Can Africa survive Obama's advisers?

By Patrick Bond

November 12, 2008 – One of Barack Obama's leading advisers has done more damage to Africa, its economies and its people than anyone I can think of in world history, including even Cecil John Rhodes. That charge may surprise readers, but hear me out.

His name is Paul Volcker, and although he is relatively unknown around the world, the 82-year-old banker was recommended as “a legend!'' to Obama by Austan Goolsbee, the president-elect's chief economic adviser (and a professor at the University of Chicago). Volcker was recently profiled by the Wall Street Journal: "The cigar-chomping central banker from 1979 to 1987, he received blame for driving up interest rates and tipping the US into the deepest recession since the Great Depression."

We'll consider the impact of Volcker's rule on Africa in a moment. But why dredge up crimes nearly 30 years old?

This kind of reckoning is important, as three current examples suggest:

• Reparations lawsuits are now being heard in New York by victims of apartheid who are collectively requesting US$400 billion in damages from three dozen US corporations who profited from South African operations during the same period. Supreme Court justices had so many investments in these companies that in May they had to bounce the case back to a lower New York court to decide, effectively throwing out an earlier judgment against the plaintiffs: the Jubilee anti-debt movement, the Khulumani Support Group for apartheid victicms, and 17 000 other black South Africans.
• Last month a San Francisco court began considering a similar reparations lawsuit – under the Alien Tort Claims Act – filed by Larry Bowoto and the Ilaje people of the Niger Delta against Chevron for 1998 murders similar to those that took the life of Ken Saro-Wiwa on November 10, 1995.
• In Boston last month, Harvard University's Pride Chigwedere released a study into preventable deaths – at least 330 000 – caused by former African National Congress and South African President Thabo Mbeki's AIDS policies during the early 2000s. The ex-president has “blood on his hands'', according to Zackie Achmat of the Treatment Action Campaign, requesting a judicial inquiry.

The same critical treatment is appropriate for Volcker, because of the awesome financial destruction he imposed, within most Africans' living memory. His policies stunted the continent's growth when it most needed internal economic coherence.

Even the International Monetary Fund's official history cannot avoid using the famous phrase most associated with the Fed chair's name: "The origins of the debt crisis of the 1980s may be traced back to and through the lurching efforts of the world's governments to cope with the economic instabilities of the 1970s... [including the] monetary contraction in the United States (the 'Volcker Shock') that brought a sharp rise in world interest rates and a sustained appreciation of the dollar."

Volcker's decision to raise rates so high to rid the US economy of inflation and strengthen the fast-falling dollar had special significance in Africa, write British academics Sarah Bracking and Graham Harrison: "1979 marked a radical change in global economic policy, inaugurated with the 'Volcker Shock' (so called after Paul Volcker, then chairman of the Board of Governors of the Federal Reserve) when the United States suddenly and dramatically raised interest rates, [which] increased the cost of African debt precipitously, since a majority of debt stock was held in dollars. The majority of the newly independent states had been effectively delivered into at least twenty years of indentured labor. From that point on access to finance became a key policing mechanism directed at African populations."

Adds journalist Naomi Klein in her book The Shock Doctrine, "In developing countries carrying heavy debt loads, the Volcker Shock was like a giant Taser gun fired from Washington, sending the developing world into convulsions. Soaring interest rates meant higher interest payments on foreign debts, and often the higher payments could only be met by taking on more loans... It was after the Volcker Shock that Brazil's debt exploded, doubling from $50 billion to $100 billion in six years. Many African countries, having borrowed heavily in the seventies, found themselves in similar straits: Nigeria's debt in the same short time period went from $9 billion to $29 billion."

The numbers involved were daunting for low-income countries. According to University of California economic geographer Gillian Hart, "Medium and long-term public debt shot up from $75.1 billion in 1970 to $634.4 billion in 1983. It was the so-called Volcker Shock... that ushered in the debt crisis, the neoliberal counterrevolution, and vastly changed roles of the World Bank and IMF in Latin America, Africa, and parts of Asia."

Elmar Altvater of Berlin's Free University recalls how the world "slid into the debt crisis of the 1980s after the US Federal Reserve tripled interest rates (the so called 'Volcker Shock'), leading to what later has been described as the 'lost decade' for the developing world."

How “lost''? The British Medical Journal complained in 1999 of orthodox World Bank structural adjustment policies that immediately followed: "According to Unicef, a drop of 10-25% in average incomes in the 1980s-the decade noted for structural adjustment lending-in Africa and Latin America, and a 25% reduction in spending per capita on health and a 50% reduction per capita on education in the poorest countries of the world, are mostly attributable to structural adjustment policies. Unicef has estimated that such adverse effects on progress in developing countries resulted in the deaths of half a million young children-and in just a 12-month period."

A few honest mainstream economists also explain Africa's economic crisis in these terms. "The external shock that might have precipitated the developing country slowdown is the increase in real interest rates after the Volcker Shock in 1979", wrote World Bank senior researcher William Easterly in 2001. "The interest on external debt as a ratio to GDP has a statistically significant and negative effect on growth."

A few blocks away from the Federal Reserve, one of Volcker's closest allies was World Bank president Tom Clausen, formerly Bank of America chief executive officer. As the Volcker Shock wore on, in 1983, Clausen offered his board of directors this frank confession: "We must ask ourselves: How much pressure can these nations be expected to bear? How far can the poorest peoples be pushed into further reducing their meagre standards of living? How resilient are the political systems and institutions in these countries in the face of steadily worsening conditions? I don't have the answers to these important questions. But if these countries are pushed too far, and too much is demanded of them without the provision of substantial assistance in their adjustment efforts, we must face the consequences. And those will surely exact a cost in terms of human suffering and political instability."

At that point, "Africa was not even on my radar screen", Volcker told interviewers Leo Panitch and Sam Gindin.

Meanwhile, the World Bank's sister institution, the International Monetary Fund, was described by Tanzanian president Julius Nyerere as "a neo-colonial institution which exploits the poor to make them poorer and serves the rich to become richer". Volcker had, ironically, played a central role in the destruction of the Bretton Woods system's dollar-gold convertibility arrangement, effectively a US$80 billion default on holders of dollars abroad, when in 1971 he served Richard Nixon as under-secretary of the Treasury.

Eight years later, he was chosen to chair the Federal Reserve, which sets US (and by extension world) interest rates. As Jimmy Carter's domestic policy advisor Stuart Eizenstat explained, "Volcker was selected because he was the candidate of Wall Street. This was their price, in effect."

In 1985, Ronald Reagan offered Clausen's job to Volcker, but he decided to stay on at the Fed until 1987, when he went back to a high-paid Wall Street job.

He's back

Now he is back, and according to a recent profile by the Wall Street Journal, "Obama is increasingly relying on Mr. Volcker. His staff now routinely reviews policy proposals and speeches with Mr. Volcker. Conference calls and face-to-face meetings of the Obama economic team are often reorganized to accommodate his schedule. When the team discusses the financial crisis, 'The most important question to Obama: What does Paul Volcker think?' says Jason Furman, the campaign's economic-policy director... When Sen. Obama raised the prospect of a package of spending and tax measures to 'stimulate' the economy, Mr. Volcker disapproved. 'Americans are spending beyond their means,' he told the group. A stimulus package would delay the belt-tightening and savings needed, he added, proposing instead better regulation and assistance to banks."

By November 8, the odds of Volcker being appointed US Treasury Secretary were 10%, according to the WSJ's betting pool. The race was between New York Federal Reserve Bank president Tim Geithner and former Bill Clinton-era Treasury Secretary Lawrence Summers, at 40% odds each. Geithner served under Summers and Robert Rubin in Bill Clinton's Treasury Department during the 1990s.

Summers is best known for the sexism controversy which cost him the presidency of Harvard in 2006. But 15 years earlier he gained infamy as an advocate of African genocide and environmental racism, thanks to a confidential World Bank memo he signed when he was the institution's senior vice president and chief economist: "I think the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that... I've always thought that underpopulated countries in Africa are vastly underpolluted, their air quality is vastly inefficiently low..."

After all, Summers continued, inhabitants of low-income countries typically die before the age at which they would begin suffering prostate cancer associated with toxic dumping. And in any event, using marginal productivity of labour as a measure, low-income Africans are not worth very much anyhow. Nor are African's aesthetic concerns with air pollution likely to be as substantive as they are for wealthy northerners.

Such arguments were said by Summers to be made in an “ironic'' way (and in his defence, he may have simply plagiarised the memo from a colleague, Lant Pritchett). Yet their internal logic was pursued with a vengeance by the World Bank and IMF long after Summers moved over to the Clinton Treasury Department, where in 1999 he insisted that Joseph Stiglitz be fired by World Bank president James Wolfensohn, for speaking out against the impeccable economic logic of the Washington Consensus.

Volcker, Summers and a whole crew of similar capitalist economists are whispering in Obama's ear for a resurgent US based on brutal national self-interest. They need Obama to relegitimate shock-doctrinaire neoliberalism – and in turn, they need Obama's Africa advisers (like Witney Schneidman) to promote military imperialism in the form of the Africa Command.

Whose advice will prevail?

Can Obama instead hear supporters like Bill Fletcher, Imani Countess and Danny Glover, who made TransAfrica (as one example) a visionary economic justice organisation, by fighting the policies of Volcker and Summers? Can AfricaAction, the Institute for Policy Studies, the American Friends Service Committee, Jubilee USA, ActionAid and other genuine advocates for the continent get a word in edgewise, between fits of cackling from the corporate liberals who think they own Obama? Will the president-elect ever get advice from economists James K. Galbraith of the University of Texas or Center for Economic and Policy Research codirectors Dean Baker and Mark Weisbrot, who correctly read the various financial crises way ahead of time, and whose records promoting social justice would serve Africa far better?

Probably not. So it is vital for Africans to wake up to the danger that the likes of Volcker and Summers represent. Anyone paying attention to the continent's economic decline since 1980 knows the damage they did, but Obama apparently needs to hear more of their sins against his father's people before he chooses his Treasury Secretary next week. And while he's at it, how about a revision of Obama's utterly neoliberal 'fundamental objective' for the continent, which is "to accelerate Africa's integration into the global economy"?

[Patrick Bond directs the Centre for Civil Society in Durban, South Africa: http://www.ukzn.ac.za/ccs; this article was originally a ZNet commentary.]

A hangover from the past

The Mercury (Durban, South Africa): Eye on Civil Society column

November 26, 2008 Edition 1

By Patrick Bond

A WEEK and a half ago, United States president-elect Barack Obama declined to meet the Group of 20: the leaders of the world's 20 most advanced financial economies, including South Africa's.

Apparently wet-behind-the-ears President Kgalema Motlanthe made no discernable impact at the Washington summit, just as finance minister Trevor Manuel could not persuade this elite club to reform the World Bank and International Monetary Fund when he and former president Thabo Mbeki hosted the G20's annual gathering near Cape Town a year ago.

Nor is Obama likely to support the United Nations financing for development meeting in Doha on Saturday, at which not 20 but 192 nations will be represented, and at which Manuel is a special UN envoy, as he was at the initial 2002 UN financial summit in Monterrey.

Two months ago, at a preparatory conference, Manuel observed that last year aid flows fell 8.4% (to $104 billion) while military spending was up 6% (to $1.3 trillion): 'These cold facts suggest that since Monterrey we have done the opposite of what we said we would do, that we have chosen war instead of peace. The food and fuel shocks and global financial turmoil are a bellwether of the consequences of broken promises. They are a sign of our failure.'

Absolutely true. Leading Africa economically, Motlanthe and Manuel appear weak at a time when the world crisis is suffocating the continent: crashing commodity prices, retracted investments, overall global stagnation, the freezing up of trade finance and project credit, and even sharper cuts in north-south aid flows. Whereas African civil society, business and politicians alike wildly celebrated Obama's November 4 victory, his announcement of new US economic managers on Monday was like a painful hangover.

Consider three whom Jubilee Africa debt activists, for example, already passionately distrust:

• Treasury secretary-designate Tim Geithner, a central figure in the present crisis because of his deregulatory yet pro-bail-out posture as New York Federal Reserve Bank president;
• National Economic Council director Lawrence Summers, the central figure in the previous world financial crisis a decade ago, when as treasury secretary he arm-twisted huge concessions from Asian countries suffering rapid decline; and
• Top Obama economic adviser Paul Volcker, who in the previous global crash, from 1980-82, imposed the infamous Volcker Shock, causing the Third World debt crisis.

My Centre for Civil Society colleague Dennis Brutus calls these men economic criminals, and for very good reasons.

Geithner served in Henry Kissinger's consulting firm during the mid-1980s, joined the Reagan-Bush administration in 1988, and then worked for Summers and Robert Rubin in the Clinton treasury department during the 1990s.

As New York Fed president, Geithner was implicated in both deregulation and the first round of ineffectual Wall Street bail-outs in 2008, in which he bailed out J P Morgan one day and failed to foresee the devastating impact of the Lehman Brothers investment bank's demise on world finance the next.

A speech by Leithner in March last year is instructive about the United State's laissez-faire attitude to financial gambling: "credit market innovation should help to make markets both more efficient and more resilient, and better able to absorb stress."

Hah, the opposite happened. But Geithner remained wilfully blind: "We cannot turn back the clock on innovation or reverse the increase in complexity around risk management. We do not have the capacity to monitor or control concentrations of leverage or risk outside the banking system. We cannot identify the likely sources of future stress to the system, and act pre-emptively to diffuse them."

Then why did both Bush and Obama give him such important jobs?

Summers, too, proved incompetent through consistent advocacy of financial deregulation, although he is best known in US political circles for the crude sexism controversy that cost him the presidency of Harvard in 2006 (he wrote that women cannot do maths or sciences), after extreme conflict with his university's leading African-American scholars.

Fifteen years earlier, Summers gained infamy as an advocate of African genocide and environmental racism, thanks to a confidential memo he signed as World Bank chief economist: "I think the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that. I've always thought that underpopulated countries in Africa are vastly underpolluted, their air quality is vastly inefficiently low."

And Obama's most esteemed adviser, the 82-year-old Volcker, has done more damage to Africa, its economies and its people than anyone in recent history. As described by the Wall Street Journal: "The cigar-chomping central banker from 1979 to 1987, he received blame for driving up interest rates and tipping the US into the deepest recession since the Great Depression."

Even the International Monetary Fund's official history cannot avoid using the famous phrase most associated with the Federal Reserve chairman's name: "The origins of the debt crisis of the 1980s may be traced back to and through the lurching efforts of the world's governments to cope with the economic instabilities of the 1970s (including the) monetary contraction in the US (the Volcker Shock) that brought a sharp rise in world interest rates and a sustained appreciation of the dollar."

Debts

Owing to the Volcker Shock, remarks journalist Naomi Klein in her book Shock Doctrine, Africa was squeezed nearly to death: "On their own, the debts would have been an enormous burden on the new democracies, but that burden was about to get much heavier. Nigeria's debt in the short time period (during Volcker's reign) went from $9 billion to $29 billion."

Volcker's reaction? As he told interviewers: "Africa was not even on my radar screen."

Why did the then-president Jimmy Carter choose this man in 1979 to chair the Fed, which sets US (and by extension world) interest rates?

Carter's domestic policy adviser Stuart Eizenstat explained: "Volcker was selected because he was the candidate of Wall Street. This was their price, in effect."

Although he retired in 1987, Volcker is back at Obama's side, and according to the Wall Street Journal, "conference calls and meetings of the Obama economic team are often reorganised to accommodate his schedule. When the team discusses the financial crisis, the most important question to Obama is: what does Paul Volcker think?"

Geithner, Summers, Volcker and similar economists whisper for a resurgent US based on national self-interest, including a restored financial system again capable of colonising world markets. (And to make that possible, Obama's main Africa adviser, Witney Schneidman, is on record as promoting military imperialism in the form of the Africa Command.)

Instead of this crew, there were plenty of other top economists with proven Africa sympathies available, such as Nobel laureates Joseph Stiglitz and Paul Krugman, or Jeffrey Sachs (who advocates African debt repudiation), or, on the left, James Galbreath, Mark Weisbrot and Dean Baker, but they did not get even a look-in.

Obama himself has said his "fundamental objective" for his father's people is "to accelerate Africa's integration into the global economy" - no matter the vast damage that strategy has done and is now doing. Which Africans can stop Obama from tearing up his roots?

[Patrick Bond is the director of the UKZN Centre for Civil Society.]