Posted with permission from Green Left Weekly
Patrick Bond, Durban
Green Left Weekly
21 November 2008
One of US president-elect Barack Obama’s leading advisers has done more damage to Africa, its economies and its people than anyone I can think of in world history, including even Cecil John Rhodes.
That charge may surprise readers, but hear me out.
His name is Paul Volcker, and the 82-year-old banker was recommended as “a legend!” to Obama by Austan Goolsbee, his chief economic adviser.
Volcker was profiled by the October 21 Wall Street Journal: “The cigar-chomping central banker from 1979 to 1987, he received blame for driving up interest rates and tipping the US into the deepest recession since the Great Depression.”
But why dredge up crimes nearly 30 years old?
Because of the awesome financial destruction Volcker imposed, within most Africans’ living memory. His policies stunted the continent’s growth when it most needed internal economic coherence.
Even the International Monetary Fund’s (IMF) official history cannot avoid using the famous phrase most associated with the former Reserve Bank chair’s name: “The origins of the debt crisis of the 1980s may be traced back to and through the lurching efforts of the worlds’ governments to cope with the economic instabilities of the 1970s … [including the] monetary contraction in the United States (the ‘Volcker Shock’) that brought a sharp rise in world interest rates and a sustained appreciation of the dollar.”
Volcker’s decision to raise rates so high to rid the US economy of inflation and strengthen the fast-falling dollar had special significance in Africa, wrote British academics Sarah Bracking and Graham Harrison: “1979 marked a radical change in global economic policy, inaugurated with the ‘Volcker Shock’ … when the United States suddenly and dramatically raised interest rates, [which] increased the cost of African debt precipitously, since a majority of debt stock was held in dollars.
“The majority of the newly independent states had been effectively delivered into at least twenty years of indentured labor. From that point on access to finance became a key policing mechanism directed at African populations.”
Journalist Naomi Klein added in her book The Shock Doctrine, “In developing countries carrying heavy debt loads, the Volcker Shock was like a giant Taser gun fired from Washington, sending the developing world into convulsions. Soaring interest rates meant higher interest payments on foreign debts, and often the higher payments could only be met by taking on more loans …
“It was after the Volcker Shock that Brazil’s debt exploded, doubling from [US]$50 billion to $100 billion in six years. Many African countries, having borrowed heavily in the seventies, found themselves in similar straits: Nigeria’s debt in the same short time period went from $9 billion to $29 billion.”
According to University of California economic geographer Gillian Hart, “Medium and long-term public debt shot up from $75.1 billion in 1970 to $634.4 billion in 1983. It was the so-called Volcker Shock … that ushered in the debt crisis, the neoliberal counterrevolution, and vastly changed the roles of the World Bank and IMF in Latin America, Africa, and parts of Asia.”
The British Medical Journal complained in 1999 of the orthodox World Bank structural adjustment policies that immediately followed:
“According to Unicef, a drop of 10-25% in average incomes in the 1980s — the decade noted for structural adjustment lending — in Africa and Latin America, and a 25% reduction in spending per capita on health and a 50% reduction per capita on education in the poorest countries of the world, are mostly attributable to structural adjustment policies.
“Unicef has estimated that such adverse effects on progress in developing countries resulted in the deaths of half a million young children — and in just a 12-month period.”
A few blocks away from the Federal Reserve, one of Volcker’s closest allies was World Bank president Tom Clausen, formerly the Bank of America’s chief executive officer.
As the Volcker Shock wore on, in 1983, Clausen offered his board of directors this frank confession:
“We must ask ourselves: How much pressure can these nations be expected to bear? How far can the poorest peoples be pushed into further reducing their meagre standards of living?
“How resilient are the political systems and institutions in these countries in the face of steadily worsening conditions?
“I don’t have the answers to these important questions. But if these countries are pushed too far, and too much is demanded of them without the provision of substantial assistance in their adjustment efforts, we must face the consequences.
“And those will surely exact a cost in terms of human suffering and political instability.”
At that point, “Africa was not even on my radar screen”, Volcker told interviewers Leo Panitch and Sam Gindin.
Meanwhile, the World Bank’s sister institution, the IMF, was described by Tanzanian president Julius Nyerere as “a neo-colonial institution which exploits the poor to make them poorer and serves the rich to become richer”.
Volcker served Richard Nixon as under-secretary of the Treasury in 1971.
Eight years later, he was chosen to chair the Federal Reserve, which sets US (and by extension world) interest rates. As then-president Jimmy Carter’s domestic policy advisor Stuart Eizenstat explained, “Volcker was selected because he was the candidate of Wall Street. This was their price, in effect”.
In 1985, Ronald Reagan offered Clausen’s job to Volcker, but he decided to stay on at the Fed until 1987, when he went back to a high-paid Wall Street job.
Back with Obama
Now he is back, and according to the WSJ,
“Obama is increasingly relying on Mr. Volcker. His staff now routinely reviews policy proposals and speeches with Mr. Volcker.
“Conference calls and face-to-face meetings of the Obama economic team are often reorganized to accommodate his schedule. When the team discusses the financial crisis, ‘The most important question to Obama: What does Paul Volcker think?’ says Jason Furman, the campaign’s economic-policy director …
“When Sen. Obama raised the prospect of a package of spending and tax measures to ‘stimulate’ the economy, Mr. Volcker disapproved. ‘Americans are spending beyond their means’, he told the group. A stimulus package would delay the belt-tightening and savings needed, he added, proposing instead better regulation and assistance to banks.”
By November 8, the odds of Volcker being appointed US Treasury Secretary were 10%, according to the WSJ’s betting pool. The race was between New York Federal Reserve Bank president Tim Geithner and former Bill Clinton-era Treasury Secretary Lawrence Summers, at 40% odds each.
Geithner served under Summers and Robert Rubin in Bill Clinton’s Treasury Department during the 1990s.
Summers gained infamy in 1991 as an advocate of African genocide and environmental racism, thanks to a confidential World Bank memo he signed when he was the institution’s senior vice president and chief economist.
Summer had argued:
“I think the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that … I’ve always thought that underpopulated countries in Africa are vastly underpolluted, their air quality is vastly inefficiently low …”
After all, Summers continued, inhabitants of low-income countries typically die before the age at which they would begin suffering prostate cancer associated with toxic dumping. And in any event, using marginal productivity of labour as a measure, low-income Africans are not worth very much anyhow.
Nor are African’s aesthetic concerns with air pollution likely to be as substantive as they are for wealthy Northerners.
Such arguments were said by Summers to be made in an “ironic” way. Yet their internal logic was pursued with a vengeance by the World Bank and IMF long after Summers moved over to the Treasury, where in 1999 he insisted that economist Joseph Stiglitz be fired from the World Bank for speaking out against the impeccable economic logic of the Washington Consensus.
Whose advice will prevail?
Volcker, Summers and a whole crew of similar capitalist economists are whispering in Obama’s ear for a resurgent US based on brutal national self-interest.
They need Obama to re-legitimate shock-doctrinaire neoliberalism — and in turn, they need Obama’s Africa advisers to promote military imperialism in the form of the United States Africa Command (Africom).
Can Obama instead listen to supporters like Bill Fletcher, Imani Countess and Danny Glover, who made TransAfrica (as one example) a visionary economic justice organisation, by fighting the policies of Volcker and Summers?
Can AfricaAction, the Institute for Policy Studies, the American Friends Service Committee, Jubilee USA, ActionAid and other genuine advocates for the continent get a word in edgewise, between fits of cackling from the corporate liberals who think they own Obama?
Will the president-elect ever get advice from left-leaning economists like James K. Galbraith of the University of Texas, or Center for Economic and Policy Research codirectors Dean Baker and Mark Weisbrot, who correctly read the various financial crises way ahead of time — and whose records promoting social justice would serve Africa far better?
So it is vital for Africans to wake up to the danger that the likes of Volcker and Summers represent. Anyone paying attention to the continent’s economic decline since 1980 knows the damage they did, but Obama apparently needs to hear more of their sins against his father’s people before he chooses his Treasury Secretary next week.
And while he’s at it, how about a revision of Obama’s utterly neoliberal “fundamental objective” for the continent, which is “to accelerate Africa’s integration into the global economy”?