A number of Asian and European governments are convinced that there has to be an effective international regulatory framework to ensure accountability and transparency on the part of capital markets and rating agencies. They feel that the absence of a regulatory framework is the primary cause of the current global financial crisis. At the crucial 15 November Summit of the leaders of twenty of the world’s most important economies in Washington, they are expected to push for greater market surveillance and oversight.
Can we expect Asian and European leaders at the Washington Summit to go beyond that? Can we also expect them to call for the permanent banning of unregulated short selling of stocks and shares? Will they ask for a ban on unscrupulous trade in derivatives? Will they seek to prohibit speculation on shares, currencies and commodities? Are they prepared to propose fundamental structural changes to the international financial architecture to ensure that the prohibition of speculation remains effective? Are they ready to commit themselves to the eventual goal of eliminating casino capitalism itself, once and for all?
For casino capitalism is at the root of the global financial crisis. As the author of the term, the late British academic, Susan Strange, observed some 22 years ago, “The Western financial system is rapidly coming to resemble nothing as much as a vast casino. Every day games are played in this casino that involve sums of money so large that they cannot be imagined. At night the games go on at the other side of the world. In the towering office blocks that dominate all the great cities of the world, rooms are full of chain-smoking young men all playing these games. Their eyes are fixed on computer screens flickering with changing prices. They play by intercontinental telephone or by tapping electronic machines. They are just like the gamblers in casinos watching the clicking spin of a silver ball on a roulette wheel and putting their chips on red or black, odd or even ones.”
“As in a casino, the world of high finance today offers the players a choice of games. Instead of roulette, blackjack, or poker, there is dealing to be done — foreign exchange market and all its variations; or in bonds, government securities or shares. In all these markets you may place bets on the future by dealing forward and by buying or selling options and all sorts of other recondite financial inventions. Some of the players — banks especially — play with large stakes. There are also many quite small operators. There are tipsters, too, selling advice, and peddlers of systems to the gullible. And the croupiers in this global financial casino are the big bankers and brokers.”
The growth of casino capitalism can perhaps be traced back to 1973 though the signs were already present in the sixties. It was in 1973 that there was an effective devaluation of the dollar “and the accompanying decision to leave the determination of exchange rates to the markets”. This decision followed the unilateral abrogation of the Bretton Woods system by the then US President, Richard Nixon, in August 1971. By allowing markets to determine exchange rates, market volatility increased. It is this volatility brought about by floating rates that has opened the door to massive speculation, accelerated no doubt by the ever expanding reservoir of capital from the eighties onwards, and the computer revolution.
The adverse impact of speculation upon the rapid exit of capital from markets has ruined many an economy and left millions of people destitute. In recent years we have witnessed the pain and suffering it has caused to the poor in Indonesia and Argentina. Today, tens of thousands of Americans who have lost their jobs have become the latest victims of that unfettered capitalism of the casino that the worshippers of the market idolize.
Casino capitalism has also led to the concentration of wealth and the widening of income and social disparities between the upper and lower echelons of society on a global scale as never before. In the US, this is reflected in the astronomical personal incomes of the fat cats of Wall Street that exceeded a billion US dollars in the five years from 2003 to 2007. Among the industrial economies of the Global North, the US has the worst income differentials between rich and poor. Indeed, in a number of other countries which once boasted of fairly equitable income distributions, such as South Korea and Singapore in the East and Canada and Germany in the West, the globalizaton of casino capitalism has resulted in increasing income gaps.
If these income disparities and the increasing concentration of wealth in the hands of a few appear to be acceptable to the majority of the populace, it is partly because casino capitalism has succeeded — as no other ideology before it has — in institutionalizing and legitimizing greed as a social phenomenon. The rapacious acquisition and accumulation of wealth by an elite is sanctified as a vital pre-requisite for the progress and prosperity of the people. The poor, it is argued, will eventually benefit from the wealth created by the elite.
It is doubtful if Asian and European leaders will want to expose the evil of casino capitalism at the Washington Summit. Though the state driven capitalism of East Asian states such as Japan, Korea and China and the social market capitalism of much of Western Europe are in some respects different from the casino capitalism that originated in the US, their economies are so interlocked today that it would be almost impossible for the former to disengage from the latter without serious repercussions for their own societies. It is widely acknowledged for instance that it is in the interest of China and Japan who hold billions of dollars worth of US treasury bills and other financial instruments to ensure that the US economy remains afloat in the face of the present crisis. Similarly, derivatives trading, options and futures contracts are as integral to British and German financial centers as they are to New York. Even Saudi Arabia, one of the countries invited to the Summit, whose economy is purportedly “Islamic” is deeply entrenched in the US helmed international financial system. Besides, the US elite, while making some concessions here and there, can be expected to defend casino capitalism to the last currency speculator since it ensures the global financial hegemony of the US.
This is why the real challenge to casino capitalism will have to come from people’s movements and other civil society groups outside the State. Groups in the US in particular and the West in general will have a big role to play. Civil society groups in other parts of the world will be their partners. In this regard, it will be recalled that it was the sustained challenge from labor and socialist movements that forced nineteenth century European capitalism to shed its uglier features and attempt a degree of transformation.
Civil society groups today should not only intensify their criticism of, and campaign against, casino capitalism in all its ramifications. They should articulate with much greater intellectual vigor and moral candor an alternative vision that goes beyond the crisis of the moment. Eliminating speculation and establishing an effective regulatory framework aside, they should suggest how a just international monetary system could be created which would have phased out the US dollar as the world’s reserve currency. A people based banking system with citizens’ oversight and a global taxation system to prevent transfer pricing and tax evasion should also be explored as part of this alternative vision.
The alternative vision should incorporate new ideas on expenditure and investment. Military expenditure should be reduced drastically at national levels. Let us not forget that US military spending in Vietnam was one of the reasons why it chose to abandon the fixed exchange rate in the earlier seventies. The Iraq War which some economists estimate has already cost the US 3 trillion dollars is one of the indirect causes of the present financial mess in the US. The savings made from the military budget of the US and other militaristic states and the huge reserves accumulated by China, Japan and other countries should be directed towards eradicating global poverty, providing basic social services such as water, electricity, health, education and housing, and building roads, railway lines and ports in areas that lack the infrastructure for economic development. Governments should also be encouraged to invest substantially in agricultural and industrial research and in environmental protection and enhancement.
Most people everywhere I suspect will endorse this alternative vision, aspects of which have been put forward by some social movements and non-governmental organizations which had participated in the People’s Forum that had paralleled the Asia-Europe Meeting (ASEM) in Beijing in the middle of October this year. It is those in the vortex of casino capitalism and the governments and elites aligned to them who will oppose the vision and the transformation it promises. It underscores the critical importance of a global people’s movement to fight casino capitalism, and indeed, capitalism itself.
Dr. Chandra Muzaffar is President of the International Movement for a Just World (JUST) and Professor of Global Studies at Universiti Sains Malaysia in Penang, Malaysia.
Malaysia.
28 October 2008.