Tuesday, February 08, 2005

Signs of the Economic Apocalypse 1-17-05

From Signs of the Times 1-17-05:

The US dollar fell slightly last week against the euro, closing Friday at 1.3106 euros to the dollar, down a little less than half a percent. Gold closed at 422.50 dollars an ounce, up less than a tenth of a percent. Gold closed at 322.37 euros, down from last week’s 323.53. Oil rose 6% last week, closing at $48.38 Friday, up from the $45.43 close the previous Friday, putting it at 36.91 euros per barrel, up from last week’s 34.81 close. The Dow Jones closed at 10,558 down from 10,604 last week, or about four tenths of a percent and the NASDAQ closed at 2088 compared to last week’s close of 2089. The ten-year US Treasury bond closed at 4.21% compared to last week’s 4.27%. Nothing too dramatic in these numbers except perhaps the four consecutive days’ increase in the price of oil.

I thought we might step back a bit and look at some social and political factors contributing to the decline in the US economy, specifically, how fascism and religious fundamentalism can cause serious economic decline. Richard Florida, author of The Rise of the Creative Class, has shown that at this point in historical time, economic development is best incubated by a culture of creativity and tolerance. Technical infrastructure, by itself, is not enough to attract talented, creative people. In earlier time, when large, bureaucratic corporations made location decisions, base infrastructure and tax breaks were crucial. Now, according to Florida, things like a community’s openness to gay couples, its level of racial integration and other factors in his “tolerance index” play a larger role in encouraging growth . Here is an excerpt from the preface to the new paperback edition:

I’m not suggesting that gays and bohemians literally cause regions to grow. Rather, their presence in large numbers is an indicator of an underlying culture that’s open-minded and diverse—and thus conducive to creativity. My interviews and focus groups all over this country have confirmed this. I’ve had straight people, especially straight single women, tell me they look for cities with lots of gay people when they are hunting for a place to live and work. The presence
of gays signals an exciting place, where people can fit in and be themselves, and in the eyes of many single woman, it’s also a sign that a city or neighborhood is relatively safe. (p.xvii) …

Technology—measured by innovation and high-tech industry concentration—figures into my model as one of the “3 Ts” needed for growth. Talent is the second T—not “human capital” as
usually measured (by numbers of people holding higher education credentials) but creative capital, which is talent measured functionally, by the numbers of people actually in creative occupations. The third T is tolerance. Places that are open and tolerant have an edge in attracting different kinds of people and generating new ideas. Economic growth is a complex process. For most of human history, wealth came from a place’s endowment of natural resources, like fertile
soil or raw materials. But today, the key resource, creative people, is highly mobile. The key dimension of economic competitiveness is the ability to attract, cultivate and mobilize this resource. My research tries to uncover the underlying conditions—the ecosystem characteristics—that enable certain places to attract and mobilize them more than others. Tolerance and openness—or what I like to call “low entry barriers for people”—are a critical element. To capture this, I have worked with Kevin Stolarick to build a broader all-around measure of tolerance.

Our new Tolerance Index is based on four measures: the Gay Index, the Bohemian Index, the Melting Pot Index (the concentration of foreign-born people), and a measure of racial integration, used to capture how integrated rather than separated a community is throughout its internal geography. Places that score high on this Tolerance Index (see Table 2)— places where gays, immigrants and bohemians all feel at home and where racial groups tend to live mixed together, not in distinct enclaves—are very likely to have a culture of tolerance.

The research here is ongoing and much more needs to be done. For now, our measures should be looked at as leading indicators of creative ecosystems—habitats open to new people and ideas, where people network easily and offbeat ideas are not stifled but are turned into new projects, companies and growth. Regions and nations that have such ecosystems are likely to do the best job of tapping the diverse creative talents of the most people, and thus gain competitive advantage. (p.xx)

Clearly, from Florida’s work, we can see that nowadays the Republican agenda is a recipe for economic failure, even if they didn’t impoverish the middle class, run up massive deficits and engage in disastrous wars. Florida addresses this explicitly in an article last year in Washington Monthly ):

Last March, I had the opportunity to meet Peter Jackson, director of The Lord of the Rings trilogy, at his film complex in lush, green, otherworldly-looking Wellington, New Zealand. Jackson has done something unlikely in Wellington, an exciting, cosmopolitan city of 900,000, but not one previously considered a world cultural capital. He has built a permanent facility there, perhaps the world's most sophisticated filmmaking complex. He did it in New Zealand
concertedly and by design. Jackson, a Wellington native, realized what many American cities discovered during the '90s: Paradigm-busting creative industries could single-handedly change the ways cities flourish and drive dynamic, widespread economic change. It took Jackson and his partners a while to raise the resources, but they purchased an abandoned paint factory that, in a singular example of adaptive reuse, emerged as the studio responsible for the most breathtaking trilogy of films ever made. He realized, he told me, that with the allure of the Rings trilogy, he could attract a diversely creative array of talent from all over the world to New Zealand; the best cinematographers, costume designers, sound technicians, computer graphic artists, model builders, editors, and animators.

When I visited, I met dozens of Americans from places like Berkeley and MIT working alongside talented filmmakers from Europe and Asia, the Americans asserting that they were ready to relinquish their citizenship. Many had begun the process of establishing residency in New

Think about this. In the industry most symbolic of America's international economic and cultural might, film, the greatest single project in recent cinematic history was internationally funded and crafted by the best filmmakers from around the world, but not in Hollywood. When Hollywood produces movies of this magnitude, it creates jobs for directors, actors, and key grips in California. Because of the astounding level of technical innovation which a project of this size requires, in such areas as computer graphics, sound design, and animation, it can also germinate whole new companies and even new industries nationwide, just as George Lucas's Star Wars films fed the development of everything from video games to product tie-in marketing. But the lion's share of benefits from The Lord of the Rings is likely to accrue not to the United States but to New Zealand. Next, with a rather devastating symbolism, Jackson will remake King Kong in Wellington, with a budget running upwards of $150 million.

He concludes:

As other nations become more attractive to mobile immigrant talent, America is becoming less so. A recent study by the National Science Board found that the U.S. government issued 74,000 visas for immigrants to work in science and technology in 2002, down from 166,000 in 2001--an astonishing drop of 55 percent. This is matched by similar, though smaller-scale, declines in other categories of talented immigrants, from finance experts to entertainers. Part of this contraction is derived from what we hope are short-term security concerns--as federal agencieshave restricted visas from certain countries after September 11. More disturbingly, we find indications that fewer educated foreigners are choosing to come to the United States. For instance, most of the decline in science and technology immigrants in the National Science Board study was due to a drop in applications.

Why would talented foreigners avoid us? In part, because other countries are simply doing a better, more aggressive job of recruiting them. The technology bust also plays a role. There are fewer jobs for computer engineers, and even top foreign scientists who might still have their pick of great cutting-edge research positions are less likely than they were a few years ago to make millions through tech-industry partnerships.

But having talked to hundreds of talented professionals in a half dozen countries over the past year, I'm convinced that the biggest reason has to do with the changed political and policy landscape in Washington. In the 1990s, the federal government focused on expanding America's human capital and interconnectedness to the world--crafting international trade agreements, investing in cutting edge R&D, subsidizing higher education and public access to the Internet, and encouraging immigration. But in the last three years, the government's attention and resources have shifted to older sectors of the economy, with tariff protection and subsidies to extractive industries.

Meanwhile, Washington has stunned scientists across the world with its disregard for consensus scientific views when those views conflict with the interests of favored sectors (as has been the case with the issue of global climate change). Most of all, in the wake of 9/11, Washington has inspired the fury of the world, especially of its educated classes, with its my-way-or-the-highway foreign policy. In effect, for the first time in our history, we're saying to highly mobile and very finicky global talent, "You don't belong here."

Obviously, this shift has come about with the changing of the political guard in Washington, from the internationalist Bill Clinton to the aggressively unilateralist George W. Bush. But its roots go much deeper, to a tectonic change in the country's political-economic demographics. As many have noted, America is becoming more geographically polarized, with the culturally more traditionalist, rural, small-town, and exurban "red" parts of the country increasingly voting Republican, and the culturally more progressive urban and suburban "blue" areas going ever more Democratic.

Less noted is the degree to which these lines demarcate a growing economic divide, with "blue"
patches representing the talent-laden, immigrant-rich creative centers that have largely propelled economic growth, and the "red" parts representing the economically lagging hinterlands.

The migrations that feed creative-center economies are also exacerbating the contrasts. As talented individuals, eager for better career opportunities and more adventurous, diverse lifestyles, move to the innovative cities, the hinterlands become even more culturally conservative. Now, the demographic dynamic which propelled America's creative economy has produced a political dynamic that could choke that economy off. Though none of the candidates for president has quite framed it that way, it's what's really at stake in the 2004 elections.

That was written before last November’s US election. The die seems to be cast now. One question we might ask ourselves now is, will economic impoverishment resulting from an increasingly intolerant culture have time to play itself out? Or will military defeats work much faster?

As one commentator, Marshall Auerback,puts it:

Just as a haystack soaked in kerosene will appear relatively benign until somebody strikes a match, so too it is worth noting that although America’s longstanding economic problems have not yet engendered financial Armageddon does not invalidate the threat they ultimately pose. But the key is finding out which event (or combination of them) represents the match that could set this “haystack” alight.

Could that event be military setback? A desperate reaction to a military setback? If, as we have speculated, Russia, China and perhaps Europe may be using the dollar’s weakness to restrain the American Empire, what will US policymakers do in response to a catastrophic collapse of the dollar? To answer that question, we need to be more specific about what that empire is. Who better to do that than one of its “hit men?” A book appeared last year, Confessions of an Economic Hit Men by John Perkins. According to Perkins in an interview with Amy Goodman of Democracy Now! (), the American Empire works this way:

Well, really, over the past 30 to 40 years, we economic hit men have created the largest global empire in the history of the world. And we do this, typically -- well, there are many ways to do it, but a typical one is that we identify a third-world country that has resources, which we covet. And often these days that's oil, or might be the canal in the case of Panama. In any case, we go to that third-world country and we arrange a huge loan from the international lending community; usually the World Bank leads that process. So, let's say we give this third-world country a loan of $1 billion.

One of the conditions of that loan is that the majority of it, roughly 90%, comes back to the United States to one of our big corporations, the ones we've all heard of recently, the Bechtels, the Halliburtons. And those corporations build in this third-world country large power plants, highways, ports, or industrial parks -- big infrastructure projects that basically serve the very rich in those countries.

The poor people in those countries and the middle class suffer; they don't benefit from these loans, they don't benefit from the projects. In fact, often their social services have to be severely curtailed in the process of paying off the debt.

Now what also happens is that this third-world country then is saddled with a huge debt that it can't possibly repay.

For example, today, Ecuador. Ecuador's foreign debt, as a result of the economic hit man, is equal to roughly 50% of its national budget. It cannot possibly repay this debt, as is the case with so many third-world countries. So, now we go back to those countries and say, look, you borrowed all this money from us, and you owe us this money, you can't repay your debts, so give our oil companies your oil at very cheap costs. And in the case of many of these countries, Ecuador is a good example here, that means destroying their rain forests and destroying their indigenous cultures. That's what we're doing today around the world, and we've been doing it -- it began shortly after the end of World War II. It has been building up over time until today where it's really reached mammoth proportions where we control most of the resources of the world.

I find it interesting that the empire has been using the same technique of lending more money than can be repaid to its individual consumers as well. In both cases, dependence is created.

What happens to countries that don’t accept the loans or terms from the Economic Hit Men?

After our tremendous success in Saudi Arabia, we decided we should do the same thing in Iraq. And we figured that Saddam Hussein was corruptible. And, of course, we had been involved with Saddam Hussein anyway for some time. And so the economic hit men went in and tried to bring Saddam Hussein around, tried to get him to agree to a deal like the royal House of Saud had agreed to.

And he didn't.

So, we sent in the jackals to try to overthrow him or to assassinate him. They couldn't.

His Republican Guard was too loyal and he had all these doubles. We couldn't do it. So, when the economic hit men and the jackals both failed, then the last line of defense that the United States, the empire, uses these days, is the military. We send in our young men and women to die and to kill, and we did that in Iraq in 1990. We thought Saddam Hussein at that point was sufficiently chastised that now he would come around, so the economic hit men went back in in the 1990s, failed once again. The jackals went back in, failed once again, and so once again the military went in -- the story we all know -- because we couldn't bring him around any other way.

What will the United States do when Perkins’s option three, sending in the troops, doesn’t work? Is there an option four? Or is the game over? As Marshall Auerback wrote in the piece quoted earlier, the deals negotiated by China with resource suppliers and the military cooperation between China and Russia as well as the recently announced agreement of Russia to sell military equipment to Syria represent

…pretty brazen behavior by all concerned, but is symptomatic of the growing perception of the US as a declining giant, albeit one with the capacity to strike out lethally when wounded. American military and economic dominance may still be the central fact of world affairs today, but the limits of this primacy (which dates back to the fall of the Berlin Wall) are becoming increasingly evident, just as dollar’s fall reflects this in economic terms. It all makes for a very challenging backdrop in 2005. This could therefore be the year when longstanding problems for the US finally do matter. Do not expect Washington to accept the dispersal of its economic and military power lightly.


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