(November 25, 2008, Speech at La Casa Encendida) — When this lecture series was decided by La Casa Encendida, I suppose the organisers did not expect the challenges of the XXI century to be quite so serious. The title of the whole series of this Cycle is “Los Retos del Siglo XXI”, [“Challenges of the 21st century”] and certainly the siglo XXI has got off to a very bad start. Another world is certainly necessary, that is the other title of these series. I think with the multiple crises that we have before us today we also have a tremendous opportunity, but this window of opportunity is not going to last very long. I want to say right away that I am supposed to talk about democracy, and indirectly I shall, but democracy doesn’t mean much in a context where huge and growing populations, hundreds of millions of people are living in increasing poverty. Democracy doesn’t mean much if you are hungry or homeless, or have no health care or your children can’t go to school, even if you have a vote, democracy is not effective.
Of course the election of Barack Obama is a hugely hopeful sign I think everyone in
We all have our national democracies and fortunately we can vote, and we can change things at home, but most of the laws, at least 80%, are going to be coming from Brussels, and that is very bad news because Europe as it is defined by the European Commission with the complicity of the member states seems to me to be stifling democracy. Once more, this is not my subject, but I hope we will have time to discuss it. There are many extremely bad signs, including the working time directive, which will allow people to work 65 hours a week, [NOTE: THIS DIRECTIVE WAS SUBSEQUENTLY DEFEATED, AT LEAST TEMPORARILY, SG]. Are we going to be dragged back into the 19th century? The four recent judgments of the European Court of Justice striking down the gains of workers over the last sixty or seventy years are extremely dangerous. Many other anti-democratic events are happening including the negation of the NO votes of the French, Dutch and Irish to the Constitutional Treaty or its clone, the Lisbon Treaty. But we have come together tonight in a world situation which is crowded with emergencies so I am not going to stick only to
I want to talk about the three major crises that I see threatening not just citizenship and democracy itself, but also the possibility of civilized life on this planet. You may think I am exaggerating, I hope to convince you that I am not, that I am not being alarmist. I want to first name these crises and then go on to develop them further, and point out how we can escape from them because I think that we are also in a moment of hope, but it is not going to happen spontaneously. Escape is going to require the energies of citizens who are conscious of the emergency, and I think because you have come to a talk like this one tonight that you are probably in that category, so I feel a sense of urgency also in speaking to you.
The first crisis is the crisis of poverty and inequality. It’s a social crisis, and certainly in a series of lectures that is devoted to the subject “otro mundo es necesario”, I would say that this crisis is not necessary, it’s an unnecessary crisis. There is no excuse at the beginning of the XXI century for mass poverty. It would be entirely possible to give everyone on earth a decent and dignified life. We don’t lack for wealth, and I will explain why we don’t lack for wealth in a moment.
The second crisis I want to talk about is the one that you have all been inundated with because it’s on the front pages, it’s the lead story every day on the radio and television, and that is of course the financial crisis which is causing markets to go up and down, but mostly down. Governments are finding overnight hundreds of billions of dollars to bail out the banks for their stupid and greedy behavior. So far the victims of this crisis have not received anything. The financial mess is being cleaned up entirely in favor of the rich and the powerful, but it has also pushed almost every other subject off the agenda, and that is a big mistake because we have to look at the whole picture.
This brings me to the third crisis which in my view is the most serious, and most urgent of all, and that is the environmental crisis of global warming, of climate change, of the destruction of biodiversity. This is happening much faster than most scientists much less governments believed was possible, and I’ll give you a few details of that. Why do I say it’s the most urgent? Because with man-made systems, with the distribution of wealth, and the division of labor or the financial meltdown, we can go back and start over. What human beings have built other human beings can deconstruct, and rebuild in a fairer, more equitable way. But that’s not true with climate. Once the climate has gone off the chart it’s finished, the game is over, and human beings whatever they wished they might have done have no chance to go back and start over and hope for the best. So that’s why climate change is the most urgent.
We have barely begun, I am afraid the leadership in particular, has barely begun to understand what the consequences of climate change are going to be, consequences for food, for water, for livelihoods, for education, for population movements, for the huge number of immigrants who will be seeking shelter, for life itself. So that’s my subject: the triple crisis, what we can do about it to build a better, a fairer, a more ecological and more democratic world. Once more, I believe it’s possible, but it is not going to happen unless citizens get behind the demands for profound changes because it’s a change of the whole system that is needed.
So let me now try to develop each of these crises in a bit more detail. First: the social poverty equality crisis. Let me begin here in
Let’s stop talking about poverty for a moment and talk about wealth. I think the crisis is really the crisis of wealth, of where it is, where the real money is. Here I take as an authority on wealth the brokerage house Merrill Lynch which recently got into deep trouble and was bought by Bank of America to save it from bankruptcy. Every year Merrill Lynch publishes a world wealth report, and the 11th edition came out about 6 months ago. Merrill Lynch says that there are approximately 10 million people worldwide whom they call high net worth individuals. In other words, people who have a lot of investable cash—Merrill Lynch is not counting the houses, the yachts, the art collections, the wine collections, not counting anything that isn’t liquid and ready-to-hand. These 10 million high net worth individuals together have 41 and some trillion dollars in assets in investable wealth. 41 trillion, is 41 plus 12 zeros. This is an incomprehensible number so let’s ask how much it is. It’s 3 times the GDP of the
This is private wealth which is clearly not being redistributed because we have spent the last 20 years under neoliberal policies, 30 years actually not taxing rich individuals at all or reducing their taxes systematically. The theory was that if you reduce taxes on the rich, they would then invest, and that would create jobs, but that’s not true. The rich have everything that they need anyway so they don’t invest in productive investments, they invest in generally unproductive financial instruments where profits are highest but which create no jobs. You can see immediately the link to the financial crisis. And Merrill Lynch say that by 2012 -maybe this has changed because of the financial crisis- these high net worth individuals will have accumulated not 41 but 59 trillion dollars. We can look at the percentages, and see that with 10 million of these individuals worldwide, that is about one person in 700 who is part of this category. Even the OECD says, and I quote, “growth benefits the rich”.
The good news is that although almost every country has grown more unequal in the last 25 years, both
There are other ways to measure wealth. Forbes magazine makes a list every year of billionaires in the world. This year there were more than 1.100. These 1100 people taken together have about 5 times as much wealth as the entire gross national income of
What is it to be a billionaire? Image that you have a billion dollars and you are investing your money, but you are such a bad, inexperienced investor, maybe you inherited your money, that you are only getting a 5% return. Even if you only make 5% on your billion dollars, every day you would have to spend $137.000 in pure consumption or you are automatically going to become richer, you can’t help it. Maybe the first day having 137.000 dollars is great, you go out and shop, but the 2nd, the 3rd, the 300th day?
Let me just say one or two more things about wealth because when you compare the inequalities in the world it really is quite alarming. The UN University did a ground breaking study which they published two years ago. They looked at wealth all over the world, and they didn’t look at it like Merrill Lynch, they counted all people’s assets, everything you own, your house, your car, your refrigerator, the clothes on your back, everything. They found that 2% of the adults in the world have more than half the world’s wealth, the richest 5% per cent have 71% of the wealth, the top 10% have 85% of the wealth, and by the way we are probably all of us in this room in the top 10%. The bottom 50% had less than 1% of the wealth.
The scholars who developed these estimates also say that the total wealth in the world is about 125 trillion dollars, so if we compare that with the wealth of the ten million Merrill Lynch people, they have about a third of total world wealth. That is how incredibly unequal the world is. If you want to be in the top half of humanity, according to their definitions, all you need is 2200 dollars worth of assets, including your house, your car, the clothes on your back. I think most of us would still feel quite poor with only 2200 dollars in assets. There is enough to go around, we have worked out the figures. If you divided everything equally, which is impossible, and probably not even desirable, but if you divided everything equally, everyone in the world would have 26.000 thousand dollars worth of assets.
That’s enough numbers, I want to cover a lot of ground in a short time. Let’s go on now to the financial crisis, now that you already know where the money has gone and you can see why the financial crisis built up to a point that is now spilling over and damaging the entire real economy. It began, as I am sure you all know, with the subprime mortgages in the United States, which meant that the banks were looking for clients and they were going lower and lower down the social and financial scale, finally lending to people who the bankers among themselves called the “Ninjas”, the people with “no income, no jobs or assets”, people who had almost nothing, who of course should have not received loans, particularly at high interest rates. When these loans began to go bad, the Federal Reserve and many official economists thought at first that the subprime crisis was isolated, they thought they could keep it from spreading.
What they didn’t take into account, was what had happened since Alan Greenspan had taken over. Greenspan was for 19 years at the head of the Federal Reserve, he was a kind of saint, you couldn’t say anything against him. He presided over the biggest deregulation in history, the banks didn’t need to be regulated, they were supposed to be innovative, markets were supposed to correct themselves always, they would always be in equilibrium, that’s the doctrine. It was like belonging to a church, you couldn’t contradict the doctrine. And of course, once the banks were allowed to do so, they merged, they acquired other firms, they became what everyone calls “too big to fail”. Worst of all, they knew that they were “too big to fail” so if they got into trouble, the State would move to bail them out, which is exactly what it has done.
But if you are too big to fail that is an incentive to take tremendous risks. The banks certainly innovated, yes, but how did they innovated? They took different kinds of debt, mortgage debt, consumer debt, credit card debt, student loans, automobile debt, all kinds, they mixed it up, they made a big sausage paté, they took it out of the oven, they cut it up into slices, and then sold the slices of this sausage to other banks and to financial houses, telling them that they would make so a high return on these so-called “Collateralised Debt Obligations”. These products were based on complex mathematical formulas and in fact nobody really knew their value. These products were so complex that the banks made things that they themselves don’t necessarily understand. And what’s more, most of them borrowed an enormous amount of money in order to buy these toxic securities or to buy anything, to buy shares, or derivatives, practically anything. Borrowing far more than your actual capital is called leverage, when you can lever 1 dollar up to 30 or 40 or 50 dollars. Let’s say I have 1 dollar in my pocket. On the strength of that I will borrow 9. Then I have 10 dollars, on the strength of my 10 dollars only 1 of which really belongs to me, I will borrow a 100. Some of the borrowers, even very important financial houses, got to the point where they had only 1 real dollar for 40 or 50. This can work as long as, say, house prices keep going up but then the crunch comes, the moment comes when nobody trusts anybody else, nobody knows how much debt the bank next door has, all of these maneuvers suddenly begin to go bad and everyone starts to fear everyone else’s failure. So when Lehman Brothers—a firm everyone thought was too big to fail—actually failed in September 2008 and the government did not intervene , panic set in. Lehman Brothers had sold an enormous amount of these toxic securities which were not going to be paying any interest anymore, so other people throughout the banking system panicked, and said “I want my money back”.
Lehman Brothers was not able then to pay and there was no market in these toxic securities, these slices of debt sausage so nobody knew what they were worth. Banks lend to each other, this is the very basis of the system, but suddenly many banks and many money market funds that were supposed to be completely safe, completely liquid, completely in cash, were holding paper from Lehman Brothers. Their paper said “I will pay you in two weeks or in two months such and such an amount”. Suddenly, that paper wasn’t worth anything. That’s when the super-panic sets in, and when everything begins to fall apart. It is also the moment when Barack Obama’s popularity statistics start to go up and Mc Cain’s start to go down. So the financial crisis was at least good for that, but not for very much else.
Now what has happened is frankly that governments don’t really know what they are doing. Paulson, the secretary of the US Treasury under Bush said “I have 700 billion dollars for you, banks. I am going to buy up your toxic slices of debt, your toxic sausages, I will buy them from you so then you’ll have a clean balance sheet, you won’t have all this bad debt that’s not earning anything”. But he had to stop, two weeks ago he said “no I’m not going to do that anymore”. Why? Because still nobody knows what those toxic slices of sausage are worth, because there’s no market in them, there’s no trading in them, therefore there’s no price. And of course the banks were trying to sell them “I have this toxic sausage, it’s worth 10 billion”, but maybe it was only worth 2, or zero, nobody knew. So that didn’t work. Now Paulson is saying “I will guarantee your loans”, but the banks are keeping the money, and not lending to anyone, they are refusing to lend to each other. I don’t know what your bank really has in its vaults, you don’t know what my bank has, and therefore you saw that CitiGroup lost 60% of its value last week. This was the biggest bank in the
At my institute, the Transnational Institute, we calculate that so far there has been a minimum of 4000 billion dollars handed over to the banks worldwide, it may be much higher but we are not sure of that yet. But the 4000 billion is clearly not enough, it’s not working. The housing market is getting worse. 2 million houses have already been repossessed in the
We now have a system in which unemployment is growing, the Director general of the WTO is saying finance for trade is contracting drastically, so that means less exchange in the world, it means in general that we are in for something that’s going to go on for a very long time.
The third crisis, as if all this isn’t bad enough, and the most urgent, and the one that I worry about most, the one that keeps me awake at night is the environmental crisis. You probably know the name of the Inter- Governmental Panel on Climate Change. This is the United Nations group of scientists, they have been working for 20 years, they are about 1300 climate scientists in this group, they issue reports periodically and have three working groups. One concerns the climate science per se, one is about the impacts, and the third is about how to prepare for those impacts. Well, it’s a very conservative group scientists because once the scientists have submitted their report, before it can be published, there’s a big meeting at the UN with representatives of all the member governments. So, for example, the representatives of
So now I hope I have totally terrified you, that was my objective, I hope that you are really scared, but not so terrified that you can’t act. Having told you about these three crises very quickly, let me now say where the opportunities lie because if these crisis are taken seriously there is no reason on earth we cannot use the financial crisis to emerge from the other two. We have all the necessary technology, it is a matter of consciousness, and then of political will. It’s very good to do individual actions, I don’t want to discourage anyone from, for example, saying “I’ll take the train today, I won’t take my car, I’m going to change my light bulbs or I’m going to live in a more ecological way”. I’m all for that, that’s great, don’t ever think that I’m not encouraging individual measures. What I do say is that this is not enough, it’s not at the level of what is needed, what we need is a qualitative leap, and that is something that only large political entities are able to undertake.
So let us think in terms not just of the financial crisis, but of the three altogether, let’s take a holistic view of the world, and of the world system. How could we emerge? Well, partly at least by financing total conversion of our system towards an ecological carbon-free energy system. The banks have been receiving, as you well know, hundreds of billions of dollars. What have citizens received in return? Absolutely nothing. I’m rather astounded that we are not in the streets by the thousands saying, “what about us?” This is socialism for the rich, socialism for the banks, and the bills are to be paid by the ordinary citizens. Let’s use this opportunity to get the banks under control. Let’s say to them “in exchange for all of this money that you have received, you are now going to lend X percent of your portfolio, 30, 40, 50% to ecological conversion, to start-up enterprises that want to change the system”. Such small businesses exist, there are venture capitalists in
We need to use public money, and we need to consider that money and credit are social goods, public goods, and should be used for the needs of the public. This does not mean going communist, or that everything in the system, all the markets are going to be taken over by the government, not at all. It means that governments have to be able to control the financial system, and that a significant part of it must be used for targeted spending, not just loans to companies, but also to individuals who want to put solar panels in their roofs or insulate their houses so that they can become energy neutral, to construction companies so long as they are building with strict ecological guidelines. There are buildings in
Tax havens, you are not exactly next door, but we are all in Europe quite close to
In other words, what we need is democratic control over the financial system and to consider that money is not just a private matter, but also a public good. We can say that there is plenty of money out there, the problem is using it properly. I think that this kind of energy conversion and Keynesian green new deal would be a win- win situation. It could be a winner for ordinary citizens because it would create a huge pool of new jobs, good jobs, well paid, high-tech jobs, and also some unskilled low paid construction jobs. It would be a winner for politicians, if they understand that that is what’s necessary because they would get the thanks of their citizens to get their banks under control and to use the banks’ money, as is already done to a certain point in
I want to end by saying that another world is possible, that we have before us a quite important opportunity which we have to seize now as the moment is not going to last forever, and that we have to help our governments understand that they can save the banks, but they must also save the biosphere and the people, and the way to save the biosphere, and to save society at the same time is obviously to get together, and not be atomized and separate, the way so many powerful people would like us to be. So if we don’t agree on 10% of the programme, so what? We agree on the main things, and we have to build on our zones of agreement. There will be more and more people who agree at least on some things, we can build on the parts of the circles that overlap, we’ll have a greater and greater overlap of our concerns because more businesses will also come to think in this way, at least small and medium size businesses. When they can’t get credit, they too will start thinking in more forward looking, more creative terms. So let’s not rule out any alliances that we can make, in order to move towards this otro mundo posible . I hope I have at least convinced some of you so that tomorrow you will want to get out and do something about this triple crisis.