure projects, to local projects
and "attitude" development (for instance education in family planning),
within the world economic policy institutions is one part of what might be
termed the "banker's counter-revolution" of the 1970s and 1980s. What we
have arrived at today, and increasingly so, is probably a kind of financial
capitalism where national governments are at the mercy of the whims of the
financial markets, whose whims again are at the mercy of cynical large scale
speculators whatever nationality they may be.

The references are:

Anderson, M.S. (1987). Europe in the Eighteenth Century, 1713-1783, 3.ed.
(1961), London: Longman.

Braudel, Ferdinand, (1985). Civilisation & Capitalism, 15th-18th Century,
(1979), Vol.III; The Perspectives of the World, London: Fontana Press.

Kennedy, Paul. (1989). The Rise and Fall of Great Powers, Economic Change
and Military Conflict 1500 to 2000, London: Fontana Press (1988).

Marx, Karl, (1972). Kapitalen, Copenhagen: Rhodos.

Quigley, Carroll. (1966). Tragedy and Hope, A History of the World in Our
Time, New York: Macmillian.

Sampson, Anthony. (1993). The Essential Anatony of Britain. Democracy in
Crisis, rev.ed., Sevenoaks, Kent: Coronet Books, Hodder and Stoughton
(1992) (1 ed.: 1962).

Steiner, Zara. (1994). The Fall of Great Britain, Peace, Stability, and
Legitimacy, in: Geir Lundestad (ed.), The Fall of Great Powers, Peace,
Stability, and Legitimacy, Nobel Symposium 1987, Oslo-Oxford: Scandinavian
University Press. / Oxford University Press.

Wallerstein, Immanuel. (1978). Det moderne verdenssystem, 2 vols,. Oslo:
Gyldendal. (translation of The Modern World System, Academic Press 1974).