ALBA : dumping theory, rediscovering humanity

The deep revolutionary change the Bolivarian Alternative for the Americas (ALBA) has contributed to human progress is its insistence on the moral dimension of economic policy. No capitalist framework would have been able to develop a commitment to accessible credit, health and education programmes like Mission Miracle (eye-care) or Yes I Can (literacy), or to complement energy security programmes with measures to promote food security. In doing this, the ALBA strategists have abandoned the anti-humanitarian capitalist model and recovered humanism's political and moral bases.

And if one thing is clear from the rich-country response to the economic collapse their own governments and elites engendered, it is that their response prioritises the elites above their peoples. It had to be that way. Capitalism concentrates power and control of resources in the hands of a few corporations and the elite that controls them. The government rescue plans of the United States and Europe protect above all, massively so, the major financial institutions and focuses only as an afterthought on the real economy, on workers and their families.

The economist Paul Craig Roberts, a veteran of the Reagan administration, has noted that while Treasury Secretary Paulson has approved US$700bn for the banks, he refuses to help families at risk of losing their homes with a much more modest sum of US$25bn. In similar vein, many economists have remarked on the absurdity of expecting international financial institutions, especially the IMF, to adequately manage the resources necessary to sustain some balance of legitimacy in the world economy. The IMF answers to its masters in the US Treasury,

Few admit that the fiasco is not just the long overdue denouement of neo-liberalism but of the capitalist free market system as such. Free markets do not exist, have never existed and never will exist. The real argument is over what the objectives of market regulation should be.

If one reads documents published by the World Bank or the Organization for Economic Cooperation and Development or the International Monetary Fund and perhaps to a lesser degree the Economic Commission for Latin America and the Caribbean, the dominant impression is that the suffering of millions of people is of secondary importance. All these institutions express their criteria and arguments as if some level of theoretical reality takes precedence over human life. A corollary of this mentality is an apparently complete absence of any historical sense in these organizations.

For example, if one reads the OECD publication "Economic perspectives for Latin America 2009", its focus is on the role of fiscal structures in relation to development. The authors note that governments' fiscal income in Latin America is less - 23%- in proportion to those of the OECD countries - 42%. Within the text, the authors note in passing that this fact is caused by the overall poverty of most of the population in the countries concerned. They note, "A change of focus is needed if Latin American governments are going to fully exploit the potential of fiscal policy as a tool for development."

One finds no mention at all of the role played by rich country impositions, through various coercive and inequitable means, in denying to Latin American countries the development their peoples need. The authors' presuppositions derive from the Washington Consensus which has been an ideological support of international financial institution policy for around 20 years. Perhaps it is not surprising that the collapse of the "free market" capitalist system since July 2007 seems to have had such a superficial impact on the theory of the managerial class running those international financial institutions.

Outside the rarefied theoretical constructs of institutions dominated by Western Bloc governments, another dynamic is developing that may well converge with the development of ALBA. After participating in the Asia Pacific Economic Cooperation (APEC) summit to be held in Lima, Peru on November 22nd and 23rd, Russia's President Medvedev will visit Brazil and Venezuela. Prior to the APEC meeting, China's President Hu Jintao is visiting Costa Rica, Cuba and Peru. The coincidence of these visits during the worst economic crisis for decades is unlikely to be accidental. It must surely have something to do with a fundamental problem that China and, to a lesser extent, Russia have as a result of US dollar hegemony as the world's reserve currency.

China and Russia have large reserves of US dollars that have been losing value significantly as a result of the desperate monetary and financial policies of the United States authorities as they try to halt their economy's free fall. China and Russia have to buy dollars in the form of US government debt because if they do not then their own currencies will rise in value to the detriment of their trade balance and with consequent unwelcome effects on their domestic economies.

The problem for them and other countries in a similar position is how to spend their huge dollar reserves in a way that promotes the development of their own economies. One way might be through significant investment in resource rich countries in Latin America and Africa. Guaranteeing strong cooperation ties with suppliers of vital resources to China, this type of investment could also be beneficial for Latin American economies. These, like the rest of the world, could be more and more adversely affected by the reluctance of the big US financial institutions to release dollars into international financial markets. Economists in China have insisted publicly already that an alternative to the dollar as the world's reserve currency must be found.

Progressive economists in the United States like Dean Baker y Mark Weisbrot of the Center for Economic and Policy Research stress two vital aspects as a response to the crisis. In general, Baker argues the importance of permitting a budget deficit to promote investment in productive capital and infrastructure. His argument has been reinforced lately by China's announcement that it will invest almost US$600bn to develop its domestic economy - apparently to compensate for falling demand for Chinese imports in the US market.

In a response to a question for this article, Baker writes as regards the US, "the real force to boost the economy in the short-term will have to be large amounts of fiscal stimulus. There should be a large dose of stimulus (@2-3 percent of GDP) to try to keep the U.S. economy going in the short-term. Over the longer-term, the dollar will have to fall to bring the trade deficit closer to balance. The fall in the dollar will lead to a reduction in living standards, but if the economy is otherwise growing at a healthy pace, the impact will be relatively limited (e.g. a 3 percent decline in living standards due to the drop in the dollar would be equal to about 2 years productivity growth.)"

Of course, the position of each one of the countries in Central America, the Caribbean or the Andean region will be different one way or another. But it is impressive that ALBA prioritised exactly that kind of investment even before the rich country crisis that now threatens the whole world. The cause of that foresight on the part of the ALBA countries seems obvious. The regions benefiting from ALBA had been in crisis already, precisely because they were victims of perennial predatory policies of greedy rich countries, now in crisis themselves. The issue of an adequate management of balance of payments is another area in which the ALBA countries have already been planning a potentially strong response in the form of the ALBA bank and perhaps, if they can clear current obstacles, the Bank of the South.

In response to a question for this article about the relevance of an ALBA bank now, Dean Baker's CEPR colleague Mark Weisbrot argues, "It will be important in the short run for the ALBA countries, with others as much as possible, to co-ordinate their responses to the current financial crisis and economic downturn. Over the longer run they will need to build and extend institutions to foster regional integration and development. Some agreement on the sharing of reserves could be very important in the near future. In terms of co-ordinating their response to the current situation, there may be a potential for organizing their own collective effort to borrow from the surplus countries (e.g. the oil producers and China) who have excess reserves, creating an alternative to the current effort by the United States and UK to channel any such funds through the IMF. They may also be able to use the existing FLAR (Latin American Reserve Fund)."

While the conditions and space to manoeuvre exist, then the suggestions and arguments of economists like Baker and Weisbrot will be useful. But the clock is ticking. The crisis is in the early stages of what is likely to be, at least, a damaging worldwide recession. Most likely options for less developed country economies will begin to run out fast through the first quarter of 2009. In that economic context, the imperialist powers of North America and Europe will seek to exploit political crises in Latin America so as to recoup lost influence and control. It is a new modulation of the challenges and rich country hostility that have faced the ALBA countries from the start. People around the world will be hoping it is another challenge the ALBA countries, led by Venezuela and Cuba, will beat.