Review of Panic Rules


Jeremy Brecher


funny thing happened on the way to the New Millenium: the Old Millenium crashed.

According to economist Paul Krugman, "Never in the course of economic

events — not even in the early years of the Depression — has so large a part

of the world economy experienced so devastating a fall from grace."


you leaf back through the writings of mainstream economists and media pundits

over the past decade, you will discover that such a global economic crisis

couldn’t happen; that it wasn’t happening; that it wasn’t as bad as people said;

that it probably was a good thing in the long run; and that, anyway, it’s over.

If you want to escape this miasma of denial, read Robin Hahnel’s Panic Rules!


himself an economist, challenges the economic dogma that unregulated markets,

free trade, and globalization necessarily improve global economic efficiency,

let alone that they must lead to benefits for all. Since the market doesn’t

charge firms for the environmental and social damage they do, unregulated

markets give them an incentive to dump their wastes as cheaply as they can and

to drive small farmers off the land even if they then have to live in squalor in

already-bursting cities. Conversely, the market doesn’t give individual firms an

incentive to invest in education or healthcare, even if these are far more

"efficient" means of creating well-being for society as a whole than

producing sports utility vehicles.


corporations and private wealth can move without regulation in the global free

market, workforces, communities, and countries are forced to compete to attract

footloose capital. The result has been called a "race to the bottom,"

in which environmental standards, social protections, and incomes are drawn down

toward those of the poorest and most desperate. Hahnel shows that this was

occurring — even in globalization’s boom phase.


else was happening, too — the accelerating growth of a global financial capital

with little or no relation to the production of goods and services. New

borrowing worldwide increased twentyfold from 1983 to 1998 while production only

tripled. Daily trading in currency markets grew from $0.2 trillion in 1986 to

$1.5 trillion in 1998. Less than two percent of that $1.5 trillion is used to

finance international trade or investment in plant and capacity; an incredible

98 percent is for purely speculative activity.


from the U.S. and the IMF (International Monetary Fund) roamed the world,

encouraging countries to "liberalize" their economies — open them up

to unrestricted flows of goods, services, and capital. Speculative capital

poured into so-called emerging markets: Investment by mutual funds in emerging

markets, for example, increased from $1 billion in 1991 to $32 billion in 1996.


was, the money could pour out even faster than it poured in. Hahnel traces how

an apparently local crisis in Thailand rapidly spread around the globe. In 1998,

Thai GDP fell by 8 percent; in Indonesia it shrunk by 14%; there were roughly

comparable declines in South Korea, Hong Kong, Malaysia, and Russia. In

Indonesia, 20 million people lost their jobs in a year as the unemployment rate

rose from less than 5 percent to more than 13 percent, and the number living in

absolute poverty quadrupled to 100 million.


with what threatened to become a global financial meltdown, the IMF rode in to

the "rescue." Oh, woe to those visited by such rescuers! In exchange

for further loans, it imposed ruinous "conditionalities" under which

countries had to raise interest rates, privatize public investments, open their

economies to unlimited foreign ownership, cut social welfare, and rewrite their

labor laws to eliminate workers’ rights. The goal was to turn each stricken

country into what Hahnel calls a "debt-repayment machine."


quotes, of all people, conservative economist Milton Friedman saying that "IMF

bailouts are hurting the countries they are lending to, and benefiting the

foreigners who lend to them. . . . This is a different kind of foreign aid. It

only goes through countries like Thailand to Bankers Trust." One example of

the suffering caused by IMF "conditionalities": Oxfam International

estimates that, in the Philippines alone, IMF-imposed cuts in preventative

health care programs will result in 29,000 deaths from malaria and an increase

of 90,000 in the number of untreated tuberculosis cases. Tribunals investigating

"crimes against humanity": Take note!


page headlines proclaim that stocks have rebounded, currencies have recovered,

and the crisis is therefore over. True, some stock markets and some currencies

have rebounded, but 40 percent of the world remains in recession and poverty

continues to grow. And since the tidal waves of speculative capital sloshing

around the world remain undiminished, a global meltdown remains a catastrophe

just waiting to happen.


global corporations based in the U.S. and Europe are gobbling up the economic

resources of countries that have spent the past century struggling to escape

from colonialism. A Washington Post article in late 1998 describes how

"Hordes of foreign investors are flowing back into Thailand, boosting room

rates at top Bangkok hotels despite the recession. Foreign investors have gone

on a $6.7 billion shopping spree this year, snapping up bargain-basement steel

mills, securities companies, supermarket chains and other assets." And IMF

"conditionalities" require that countries eliminate laws that might

prevent this neocolonial asset grab. Perhaps this is one of the reasons that the

world’s 200 richest people have doubled their wealth in the past four years.


economic mainstream is divided on what to do to prevent future meltdowns. What

Hahnel dubs the "A Team" — AKA free-traders, globalizers, or the

Washington Consensus — calls for even more liberalization and even less

"interference" with the workings of the market. An emerging "B

Team," in contrast, is modernizing the ideas economist John Maynard Keynes

developed in the Great Depression regarding the need for global financial

regulation and coordinated fiscal and monetary policies worldwide in order to

ward off economic meltdowns in the future.


A Team’s approach, according to Hahnel, is just what got us into the global mess

in the first place. Some of the B Team’s proposals could help stabilize the

system, but without additional, more radical measures, they will also perpetuate

the global economy’s drive toward increasing inequality and environmental

degradation. They only deserve support if they are combined with other measures

which would actually reduce inequalities and environmental destruction — such

as major debt relief for impoverished countries and price supports for third

world exports.


Hahnel presents his own alternatives, it is a shock to hear him, sounding like

the most orthodox of economists, calling for more "global efficiency."

But he makes clear that "efficiency" should not be equated with

"profitability" — because private profit leaves out all those

"external" costs and benefits that accrue to society as a whole rather

than to wealth holders. And he makes clear that environmental destruction is the

most blatant kind of inefficiency. Instead, true efficiency requires that

non-market institutions compensate for the "inefficient" biases of the

market in order to "get prices right." He also points out that, in

today’s global economy, equity requires international cooperation to set

non-market interest rates and terms of trade to distribute more of the benefits

of globalization to the poorer economies. And Hahnel makes clear that

"efficiency" should not be pursued at the expense of other values like

equity, democracy, diversity, solidarity, or environmental sustainability.


are these goals to be achieved? Hahnel describes what has been called the "Lilliput

Strategy," in which grassroots organizations, unions, and independent

institutes and coalitions cooperate across national borders to contest the

negative aspects of globalization. He points out that this approach has already

won some important victories — such as the global grassroots campaign that

recently blocked negotiation of the MAI (Multilateral Agreement on Investment),

scotching what has been called a Magna Carta for global corporations. While the

immediate objective of the Lilliput Strategy, Hahnel argues, should be to stop

corporate-sponsored globalization in its tracks, it can and should also start

the process of building a system of equitable international cooperation. Only in

such a system can globalization provide the benefits that today it promises but

in reality denies.


describing the economic "A Team" and the "B Team", Hahnel

states that "a C Team with a very different agenda and policies is

needed." Panic Rules! provides the "C Team’s" play book.

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