RE-REGULATION OF THE ECONMY
Why Attac Supports Re-Regulation of the Economy.
Shift of Power from Democratically Elected Governments to Banks, Insurances and Investment Funds, the Actors on the Finance Markets
By Attac Austria
[This article published on the Attac Austria web site is translated from the German on the World Wide Web, http://www.attac.at/661.html .]
The power of finance markets becomes greater every day. Whether through interests, taxes, exchange rates or the budget, the most important instruments of economic control are increasingly influenced by actors on the finance markets. Through completely free capital transactions, "investors" can extort nation states at will and play them off against each other. The possibilities of democratically elected governments decrease. Finance markets become judges over the economy punishing "mistakes" with (threatened) capital flight.
The demands of finance markets - besides completely free capital transactions to extort states - are excessively high interests and low taxes. Both weaken the total economy. When taxes on capital income are lowered, labor incomes must be taxed higher. When interests rise, the investment activity of businesses slackens. Fewer jobs are created and the economy subsides. Unemployment in Europe at the end of the nineties was four times as high as in the sixties and twice as high as in the eighties.
Finance markets discipline governments and businesses. When "maintenance" of the stock price (double-digit profit expectations) becomes the supreme goal, all other goals (proper wages, social programs, participation, ecology, culture) fade. This leads inevitably to decisions that have a negative long-term effect on businesses. These businesses are not benefited since the investors usually "break off" again after a short time. Large investors often hold stocks only a few weeks - and only ten minutes for currency investments.
DEREGULATED FINANCE MARKETS SPREAD INSTABILITY AND TRIGGER CRISES
Owing to deregulation, the financing function is forced to the sidelines while speculation massively increases. In currency trade, the share of speculation is already over 95%. Through the massive acceleration of speculation, the finance markets become chronic trouble spots. The crises affect the whole world economy, not only the financial system.
In the long-term historical perspective, the world economy was susceptible to crisis before the finance markets were regulated and after they were deregulated. In the brief phase of regulated finance markets, after World War 2 to the beginning of the 1970s, there was peacefulness. (Regulation occurred under the impression of the worldwide economic crisis at the beginning of the 1930s.)
The basic characteristics of regulation were stable exchange rates, controls on capital transactions, and low interests. Crises became everyday reality again after the collapse of the Bretton Woods system, deregulation of the finance markets and liberalization of capital transactions. In the 1990s, the sequence was already breathtaking: 1992/93 K.O. of the pound, 1994/95: Mexico crises; 1997/98: Asian crises; 1998/99: Brazil, Argentina and Turkey were lined up.
The main causal agents are never the main injured parties. During the "Tequila crisis," 27,000 small Mexican entrepreneurs were driven to bankruptcy and the extensive fire in South East Asia left behind 25 million unemployed. Both times the European banks came away largely unscathed since the Monetary Fund tied up rescue packages with tax funds - for investors from the "North," not for the afflicted persons in the crisis countries.