by Ramin Mazaheri for The Saker Blog
The principle is the same as when the French loaned money to North African beys in the 19th century: barring your perfect money management and zero outside shocks, foreign capital aims to ultimately control all your natural resources, capital and labor market for as long as possible.
Hey, bey? Did you think they’d be glad you repaid your loan? Don’t you know that non-Islamic finance means that if they can’t bankrupt you then at least they want to keep juicing you for as long as possible?
But these monarchs’ money skills naturally included a great talent for extravagance, self-aggrandising projects and unaccountable corruption, and thus they soon found their king’s cabinets filled with White European faces, mainly in the seats reserved for those controlling the kingdom’s purse strings and security.
Hard-core capitalists in developing markets are always clamouring for more foreign investment – Western Mainstream Media tells everyone that this is the only way they can ever possibly raise funds.
However, Iran’s “Resistance Economy” takes the opposite tack – it generates internal demand and internal self-sufficiency. Naysayers will say that this the long, slow road, but how can anyone point to the positive role of QE and foreign capital in the last 10 years? If you think you can, you didn’t read about how Brazil went from the top of the world in 2011 to chaos in just a few years in the previous part of this 10-series, QE paid for a foreign buying spree: developing countries hurt the most.
One of the good things about the arrival of Donald Trump is that there has been some – not much, but some – Western ink spilled regarding how bad NAFTA has been for the average Central American: NAFTA destroyed local farmers, who couldn’t compete with (heavily taxpayer subsidized) US farm corporations, and the mass exodus from Central America which helped Trump to office is a direct result of the damage wrought by NAFTA.
From 1994-2014 Mexican real GDP per person grew 18.6%, whereas from 1960-1980 that figure was more than five times higher, at 98.7%. Mexico’s per capita GDP growth from 1994-2014 was half that average growth of the rest of Latin America, and its poverty rate is unchanged. The conclusion is simple: “If NAFTA had been successful in restoring Mexico’s pre-1980 growth rate – when developmentalist economic policies were the norm – Mexico today would be a relatively high income country, with income per person significantly higher than that of Portugal or Greece.”
(Remember the word “developmentalist” for later.)
Such real data confirming NAFTA’s failure for Mexico can be under-reported, but not denied.
What’s never, ever discussed – because the US press views it as such a positive – is how deadly NAFTA was to Mexican banks.
With NAFTA Mexico’s leadership chose economic inflows over economic independence, and thus true, national economic development.
The land of Emiliano Zapata no longer
Mexicans once knew what a risk US bankers posed. After the US led the world into the Great Depression Mexico wisely banned foreign banks from operating in Mexico for almost the next six decades.
However, NAFTA immediately made banking one of the very first industries it forced open to foreign competition. The impact was immediate, and stunning.
This series uses as its jumping-off point the 2018 book is Collusion: How Central Bankers Rigged the World by Nomi Prins, a former Wall Street executive who saw the light and is now informing on the crimes of Western imperialism-capitalism. Prins gives a thorough and chronological account of central banker doings in key areas – Mexico, China, Brazil, Japan and Europe – ever since US banker crimes set off the Great Recession in 2007. The essence of her thesis is that the US orchestrated collusion among the central bankers of many of the G20 economies and Eurozone in order to primarily save busted US banks, and then also to maintain the 1%-enriching policies of QE, ZIRP and no-strings attached bailouts.
“By 2015, five foreign banks, led by Citigroup/Banamex, owned 64% of Mexican financial assets, more external bank ownership than any other country. The top five banks held 72 percent of the country’s total financial assets. Only one – Banorte – was local. Foreign banks in Mexico, armed with cheap money, could afford to be less accountable for speculative activities.”
Mexico went from being totally protected and self-reliant to having a higher degree of foreign bank ownership than any country in the world. Mexican banking policy is thus no longer made in Mexico City, but in New York City and Washington.
A rarely discussed reason why this is so dangerous is because during times of crisis foreign banks liquidate their assets in foreign countries before they ever touch the motherland. To paraphrase Prins: Western nations worry about their banks, emerging markets worry about feeding their people.
In practice this means that when there is financial turmoil – and busts are guaranteed in the capitalist cycle – Mexican clients are going to have their loans called in or terminated at a moment’s notice, fatally gutting their development projects or whatever they are working on; capital will precipitously leave the country, and leave the native citizens deep in debt and with a half-finished home/factory/store. This was explained in detail in the previous part of this series, as was how since US QE 3 newly-printed money has been stuffed into developing countries.
In 2016 the IMF relayed that emerging and developing economies are receiving $1.5 trillion of capital inflows per year. Again, this money is going to rush out when capitalism has its next inevitable crisis.
But it’s worse this time around, and we can return to Prins quote: “Foreign banks in Mexico, armed with cheap money, could afford to be less accountable for speculative activities.” (emphasis mine)
Just as it has in the West, this recent wave of loans to developing countries has gone to bond markets, stock markets (Mexico’s stock market has appreciated some 60% since regaining its pre-crisis level in 2010), real estate in the capital and other 1%-er investments instead of the “real” economy. Money will rush back out in the next crisis, and this time asset prices will crumble even worse because Western-allied developing nations have created their own “subprime entire economy crisis”.
How much of the bill will have to picked up again by the average person, and how many state assets will have to be sold? If this cycle looks familiar, it should – it is called “capitalism”.
Since 2008 China has risen, Iran has resisted, Mexicans have relocated
It is pure political nihilism – as well as a journalistic inaccuracy – to say TINA (There Is No Alternative). China is one model, and Iran is another – both are doing much better than Mexico.
China, Iran and a few others realise that capital markets might be good for an individual banker but they are not a force for social good: the Great Recession was caused by capital markets devouring the lower-class housing market in the US, and further damage has been created by trying to appease capital markets via the “confidence fairy”, austerity measures and QE. Mexico, in an obvious recognition of this reality, has gone left by electing Andrés Manuel López Obrador.
But for AMLO to really succeed he’d have to be Zapata Jr. and re-declare fiscal war on the US by instituting a moratorium on US banker involvement. The US would respond that this is crazy expressly because of the existence NAFTA-type globalisation – which has failed – even though it seems like a rational response to a crisis created by criminal US banks (which remain unpunished).
Why would ending US banking sound crazy?
Mighty Mexico is basically a third of all of Latin America, and they have oil. Are you telling me that in order to succeed they simply must follow the lead of their northern neighbours, and even when El Norte is full of criminal bankers? Iran and Mexico aren’t China-big, but they aren’t Pago Pago.
I don’t know why reclaiming independence from the West would not be considered a good idea? Prins agrees:
“During and after the 2008 financial crisis, countries exhibiting the most growth were not those that followed the Fed’s lead to zero (interest rates), or the ECB and BOJ’s rush to negative rates. The most resilient were the transitioning economies, like China, that developed local infrastructure and partnered with regional and longer-distance partnerships on long-term growth projects instead of harnessing monetary collusion.”
It is both surprising and totally unsurprising that Prins makes no mention of Iran’s “resistance economy” in her book. However, Prins may not realise that what she discusses as an alternative is essentially what Khamenei – that indisputable revolutionary – and many others in Iran keep pushing, only in Western translation: “New Developmentalism”.
Prins’ book covers Mexico, but Prins gives a tiny amount of space to this idea in her section on Brazil, probably because Brazil is more independent from the US than is Mexico and is pushing for status quo change via BRICS. And it is also because the theory is promoted by former Brazilian finance minister Luiz Bresser-Pereira. Prins relates:
“According to Bresser, imperialism still existed.”
OMG,I have to stop for just a second there. Such a sentence is why the ex-Wall Streeter Prins makes an honorable snitch but cannot possibly be a leftist: She thinks it’s necessary to cite a source to say that imperialism still exists, LOL! This also why her book gets reviewed in mainstream media but many great leftist books go totally unnoticed. But I’ll continue where Prins left off:
“The US system impeded stability and autonomy in developing countries. The reality, he said, is that ‘countries like Brazil don’t really need foreign money or finance.’ Instead, they must develop more domestic finance and investment opportunities, which would also alleviate currency crises and wars.
He considered economies to be nationalistic: the world is still divided into nation-states that compete more than cooperate, which threatens social progress in general. Rather than being spent on people, cheap money (QE, ZIRP, etc.) constantly seeks to expand itself. The cheaper the money, Bresser argued, the more it can be used to help people. Yet, in practice, that didn’t occur, especially in the developed world. Instead, fabricated money was used as a weapon in financial warfare. It altered domestic and international power structures by furnishing capital to the G7 nations and their banks so that they could speculate globally, especially in developing countries, in markets rather than in direct economic investment that benefitted populations.”
In my margin notes I wrote: “Duh”.
However, this is only because I have listened to Iranian politicians like Khamenei, Mahmoud Ahmadinejad and others for quite some time. This type of discourse is part and parcel of Iran’s “Resistance Economy” ideology: developing domestic capabilities, because that makes Iran stronger, whereas reliance on foreign abilities will ultimately lead to our Persian rugs being pulled out from under us. And, to an Iranian, life without many rugs is unthinkable!
Westerners like Prins have probably never heard such discourse and has been told that, LOL, there is no economic component of Iran’s revolution to possibly relay and to consider. Even the West’s most advanced economic whistle-blowers like Prins have been economically indoctrinated to the point where they are apparently not sure that imperialism still exists. Such is Western philosophical life after the fall of the USSR….
However, given their similarities, the Iranian economic model is a great fit for a country like Mexico. And, of course, this anti-globalisation and “economic patriotism-first” model is exactly what was used by the US, UK, France and everyone else to get their economies to the top-most rung in the first place.
“New Developmentalism”, “Resistance Economy” – whatever you want to call it, the realisation should be that whatever gets Mexicans to want to stay in Mexico is win-win: Mexicans don’t have their communities emptied out of desperation, American workers aren’t angry at wage-reducing competition, and only those free spirits who want to emigrate do so but from a place of security instead of resignation.
Developmentalism is also an accurate description of what China used during their Cultural Revolution, as I detailed in this 8-part series earlier this year: economic opportunities were created at the peasant and local level – both had unprecedented, astonishing booms in agricultural and industrial projects – via the cooperative use of local money, resources and talents, not foreign ones.
Developmentalism is also exactly what Burkina Faso engaged in during the 1980s revolution led by Thomas Sankara. There are many Burkinabes in Paris, and it is incredibly inspirational to see them light up when I ask them about the Sankara era.
In just four years, before he was assassinated by a French-led coup, Burkina Faso underwent a Cuban-sized rebirth via undertaking a Resistance Economy which closely paralled China’s Cultural Revolution-era economic explosion (which set the stage for China’s 1980s explosion). Rejection of foreign capital was an absolutely key plank, and perhaps what Sankara may be most remembered for: “Debt is a cleverly managed reconquest of Africa. It is a reconquest that turns each one of us into a financial slave.”
Debt slavery at home and abroad of the common man… this is what capitalism has always aspired to, from fuedalism to sharecropping to digital neoliberalism.
Incredibly, despite the crimes of the Great Recession and the obvious failure of their economic ideology, Westerners have been able to increase their debt stranglehold over the past decade in places like Latin America.
The last decade has shown the logical, rapacious progression of neoliberalism as well as the success of Resistance/Developmentalism-based economies. Pass it on to Poncho, because Mexico would make an invaluable ally in the fight against US domination of Latin America (excepting Cuba).
And, a final reminder: yes, imperialism does still exist.
Here is the list of articles slated to be published soon, and I hope you will find them useful in your leftist struggle!
Part 1 – Western central bankers: they’re God, they trust – a 10-part series on the QE economy
Part 2 – How QE has radically changed the nature of the West’s financial system
Part 3 – QE paid for a foreign buying spree: developing countries hurt the most
Part 4 – Iran vs Mexico: ‘economic inflows’ versus ‘economic independence’
Part 5 – Understanding the West’s obsession with inflation
Part 6 – The new ‘beggar thy neighbor’: wars to devalue labor, not
Part 7 – Blaming China for the Great Recession… to avoid emulating China’s (socialist-inspired) success
Part 8 – 1941, 1981, 2017 or today – Europe’s mess is still Germany’s fault
Part 9 – Don’t forget the real root of Brexit: fear of Eurozone economic contagion
Part 10 – Bankocracies: the real Western governance model
Ramin Mazaheri is the chief correspondent in Paris for Press TV and has lived in France since 2009. He has been a daily newspaper reporter in the US, and has reported from Iran, Cuba, Egypt, Tunisia, South Korea and elsewhere. He is the author of the books I’ll Ruin Everything You Are: Ending Western Propaganda on Red China and the upcoming Socialism’s Ignored Success: Iranian Islamic Socialism. His work has appeared in various journals, magazines and websites, as well as on radio and television.
Ramin is right about Mexico. Which is why, according to Douglas Valentine in CIA as Organized Crime, he states the CIA is helping and hurting the Drug gangs and gang warfare in Mexico to prevent a strong stable government from developing. While this neo-colonialism is great for the Wall street bankers, oil and resource extractors, it is a disaster for other Americans. If all a country’s foreign exchange services bank debt or is used to repatriate profits, the country can not buy products from America.
It is good evidence that the CIA works for The Establishment, ie the rich owners of the USA, not the US State, and most of its earlier members were recruited from the Ivy League colleges. The Deep State is really the economic hegemons, the type who always control capitalist states. The only way you can be rid of them and their omnicidal greed and love of violence is by a revolution-they do not do ‘peaceful transitions’.
Using Iran as a model for development is a bit of a joke. Iran is massively centralized around Tehran. Almost nothing is done in the provinces without the blessing of the massive bureaucracy in Tehran.
All wealthy people in Iran have made their money through property speculation. A few made it through importing. Those with access to credit have a license to almost print money. That is what happens with hyperinflation. There were 80 rials to the dollar in 1978. Today, there are 42,000 rials to the dollar. Well done chaps. Those with connections and able to borrow from the banks to buy property had it made.
If you run a small factory or shop, you can hardly make a living in Iran. A totally screwed up society.
Why are oil, gas and derivative raw materials still 90% of Iran’s exports?
The Revolution (yes I was there) was 40 years ago. When are they going to grow up and stop importing almost everything?
Cars, tractors and vehicle parts are 10% of their imports. Why is that? Can they still not make cars or their parts?
Iran is a “totally screwed up society” because since 1979 they have had severe sanctions placed on them, the same sanctions Cuba has had since 1960s. The same severe sanctions North Korea has, yet the West points to North Korea as an example “How Communism doesn’t work”. The same crippling sanctions are now killing Venezuela’s people while the West is once again pointing at Venezuela as yet another proof that “communism doesn’t work” it’s been the same patterns over and over and over.
Come on do I have to explain even the basics for you?
Loyal Merkins only understand Imperial agit-prop. Facts do not compute.
Russia had sanctions and they went about sorting out their domestic economy and turned it around in a few years. They were importing massive amounts of wheat at the time of the Iranian Revolution. Now, they are among the biggest exporters in the world.
Iran has been under economic siege for 40 years and the cretins running that country continued enriching land-speculators and punishing those who actually produce the goods that would replace imports for all this time. The same policies as the Shah but with additionally a massive devaluation of the currency.
Can you not see any difference between these two approaches? Do you really think that Iranian business people are that stupid? Given half a chance, Iran would be exporting cars.
Of course, the rulers of Venezuela are just as stupid. The idea that an oil and gas (fertilizer) rich country that is in the tropics cannot feed its own people is outrageous. It takes a massive degree of corruption and incompetence to achieve that. At least the Iranians can plead that they have limited fertile land.
It is indeed the case, as Ramin points out, that there was a major collusion among central banks in the 80’s and 90’s to re-shape the global financial landscape. But how did they do it? Well, first they had to establish the prerequisites to modify the legal framework of each nation’s monetary policy, i.e. to get rid of the central bank’s accountability to the government and/or other regulatory institutions and become fully independent. Contrary to the common belief that the dominant tool of monetary politics is the adjustment of interest rates, central banks influence the economy-at-large primarily through quantatative credit creation and allocation, either directly or through guidance of private banks. What we have seen in Japan in the 80’s and in the Asian Tiger in the 90’s states was the deliberate creation of a financial bubble through massive lending of private banks for unproductive purposes (construction, asset inflation, speculation) under guidance of the BOJ (in the case of Japan), and a hyper- inflow of foreign capital (in the case of East Asian countries). The outcome was inevitable and is what Ramin basically describes. Either the sudden outflow of foreign capital and the desperate attempt of governments to stabilize the currency, which lead to a major drain of foreign reserves until the IMF stepped in, or in the case of Japan the burst of the debt-financed bubble, economic slump, deflation, etc. All this was deliberately intended by the central banks to put the blame of the harsh economic situation on the government through skillfully-place media campaigns that were advocating for IMF proposals of legal changes (structural adjustment) for central banks to become independent and to implement Washington-style neoliberal politics.
‘It’s our dollar, and your problem’.
It’s a pity that there are so few comments on this brilliantly written multi-part series that Ramin is providing for us here since the way global private finance is structured is the single most enabler for the Western Imperialst to force other states to abide to their rules. For a history how the US could facilitate their successful corporate and financial triumph march, beginning in the inter-war period, Michael Hudson’s Superimperialsm is an absolutely must read. In addition to that, I would recommend a not so well-known book on how central banks in reality influence the economic outcome: Richard A. Werner’s Princes of Yen delivers a detailed history of the BOJ and its hidden monetary policy conduct to transform the economy into a neoliberal hellhole
People don’t leave comments on what they don’t know much about, I have found.
Everybody understands that bankers are the problem, but this series is showing how central banks – most of which are actually private – have morphed into something totally new which few people grasp.
As Ramin wrote, the connection between neo-imperialism and neoliberalism is never elucidated – this series is doing a fine job of explaining the specifics of our new reality, and also showing how it produces tangible consequences for the everyday person.