In My View

The ‘Word’ delivered

The twin oracles have spoken. They have delivered the ‘word’ apportioning blame for the global financial crisis that generated from the USA. Both the World Bank and the New York Times have found the real villain of the piece. And they have produced it signed, sealed and delivered. It almost seems that God (Milton Friedman!) has spoken to them in one bright moment of revelation. The verdict: the person to blame is the ‘small man’ – black, brown or pale (the pallor is from malnutrition).

François Bourguignon, Chief Economist of the World Bank (WB) and Michael Klein, Chief Economist of the International Finance Corporation (WB’s private sector lender) wrote in a recent report of the international financial institution, “Policy makers need to have realistic goals. For instance, while access to formal payment and savings services can approach universality as economies develop, not everyone will or should qualify for credit. There are instances where national welfare has been reduced by overly relaxed credit policies.” There, the ‘word’ is out. The poor do not deserve credit. So don’t give it to them.

The NYT is arguing in the same vein. In a report published on 18 October, 2008 titled, Building Flawed American Dreams, it has found the sex-scandal scarred housing and urban development secretary of the Bill Clinton administration to be the man who loosened the purse strings of the American credit institutions offering ‘sub prime’ mortgages to the poor. The two writers of the report also found the ‘fall guy’ of the narrative, those of the American poor who coveted a house of their own.

The report notes, “Homeownership has deep roots in the American soul. But until recently getting a mortgage was a challenge for low-income families. Many of these families were minorities….” The report later notes in a somewhat bemused tone, “There were real gains during the Clinton years, as homeownership rose to 67.4 percent in 2000 from 64 percent in 1994. Hispanics and African-Americans were the biggest beneficiaries. But as the boom later gathered steam, and as the Bush administration continued the Clinton administration’s push to amplify homeownership, some of those gains turned out to be built on sand.”

Now that we have the protagonists, antagonists and the plot, the story should gather momentum. Indeed, the WB report quoted above, entitled Finance For All? Policies and Pitfalls In Expanding Access, lays down with great dexterity the grounds for creating barriers towards the poor accessing loans from acknowledged financial institutions. It prescribes higher interest rates and of course, no credit subsidies by governments to the under-privileged. And all this was sugarcoated in the lexicon of the development discourse that the WB extends to befool the common people.

This writer has been arguing since last year that income inequality in the USA has reached such epic proportions that something has to give in. Considering the American elite have developed over a hundred years, failsafe mechanisms to staunch any challenge to the rule of a diarchy, the sheer economic weight of the costs of the inequality would make it untenable for the party to go on.

Let us consider a few facts about that inequality. An analysis of the American Internal Revenue Service (IRS) data in 2006 revealed that, “Between 1979 and 2005, the mean after-tax income for the top 1% increased by 176%, compared to an increase of 69% for the top quintile overall, 20% for the fourth quintile, 21% for the middle quintile, 17% for the second quintile and 6% for the bottom quintile.” Please note the difference of income growth between the top five per cent and bottom five per cent: 69 per cent and six per cent respectively.

So can one safely argue that the Clinton administration’s policies of making cheap and easy credit available to the American poor was nothing but a ploy to put a salve on a festering wound. Can it also be argued that the American financial institutions like Fannie Mae and Freddie Mac – the twin names symbolising the credit blowback – offered sub prime loans to the poor not because of a generosity of their hearts but because there were not enough creditworthy people left in the United States?

The question more pertinent to us Indians is: Do we intend our country to be like the United States of America? That would entail holding 4.6 jobs between the two adult members of a family of four. Your children would have to carry their student loans for the rest of their lifetimes. And your family could get bankrupt paying the medical dues in insurance and bills that the insurance company refuses to pay.

Amartya Sen, India’s only Nobel laureate in economics, and one who ironically delivered the first Prof Hiren Mukherjee lecture at Indian Parliament just a few months ago, talked about a strange notion “controlled greed” to be the driving force for the post-Crash world economy. Unfortunately Sen refuses to acknowledge that monopoly capital – formed in the conjuncture of finance capital and industrial capital – is by its very nature ‘all consuming.’

It is this power of monopoly capital, which keeps the American wheel of global domination chugging. If anyone shows the temerity to control that ‘greed,’ that person is soon removed from the scene. Dr Manmohan Singh, Sen’s friend, is deeply aware of this small fact.

Pinaki Bhattacharya, currently located in Kolkata, is a Special Correspondent with the Mathrubhumi, Kerala. He writes on Strategic Security issues. He can be contacted at pinaki63@dataone.in