Systemic Transformation

To address a systemic transformation it is necessary to work, simultaneously if possible, in various strategic fronts: partial advances can or cannot facilitate further transformations. Which might be those fronts and how could they be tackled?

It is not an easy task to transform the systemic course and concentrating way of functioning that prevails in the world. However, for humanity’s and the care of the environment’s sake, it is a challenge impossible to ignore. It needs to be faced with determination, prudence, and all the intelligence and ability that present generations and their leaders are capable of applying.

Ultimately, it is about a fight among interests that develops in a context of huge power differences between the confronted sectors. At the risk of oversimplifying, on the one side, a powerful minority of owners of big financial, media, and commercial entities benefit with the concentrating order imposed to the world. It is not a homogeneous universe and presents significant differences in their respective interests (something that needs to be taken into account), even though all of them are aware of the need to make common cause to defend their privileges. On the other side, large majorities, 90% or even more of the world population, suffer in one way or another with more or less intensity the consequences of the concentration of the global wealth and the environmental deterioration. This is a highly heterogeneous universe with sectors that understand what is going on and have the capacity to mobilize themselves, while others have a restricted access to information, are ignored or manipulated by the economic power -in complicity with media, political, and other opinion-maker segments (including some educational systems and think tanks) – to divert them from defending their interests.

That fight among powers of such different nature generates asymmetries that are difficult to overcome as those, who stubbornly support the status-quo, know very well how to retain their privileges. Instead, large populations that could benefit from a systemic transformation have to face a hard route of enlightenment, of recognizing each other, of organizing to act in concert, of mobilizing others and themselves. It is true that progress has been made and successes occurred, but it would be naïve and dangerous to ignore centrifugal forces that run against the transforming movements: some are induced and encouraged by the interests of those who oppose transformation, but others forces are generated by the diversity of circumstances, perspectives, needs, values and emotions coming from the heterogeneous nature of the people willing to transform their situation. In other articles, we have stressed the critical role played by elucidating what is going on and by imagining how could a desired future be, one for which we might be willing to invest a good part of our energies [1]; important aspects of any transforming attempt that influence social mobilization and the election of its leadership.

Critical fronts for transforming intervention

The concentrated order is sustained by a series of factors that, far from being disconnected, are necessary complements as they reinforce each other to reproduce an unbridled, greedy, and selfish way of living and functioning. If it were possible to eliminate one or more of these factors, the transforming impact would be great but, if the purpose were to transform in a sustainable way the systemic course, the challenge would extend to remove them all.

In the following lines, we will focus on pointing out some of the critical economic factors that support the contemporary concentrating order. Nevertheless, it is worth noting that there are other equally important factors in all other dimensions of human action, including cultural, political, moral, educational, media, judicial, among others.

(i) Who controls the economic policy?

Traditionally, it is the economic power who controls public policies and, in particular, the economic policy of a country. Such control could be exerted by nominating those who formulate and implement policies or, indirectly, through related politicians and technicians. Frequently, they alternate between private and public positions [2], being either top executives in corporations or senior analysts in research institutions that hold a neoclassical view. In any case, they impose and protect their interests at all costs. Every transforming process needs to break that dynamic by subordinating the economy to the interests of the general wellbeing and the environmental protection. Subordination does not imply voluntarism, in the sense of just acknowledging the opportunities without considering local and external constraints and circumstances.

(ii) Firm regulation of financial activity

Financial capital has taken over the wheel of the global economy and surpasses the regulatory capacity of National States. This situation becomes unsustainable in economic, social, and environmental terms. The effects have been devastating for the world [3]. The licentiousness of financial speculation with its high returns has deviated massive resources away from the production of goods and services devoted to the general welfare. Those high yields are obtained by expropriating good part of the value generated by enterprises, workers, and the States. There will not be systemic transformation without dominating the more recalcitrant financial groups through firmly taxing their wealth as much as the transactions they make. There exist financial entities that speculate with their huge size, convinced that their magnitude and the impact they could generate if they were to disappear in a crisis or bankruptcy protects them [4].

(iii) Abate tax evasion and elution

Huge tax evasion and elution prevail in developing countries facilitated by certain commercial operations and the existence of tax havens; it feeds capital flight and curtails the capacity of the State to provide social and productive services. The organization Global Financial Integrity estimates that in 2012 US$ 991.2 billion dollars illegally flew out of our countries, 55% towards banks, mainly in the United States and England, and 45% to tax havens such as Switzerland, the Virgin Islands, or Singapore [5].

Some estimations show that only 3% of the total monies that went to tax havens comes from political corruption, one third is attributable to organized crime, and between 60 and 65% is due to illegal maneuvers of individuals and big corporations: the rich leak twice as much money as politicians and organized crime together; it is outrageous the tax evasion of the powerful [6].

Several countries actively facilitate the daylight robbery of resources from developing countries getting huge profits. One of the most widely used mechanisms is a commercial triangulation, under-invoicing exports while over-invoicing imports. By means of manipulating the price, quantity, or quality of goods and services that are being commercialized, criminal offenders can easy and rapidly move substantial amounts of money towards jurisdictions that are more lenient with taxes and the secrecy of operations [7].

The European Parliament denounced the hypocritical conduct of Western countries that allow big companies to abusively profit at the expense of Southern countries evading their tax obligations. It states that tax havens “can constitute an insurmountable obstacle for the economic development of poor countries, stealing the sovereignty of other states, and creating incentives for economic delinquency.” It calls for a new binding, global financial agreement that could force multinational groups and their subsidiaries to automatically reveal the benefits they obtain and the taxes they paid in each country. Furthermore, it proposes the prohibition for any company, bank, or institution registered in a tax haven to benefit from public funds [8].

(iv) Reorient savings from financial speculation towards real economy

If the profitability of financial investments were to greatly surpass the return of investments in the real economy, it could be an uphill struggle to finance productive activity. It happens that appropriating the value that others generate (through financial speculation but also from an oligopolistic prevalence) takes away support and the capacity to operate of producers aiming at satisfying the needs of the population and improving their living standards. A perverse accumulation dynamic and a narrow and excluding development get installed as more and more of the available savings tend to go to financial activities and towards oligopolistic corporations that assure more short-term returns, while the broad base of the real economy does not grow or grows very slowly affecting people’s jobs and incomes that are the spine of the internal market.

When the control of the State was in the hands of privileged minorities related with the financial capital or other powerful economic interests, the institutions dedicated to finance investment ended up being functional to the economic concentration and turned their backs on the transformation and democratization of the national productive structure. It is in the context of transforming movements that these entities can fulfill a much more different role.

Productive investment gets mainly financed by national savings and only in certain sectors and circumstances by foreign savings. These two types of resources flow through financial channels and entities that in the last decades managed to get rid of regulations that used to norm and control their actions. The result of this process of financial deregulation, with epicenter in affluent countries, has been one of the main factors that explain the prevalence of speculative investments that extract value instead of generating it.

Financial authorities in each country are responsible for establishing financial policies, in the processes of transformation consistent with inclusive development purposes, and to exercise control and supervision over financial entities. Therefore, it is not surprising that the financial capital has traditionally seek to take over the Central Bank proclaiming as an unquestionable truth the need for it to be “independent,” of course independent not from them but from the political power that was on duty at any given time. Thus, the Central Bank became a critical custodian of their interests and privileges. Nowadays, at least in various Latin American countries, this position is starting to change: the new Central Banks Charters make them part of the national development effort.

(v) Replace current rating agencies

Current rating agencies constitute an essential part of the concentrating dynamic that prevails in the world. If, in contrast to what is occurring today, the evaluations were directed to identifying investments that could contribute to enhancing the general wellbeing, environmental protection, and systemic stability, it would be indispensable and possible to replace current rating agencies by other type of rating entities, one that widens the evaluation criteria to add other risks to the financial ones, such as economic, social, and environmental risks as well. It would imply passing from a rating system dedicated just to protect the profitability of investors towards another one more comprehensive that, acknowledging legitimate specific interests, could subordinate them to the general wellbeing, the organic growth of economies, and the firm protection of the environment [9].

Footnotes

[1] Elucidate what is going on and imagination to transform.

[2] A dynamic that is known as “revolving doors”

[3] Is the world burning?.

[4] These are the ones that are called “too big to fall, fail, and jail.”

[5] http://www.gfintegrity.org/issue/illicit-financial-flows/.

[6] Tax Havens, Evils of our Times.

[7] Global Financial Integrity.

[8] Tax Havens: Crimes and their Victims.

[9] See the article Credit Rating Agencies in this same issue 138 of Opinion Sur.

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