No More Axes

Posted January 5, 2008

Categories: Articles

In Poland, in the first years after the fall of communism, the architects of its “shock therapy” economic reforms often compared their program to cutting the tail off a cat. If, for some reason, you were given the assignment of removing the unfortunate creature’s tail with an ax, it was best that you did it with one chop. It was in nobody’s interest, they said, to make the cat suffer through a protracted, ax-swinging transition.

Pity the cat, and pity the millions of Poles who suffered through shock therapy.The leader of Poland’s shock therapy was Leszek Balcerowicz, the country’s finance minister during that period. Balcerowicz is back with more advice, this time for the global economy. He’s not thrilled that governments all over the world are about to spend large chunks of money to pull the global economy out of the jaws of depression. “A large fiscal stimulus would increase public indebtedness and impose a burden on future growth,” he writes in The Financial Times with Andrzej Rzonca.

Who is this guy, Nurse Ratched? For the Polish economy in 1990, he applied shock therapy just like Louise Fletcher prescribed for poor Jack Nicholson in the film One Flew Over the Cuckoo’s Nest. And now with the global economy, he recommends withholding any medical assistance. This time around, doctors are desperately trying to reattach the cat’s tail before it expires from blood loss. And Balcerowicz, the evil nurse, is waving them away.

“Big increases in public investments are likely to be wasteful,” he warns, “as it is not possible to have a long backlog of well-prepared projects.”

Has Leszek driven on U.S. roads any time recently? Ridden on Amtrak or the DC Metro? According to The Washington Post, “the highway officials association has identified more than 5,000 road and bridge projects costing $64 billion that are ready to go, and the transit officials’ association has identified 736 projects costing $12.2 billion that could start within 90 days.” And that’s just the beginning. The business-backed Urban Land Institute argued last year that the infrastructure needs in the United States required a $1.6 trillion investment over five years. A group of economists and labor leaders unveiled their Main Street Economic Recovery Plan last week calling for a minimum $900 billion stimulus package with substantial funds going into infrastructure, green investment, education, and health care.

The U.S. economy has been crumbling for some time, and the backlog of necessary repairs is long. The same can be said for many other economies around the world, so it’s no wonder that everyone is readying their own fiscal cures. The European Union adopted a $266 billion stimulus package on Friday. Last month, China announced a $586 billion package. If President Bush would step out of the way early and hand over the reins to President-elect Obama, the United States could roll up its sleeves and get to work now.

The same can be said about our inadequate international financial institutions, which also need a substantial overhaul. In Charting a Progressive International Financial Agenda, Foreign Policy In Focus (FPIF) contributor Daniel Bradlow outlines five major steps to reorient the institutions that govern global finance. “While the regulatory framework should encourage profitable transactions,” he writes, “it should also reward financial transactions that deal directly with poverty, environmental degradation, and the creation of jobs and opportunities for poor people.”

After all, stimulus isn’t just for the rich countries. As FPIF contributor Shirin Shirin writes in Economic Woes? Look to Kerala, the Indian state of Kerala can serve as an inspiration for developing countries on how to build an equitable and prosperous economy. “Investing in people – whether through breaking the oligarchy of big landlords (or perhaps investment bankers) or providing social services including universal education – will ultimately lead to the development of a meaningful middle class,” she writes. “Taking this path may involve some sacrifices. Income distribution is more equal in Kerala, so it is home to fewer rich people than other parts of India. But if the goal isn’t just wealth creation, but ensuring basic human rights and human dignity for all, the Kerala model is worth considering.”

Let’s be frank: this financial crisis is the Keynesian 9/11. In the same way that the Bush crowd used the terrorist attacks to ram through their plan to remake the U.S. military economy, we can use the financial crisis to pass the progressive economic legislation that has languished for years – not just in the United States but globally. We’re finally looking at an opportunity to repair all the damage that market fundamentalists like Leszek Balcerowicz inflicted on us. Goodbye, Leszek. You had your time in the sun, and we’re all paying the price. It’s time to put away the axes and the electrodes, and heal the body economic.

Speaking of Which…

Thanks to everyone who contributed to FPIF last week. But we’re still far short of our goal. So if you read last week’s appeal for funds and thought, “hey, I can send some money to FPIF” but forgot to do so, here’s another opportunity. Click here to help us get to $7,500 and receive our matching funds.

“Once again, I find myself understanding global issues in minutes by reading Foreign Policy In Focus,” writes World Beat reader Ann Hoffman. “I have considered unsubscribing because foreign policy is not my main focus, but I stay for exactly that reason: FPIF keeps me as informed as I need to be without trying to make me a foreign policy expert.”

After Mumbai

The United States has been wooing India with a generous nuclear deal and simultaneously pumping arms into Pakistan. And somehow we think that this is the best way to avoid nuclear war in South Asia?As FPIF columnist Frida Berrigan writes in Mumbai Wake-Up Call, the latest terrorist attacks may finally alter U.S. policy, at least toward Pakistan. “In the wake of the Mumbai attacks and continued violence along the Pakistan-Afghanistan border, these ‘all the weapons you want’ policies are now under review. In a new classified assessment of U.S strategy towards Afghanistan and Pakistan, the Bush administration seems ready to admit that the money and weapons haven’t had the intended impact. An official involved in drafting the report – which will be presented to President-elect Barack Obama – told The New York Times that despite ‘seven long years’ of ‘proclaiming that Pakistan was an ally…the truth is that $10 billion later’ Pakistan still doesn’t ‘have the basic capacity for counterinsurgency operations.’”

On a more optimistic note, relations between Beijing and Taipei are on the upswing. As FPIF contributor Erdong Chen writes in One China, 2.0?, the two sides of the Taiwan Straits have concluded recent agreements that connect the two countries more closely through travel and trade. “Perhaps the next U.S. president can also find some new common ground between Taiwan and China,” he writes. “Obama deeply understands Taipei’s desire for more international space and Beijing’s permanent opposition to the arms sales. He could accommodate both sides here by arranging a quid pro quo with Beijing, in which the United States provides security assurances in exchange for Beijing allowing Taipei observer status at the WHO. The cross-strait relationship is on the verge of a significant détente. With delicacy and diplomacy, the Obama administration can help the two sides get along even better.”

Finally, in our FPIF Picks department, we feature a Chiara Becker’s review of the new Iranian film about women and soccer. And Mary Bauer and Laura Carlsen take another look at David Bacon’s book Illegal People.

FPIF, December 17, 2008

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