Dave's 6th Post

January 30, 2011 - From somewhere in Atlantic Headed for Africa

Today’s guest lecturer in our Global Studies class, henceforth referred to as GS, was an economist PhD from Michigan State. On our previous SAS voyage, the GS class was called the Core Class and I may have used that title in previous posts. The class began with our “Global Minute.” A geography/geology professor spends a minute during each class to brief us on our current location describing its physical history. I’ve heard some say it’s the best part of GS.

The subject of Professor Ellen Fitzpatrick’s lecture today was Neoliberalism, a belief system or ideology that she claimed has caused the deaths of millions and much suffering globally. Neoliberalism does not mean “new liberal.” In fact, it means quite the opposite. It is based on the concept that free markets and unrestrained capitalism let market forces work best for the benefit of all. In America, it really took hold under President Ronald Reagan and is represented today by The Wall Street Journal, The National Review, and particularly, The Weekly Standard (I added these publications and the definition of Neoliberalism above but I suspect the professor would agree). My conservative friends may want to skip the next couple paragraphs.

As petro dollars accumulated in international banks after the 1973 oil crisis, international banks had piles of money they needed to invest. They lent money to Latin American and other countries and when interest rates went up (remember stagflation), debtor nations were faced with unmanageable interest payments on their debt. The World Bank and IMF restructured loans in a program called Import Substitution and Industrialization or ISI. The US, the UK, and Germany basically led this effort and it resulted in (hang on) Structured Adjustment Policies (SAP) that accomplished the following:

-Reduced the following:
-Government regulations
-Tariffs
-Social programs
-Distributions to the poor

Increased the following:
-Wealth of the rich and the 1st world
-Poverty in the 3rd world (today referred to as "The South or Southern Tier")
-Economic inequity between the rich and poor nations and individuals

The result was that the banks in rich countries were repaid, the poor were further impoverished, indebted nations were saddled with unmanageable interest payments, and the crisis was averted. Money was effectively shifted even more efficiently to the top tier of nations.

An example of how this worked is the banana and coffee industries. Rather than help producer countries (poor or developing) add value to their products domestically, bananas and coffee beans were shipped out of producer countries to have value added elsewhere in processed and packaged goods, etc. Bananas and coffee were kept cheap in rich countries and the poor were kept poor and unemployed in countries like Dominica where we just visited and that has an unemployment rate of 40% I’m told. We called this policy Reaganomics and it was based on a “trickle down” theory of economics where jobs and wealth flowed down to the lower levels as the rich became more prosperous. According to Dr. Fitzpatrick, this theory of economics is regarded as a failure in Latin America. In my view, Reaganomics has to also be regarded as a failure in America where we have seen the income gap widen, real wages decline, and a more and more wealth gravitate to the top 1% since 1980. For example, in 2006 the top 1% earned 6% of national income compared to 1% in 1974.

(Conservatives: restart here)

Wednesday’s International Herald Tribune (1/26/11) had an interesting article titled “The Superrich Pull Even Further Ahead.” I saw a connection between it, an article I read in the NYT the day we boarded the ship on 1/11/11, and the theme of our voyage which is Globalization: Thinking Globally but Acting Locally. The NYT article by an author I like, Nicholas Wade (see his book The Faith Instinct: How Religion Evolved & Why It Endures), was titled “Depth of the Kindness Hormone Appears to Know Some Bounds.” The article described recent research results on altruism. The results indicate that altruism is limited to our clan or in-group and does not extend to out-groups. Oxytocin, the hormone of love, it seems increases love of our own in-group members but not out-group members and may promote ethnocentrism, not universal brotherhood. The previous article, on the superrich, mentioned at the top of this paragraph, describes a new phenomenon of global income inequality as today’s rich form a new in-group of globe-trotting wealthy elite. Not only are the rich getting richer, it is becoming an international in-group that relates more with the rich in other countries than the less affluent fellow citizens in their own countries.

Dan Ariely, professor of behavioral economics at Duke, another author I like (see his book Predictably Irrational: The Hidden Forces that Shape Our Decisions), concluded the article on the superrich by observing that we are very social animals and we see things and construct our beliefs and values from the perspective of our in-group. He claims that economic inequality creates multiple societies and builds another level of separation between in-groups and out-groups within nations. He recognizes this new structuring of society as a paradox. As the world grows together with globalization, it is also becoming more stratified and growing apart as the rich in-group gets richer leaving out-groups behind. As we glided down the Amazon in our air conditioned ship, I wondered how lower stratified out-group members will fare long term in the Brazil of tomorrow. See the picture below of an obvious out-group family living on a riverboat. I took this and other pictures of families living along the riverbanks from our ship. (Click on picture to enlarge.)

And what happens in America where the top 1% gets progressively more and more of the economic pie as national out-groups are increasingly marginalized? What shape will the inevitable second American revolution take? The same Herald Tribune issue I mentioned earlier also had a fictitious article reporting on the 2020 annual World Economic Forum, a yearly summit meeting of world leaders in Davos, Switzerland. At the meeting, the Chinese company Litchi (formerly Apple) served dim sum rather than hamburgers and President Bill Gates, representing the United States, tried to drum up investment capital after a decade of rioting and near debt default in America. Anyone care to make a prediction about our collective future?