Protect our countries in prevention of another serious global crisis

It is highly likely that the reckless concentration of wealth that prevails in the world today will result in another serious global crisis. In sight of that possibility, countries should take preventive measures not to be postponed to reduce as much as possible their vulnerability to external crises. This implies transforming those internal factors and ways of connecting with the world that may act as transmission chains for destructive impacts.

 

The world is immersed in a process of tremendous concentration of wealth that does not cease to accentuate. The fact that 62 individuals possess half of the world’s wealth (the same as 7.5 billion people) is not only an ethical and politically unacceptable fact but it also generates a trajectory plagued with contradictions, hard punishment to large majorities, environmental destruction and recurrent instability. This global process affects every country and it will most likely result in a new global crisis of unforeseeable consequences.

Attempts at restraining inequalities

There were no lack of countries that tried to reduce inequalities and vulnerabilities generated by the concentration of wealth. Thus, for example, at the beginning of the XXI century a good number of Latin American countries managed to have popular-base governments that applied a great variety of redistributive public policies, fostering the internal market and the acquisition of social rights and benefits. These measures were supported with budget allocations and active policies to favor important segments of industry, agriculture, commerce and services.

However, only in a few cases these popular-base governments were able to transform the nature and dynamic of the national productive matrix, as well as the internal structure and dynamic of main value chains. Democratically elected and with good social support, they managed to alleviate the impacts of the concentration process although they were never able to transform its inherent functioning dynamic. The economic power remained concentrated and profiting while, with political, media, and judicial complicities, it operated to destabilize until the electoral destitution or defeat of those who lead the transforming attempts.

Dismantling defense lines

Today a politically regressive and economically neoliberal wave replaced those popular-base governments dramatically reversing their policies. New policies re-established the deregulation of speculative financial operations, a capital flight that never ceased to exist, the transfer of resources from middle-class and popular sectors to concentrated groups, setbacks in social and labor rights. They compromise national production and employment with the triple threat of “cooling” the internal market, an indiscriminate opening of imports and the return to the primacy of primary sectors such as agriculture, livestock, and mining (the so-called “reprimarization” of the economy and exports).

In this way, the process of wealth concentration at global scale is in our countries facilitated. With the motto of “integrating ourselves to the world economy,” defense lines have been dismantled increasing the vulnerability and subordination to a global order where our countries, enterprises, and families are second or tenth-order actors. The rudder of the global course is in the hands of large international corporations that control world markets organizing them in such a way as to secure diverse value suction and appropriation mechanisms.

An alley that leads the world towards a new world crisis

Evidences abound that this world system of unrestrained concentration of wealth is structurally unsustainable. The concentration not only wreaks havoc on the world economy but also destroys the environment, affects relationships among social groups and countries, sentences strenuously attained rights to setback, imposes harsh values of unquenchable greed and indifference towards others; substitutes the search for meaning and the exercise of self responsibility for alienated stampedes towards consumerisms and addictions. In this context, the close-minded antagonisms, the “every man for himself”, and the power to impose of the strongest are magnified. The world is burning and horizons get darker ((the horizon gets darker and darker)).

We had been trapped in a dead-end alley marked by recurrent crises, ethical uneasiness, environmental destruction, the escalation of social and geopolitical conflicts, setbacks in education, health, and security of large majorities of the world population. In the economy, it is nonsense that the speculative financial movements are many times larger than the world’s real economy; that the concentration of wealth has weaken the effective demand for acquiring goods and services replacing them for gigantic speculative bubbles with a destructive potential much larger than the ones that blew off in 2008. It must be said that a new great global crisis in not unavoidable but with the acceleration of the concentration and the absence of forces capable of stopping it, are making it more than likely.

Global challenges versus local governances

Another great systemic outbreak could be avoided as long as other much different circumstances, than the ones prevailing in the world today, could be generated. It would help to count on some kind of global governance with authority and ability to solve the concentrating dynamic. However, such governance does not exist today.

In an increasingly more interconnected world, great challenges have turned global while governance is still centered over countries or group of countries. Today, financial capitals move freely around the world at high speed facilitated by the communications development: in a matter of seconds, one can order the purchase or sell of financial assets of much higher values than the budgets of the majorities of our countries. Faced with the avalanche of entrance and exit of capitals that suck out the value we generate, we can only count on national states and some regional groupings with modest and limited instruments of intervention. It is a highly unequal confrontation.

On the one side, an agile and influential concentrated economic power, guided by a voracious search for maximizing their rates of return without considering the destructive social and environmental effects they produce. On the other side, astonished nations and populations that do not find the way for stopping a dynamic that is destroying cultures, social cohesion, and general wellbeing.

Building defenses in prevention of a new great global crisis

If a new great global crisis would unleash, it will be our peoples and countries the most affected ones as it is always the case because the privileged 1% will find ways for ease their responsibility and evade the destructive effects. Moreover, such as it happened at the great crisis that started in 2008, it is most likely that they will profit from the misfortunes by mercilessly despoiling within the raging rivers.

Lacking sight of a systemic transformation and faced with the eventuality of a new great global crisis, countries should protect themselves with preemptive measures; strategic defenses that do not mean closing up to international relations that could benefit us or affect the potentiality of our resources. The purpose is to strengthen the internal market and national productive ability reducing as much as possible the vulnerability to external threats. This is, preserving our assets and caring for our own population.

Among various other strategic axes of economic policy, we highlight two of great importance. One refers to securing national savings for investing in the real economy (favoring the entire productive apparatus but mainly small and medium ventures) to avoid that a large part of it be diverted towards speculative activities or get flight abroad. Another systemic axis relates with the external sector that includes establishing regional agreements orientated towards integrating regional value chains, balancing exports and imports, and firmly regulating the entrance of speculative capitals.

In any case, it is impossible to ignore that a large part of national savings as well as relationships with external markets are controlled by concentrated groups that hardly invest in the real economy of their countries. On the contrary, they flight their profits evading taxes or they divert them towards speculation. Therefore, we need to act not only at the level of regulations (improving those that today are of doubtful compliance), but also at a much deeper level in the process of generation, appropriation, destiny and retention of national savings. The objective is to redirect savings internally generated towards productive and social investments that contribute to general wellbeing and environmental care.

This of course is not a simple thing to do, as it requires sustaining a diversity of initiatives. In the following paragraphs and as examples, we will just outline some of the most significant economic ones referring the reader to other texts published by Opinion Sur for a more extended description.

  • Transforming the behavior of entrepreneurs and corporations

 A good part, if not the majority, of entrepreneurs and corporations orientate their actions according to maximizing their rate of return with little or null consideration for the general wellbeing and environmental care. They believe that they are not responsible for those critical aspects while assigning it solely to the State and development or community organizations. This is not how it happens.

The way in which they produce, what they pay their suppliers, what they charge to those who buy their products, the degree of respect for labor legislation, technological and managerial training they offer their workers, the commitment with their communities, among other factors, have a direct incidence on the general wellbeing and environmental care. In addition, those that flight abroad a large part of their profits impede the generation of multiplying effects in their countries while they also under-finance the State by the large evasion of taxes they practice.

These behaviors can be modified through regulation, controls, or by clarifying what is really happening, something that is not easy but also not impossible as the liberal credo arguments based on the inherent individualism of people and the need to focus not on losing competitiveness and being able to remain in the market. However, if instead of engaging in capital flight they reinvested in productivity enhancements, they could preserve their competitiveness, fairly compensate their workers and suppliers, and assume their tributary responsibility. There is a long way to go to generate a new type of transforming entrepreneurship.

  • Transforming value chain functioning

Changing the behavior of entrepreneurs and corporations is not accomplished by acting just at the level of each individual actor but also transforming the way value chains operate. Every value chain is structured arranging complementarities among diverse productive units that agree to integrate along a productive process. The value each chain generates is produced by all the participants but the compensation each participant receives in recognition of the quota of value each actor generates is not determined by the group but by those who detent the capacity to impose their judgment. That privileged will generally lead to abuses of market power, thus, the most powerful actors extract on their favor a good part of the value generated by the rest. They extract value from suppliers and from those who buy their products, being those other enterprises or final consumers.

Therefore, a process of wealth concentration is established which flows to the top of the productive fabric, a few powerful actors that become more and more powerful at the expense of those who do not have the ability to resist the loss by appropriation of the value that is theirs. This has serious consequences because while leading enterprises accumulate through each productive cycle, the rest does so at lower rates or they do not accumulate at all and they stagnate or shrink back. In this way, the productive chain does not grow organically favoring every participant but rather it tends towards concentration of results producing inequalities that solidify and are projected over future productive cycles.

How to correct these power abuses? One possibility is by reestablishing spaces for negotiation of price and commercial conditions among participants of a value chain, including the participation of the State regulating and safeguarding the functioning of those spaces. It should be assured that everyone who participates in a productive chain (small, medium, and large ventures) obtain a fair part of its results.

Support for small ventures can be given individually or going up the scale and productivity thresholds through their integration into some kind of inclusive ventures. Associated to this, there is the objective of broadening the value chains to integrate popular sectors, issue covered in the article: Widening productive chains while integrating popular sectors.

Benefits claimed by each part cannot risk the viability of the entire productive chain (though it does not mean condoning concentration and extraction of value). It implies that leading enterprises will have to forego part of their rate of return to allow the entire productive chain to develop organically; being that its production orients towards the internal market or has to adjust to international competitiveness conditions.

There are cases where intermediaries appropriate a disproportionate part of the value generated by producers and regulations and controls are not effective. In those situations, it will be necessary to dismantle the power the intermediaries detent facilitating the establishment of other channels for stockpiling and commercialization with some mode of producers’ participation. This often happens in food value chains where price differentials between what the producer receives and the final consumer pays can be more than 30, 50, or even 100 times the initial price.

  •  Transforming the productive matrix

 In the interest of keeping this article short, to learn more about the implications and how to tackle the transformation of the productive matrix, we would like to refer the reader to the article: Transformation of the productive matrix: sectorial, social, and productive aspects. In this text, apart from covering the transformations of the productive matrix, we link this process with the previous subjects of value chains and new types of entrepreneurship.

  • Transforming the way we relate internationally

An approximation to this critical aspect is explored in the article: Protecting ourselves from the lashes of the global crisis.

The rudder in the hands of our societies

Before closing these lines, it is worth stressing that a change of course and way of functioning requires a political redrawing that leads and sustains such transformation. Without this political breakthrough, we would wander around confusions, frauds, and frustrations. The transformational challenge needs to be faced in the economy but also in the cultural, ideological, values related and, especially, media and judicial spheres.  A change of course involves actions, attitudes, and multiple responsibilities settled at the political and State levels.

The rudder of our future as humanity and as nations should be in the hands of our societies and not in those of markets controlled by a handful of powerful economic groups. This notion on who is driving our future is a fundamental watershed that plays at geopolitical level and that of each of our countries. To be more explicit: to end the concentration and privileges of powerful minorities, the economy must subordinate itself to the social and environmental interests and needs and not the other way around.

We have alerted on the imperative need of taking decisions in anticipation of a new great global crisis that could happen in a not so long term, focusing on some traits of a defense strategy against external crises blows. Protective measures that are suggested do not aim at isolating us from the world but rather at preserving decisional sovereignty. It is our responsibility to act with the greatest anticipation possible to avoid being exposed to the worst impacts of global crises we do not generate.

 

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