Liberating Nations from Public Debt
And
Creating Conditions for Sustainable Economic
Growth
The near collapse of the
international banking system in September 2008 and the Great Recession have exposed
the seriousness of the American and European financial and economic problems. They
also revealed that these problems are not due to economic and political
mismanagement only, but also to European and American loss of economic competitiveness.
Since the roots of these problems are deep, addressing them requires thoughtful
thinking, sound economic and financial reforms, and certain political and sociocultural
changes.
Due to the financial crisis, many
states were forced to bailout troubled banks and some failing corporations and
adopt expansionist policies to stimulate contracting economies. As a
consequence, borrowing to cover spending increased substantially, causing
budget deficits and the public debt of most nations to rise rapidly and reach,
in some cases, unsustainable levels. In view of the near default of Greece,
Ireland and Portugal, global awareness of the threat posed by a growing public debt
was heightened, giving rise to a euro crisis. Today, states are facing a complicated
dilemma: how to reduce budget deficits and contain rising public debts on the
one hand, and stimulate stagnating economies and create jobs for the unemployed
on the other.
All indebted nations subscribing to
the free market system are in a bind. The goals they seek to accomplish are
contradictory; and the actions they must take are incompatible. While reducing
budget deficits to contain public debts requires reducing spending and raising
taxes, stimulating economies and creating jobs require more spending and tax
reductions. Since there is no formula in economic books to achieve these
contradictory goals, a new formula has to be invented to enable nations to
resume economic growth and create jobs for the unemployed without widening
budget deficits and increasing the public debt.
This
paper intends to articulate a plan to liberate rich and poor nations from the debt
burden, restructure the international monetary system and create the necessary
conditions for sustainable global economic growth, while guaranteeing fairness.
The plan has come as a result of deep thinking about the woes of our times; the
duty to help poor people and desperate children climb out of poverty; the need
to save students from debt and inadequate education; and a moral responsibility
to liberate undereducated and oppressed young women and men from economic and social
enslavement, as well as free future generations from the burden of a debt
incurred by previous generations. Since
the intention of the plan is to help everyone, it neither asks investors and
bond holders to sacrifice anything, nor calls for the redistribution of income
or wealth.
But before
outlining our plan, few facts related to global change need to be mentioned and
underlined. These facts are meant to place the major economic challenges of our
times in their proper historical and societal contexts; otherwise, it would be
difficult to understand the nature and extent of global change, its roots and
expected social, economic and strategic implications. And this, in turn, would
limit our ability to think about the challenges of our times with clarity and
approach them with confidence.
The Global Context of Change
Globalization and the
communications and information revolutions of the last two decades have caused
national economies and
cultures and politics to be transformed. They created a global economy that
forced economic and social structures and production relations to change, and
caused the nation state to lose control over its economy. They also caused
Western societies in general to enter a transitional period leading to a new,
much complex society, having its own values, challenges and opportunities that
are yet to be fully developed. During transitional periods that take societies
from one civilization to another, it is always easier to describe change than
identify its causes, influence its course or anticipate its outcome. As change
proceeds, it invalidates old ideas and economic and political theories, causing
them to gradually lose relevance and become dysfunctional, while no new ones
are developed in time to take their place and deal with the evolving change.
They also cause economic, social and political structures to change, and create
a trust deficit. As a consequence, society’s capacity to deal with the new
reality declines, creating need for new ideas and visions to guide nations into
a largely uncharted future no one can escape.
The experience of a society passing
through a civilizational transition is similar to that of a driver entering a rough
mountainous terrain. As he takes a long curve on a winding road, he loses sight
of the landscape that lies behind, while the mountains he negotiates block the
view of the landscape that lies ahead.
As his speed and control of the vehicle become subject to the rough
terrain, his expectations and confidence become subject to the ups and downs of
the road. The familiar landscape that lies behind no longer helps; the horizon
that lies along the road is so obscured it provides little or no clues to what
lies ahead.
The transition that started in the
1990s has disrupted life as we knew it and dissolved the connection between the
immediate past and the near future. As the industrial age comes to an end, the knowledge
age is still in labor being born, leaving the present waiting for the unknown.
The present we are living today has been reduced to a mere port where the past is
ending its long journey, and the future is getting ready to begin its own
voyage into a new world. Consequently, people and the systems through which
they function and manage their lives are experiencing one crisis after another
without much hope of regaining balance soon.
The
creation of a global economy has led the economies and
politics of most nations to be integrated, causing major national issues to become
international and major international issues to become national. There is no
major national problem today without an international dimension; and no
international problem without a national root. As a consequence, the ability of
every state to deal with major challenges on its own has been vastly weakened.
The debt crisis is one example that demonstrates the intricate and complex
relationships that tie national and international institutions together and
cause even regional approaches to dealing with such issues to fail. In fact,
the moment a civilizational era ends, its history and historical logic ends as
well, forcing the new era to struggle alone to discover the unique logic of its
times and write its own history. For example, when the Industrial Revolution
arrived with its society and culture, the history of the agricultural era and
its logic ended, causing that history to lose its wisdom and become of no use
to industrial society.
The rapid
industrialization of South Korea, China, India, Brazil and few
other states has caused the global capacity to produce most essential goods and
services to exceed the global capacity to absorb such goods and services.
Meanwhile, the continued expansion of this capacity has caused global competition
to intensify and economic growth rates of industrialized states to slow down,
exposing the world economy to recurring economic recessions, financial crises
and higher than usual unemployment rates. This creates an urgent need to expand
existing consumption markets and develop new ones to keep pace with the growing
production capacity. Since the absorption capacity of the developed states in
general is fast approaching its limits, due in part to the decline of the
middle class, aging populations, and the spread of poverty, efforts to develop
new markets must concentrate on countries where economies and societies are
developing or still underdeveloped.
Free trade and investment markets have
changed the rules that govern relationships between jobs and job-seekers, particularly
industrial and knowledge jobs. Two decades or so ago, most job-seekers had to
leave their towns, sometimes their countries, and at times risk dying to reach
a foreign country where decent jobs are available to improve their life
conditions. While economic migration continues today, most immigrants lack the education
and skills needed to excel in the new knowledge-based economy. Thousands of
people die each year trying to reach Europe and the United States in little
boats sailing against turbulent winds, and walking across vast deserts
controlled by criminals and drug dealers.
In
contrast, knowledge and industrial jobs in the new age are continuously on the
move searching for qualified workers to employ. Industrial jobs travel from one
country to another looking for cheap and disciplined labor that has the right
skills and attitudes to do the work manufacturing requires, while knowledge
jobs are traveling, often virtually, looking for workers with the right
education and exceptional talents. Highly qualified and motivated people do not
need to leave their home towns to get good jobs with corporations that reside
in faraway places. Since multinational corporations have abandoned their
traditional attachments to country and community and labor, they are willing to
hire anyone and invest in any country to maximize profits and enlarge market
share. Therefore, any state that is ready for such corporations will find them
ready to bring their technology, capital, culture and management systems to
create new jobs for its labor and help it industrialize.
These developments have caused the economic,
social and cultural conditions of two decades ago to change drastically; and,
as a consequence, they invalidated the assumptions upon which old theories of
economic management are based. Such assumptions include the notions that national economies are largely
closed, trade is subject to restrictions, foreign investment is subject to
regulations, investment requires domestic savings, and that neither labor nor
money is free to cross state lines. Since all such restrictions have been fully
or partially removed, the traditional tools of managing national
economies and dealing with issues such as recessions, inflation, unemployment,
trade and competitiveness have become ineffective. Consequently, the traditional
economic theory has become largely dysfunctional. This is way the US
Federal Reserve has failed to end the Great Recession, create jobs for the
unemployed or restore consumer and investor confidence; and why all European
efforts to deal with the debt issue have failed to even ease the crisis.
Failure
to acknowledge the irrelevance of traditional economic theory will cause most
economists and politicians to think inside a largely empty box and fail to
realize the need for new tools of economic and financial management. While traditional
economic thinking may continue for a few more years, the current theory, using
a medical term, is brain dead; it can neither explain the nature of change nor
can it deal with it. Even the law of supply and demand, which represents the
core of the theory and provides the justification for free markets, has become
partially dysfunctional. For example, due to the large increase in oil prices
in the late 1970s demand for oil declined by 17%; however, the almost tripling
of the prices in the 2005-6 period has failed to cause even a small decline in
demand. Rising prices of cellular phones do not seem to discourage anyone from
using phones; they seem to encourage young people to spend more upgrading their
phones and adding new applications. This change is largely due to the deep
sociocultural transformations the world society has witnessed since the early
1990s. The Great Recession does not represent another business cycle; it
signifies the end of an era.
Decades
ago when most economies were largely national in structure and scope and less
dependent on exports and imports, stimulus plans worked fairly well. Increased
government spending and easy credit were able to create new jobs at home and
cause disposable incomes to rise and consequently increase domestic demand. And
this in turn encouraged, at times compelled producers to invest and expand
production and create new jobs. Reducing interest rates also worked well in the
past; they encouraged investors to borrow and invest, and enticed consumers to
borrow and spend. However, in a globalized economy, increasing government
spending and lowering interest rates cannot have the same effects on domestic demand,
employment, investment or national wealth. A good portion of any increase in
spending will be spent buying things from other countries, while lower interest
rates could entice investors to borrow in one state and invest in another where
labor is cheap. Therefore, traditional economic measures to create jobs and fight
recessions are unlikely to succeed in this age unless combined with other
measures that require coordination at the global level.
There is no doubt that traditional economic theory
has had a solid record of success in helping nations manage their economies in
good and bad times throughout most of the 20th century. Economists
have also played and continue to play a major role debating economic policy,
political decisions, the distribution of income, and the impact of these issues
on fairness, poverty, employment, the middle class and the general welfare of
nations. However, the moment a theory loses the validity of its assumptions, it
loses its relevancy. Building a theory is like building a house; you start with
the foundations, which is the equivalent of assumptions for theory. If the
foundations are good, the house will last for a long time, but not forever; if
the assumptions are realistic, the theory will last for many years, but not
forever. Nevertheless, foundations exposed to earthquakes and floods are
unlikely to live long; and so are assumptions trying to reflect human behavior
and living conditions that never stop changing.
Overview of the Debt Problem
Without going into details, records
indicate that the public debt of OECD member states has surpassed 100 percent
of their gross domestic product (GDP) and is still rising. The US public debt
has already passed 100 percent of the American GDP and is projected to reach
108% of GDP by the end of 2012. As a percentage of GDP, the debt estimates for
some of the world economic powers and highly-indebted states are as follows;
Japan 234, Canada 82, France 87, Italy 130, Britain 82, Germany 82, Ireland
102, Portugal 106, and Greece 150; and for the European Union as a whole, it is
about 92%. Meanwhile, China, Brazil, India, Russia, and South Korea have ratios
of debt to GDP as follows: 19%, 67%, 71%, 23% and 31%, respectively. On the
other hand, the combined GDP of all nations is estimated at $64 trillion, and
the total public debt is estimated at $53 trillion, or 83% of GDP. And while
the industrial Western states and Japan have a combined GDP of some $42
trillion, their debt is about $43 trillion, or 102% of GDP. China, Brazil,
India, Russia, South Korea and Taiwan have a combined GDP of approximately
$14.5 trillion and a debt of $6 trillion, or 41% of GDP. The rest of the world,
which includes several fairly large states such as Bangladesh, Egypt,
Indonesia, Mexico, the Philippines and South Africa, has a combined GDP of some
$7.5 trillion, and a debt of $4 trillion, or 53% of GDP. Since all numbers are estimates; and because
many states use ‘creative accounting’ to hide the real size of their debt, no
one should be surprised if the total approaches $60 trillion when and if the
true numbers are revealed. (Numbers and ratios are based on information
obtained from 5 major sources; the World Bank, the IMF, the OECD, European
Council, Eurostat and the CIA websites.)
While
the global debt is estimated at $53 trillion, interest due on this debt until
maturity is estimated at $19 trillion. This estimate is based on an average
annual interest rate of 4% and an average maturity period of 8 years. As a
consequence, the total debt obligations of all nations is about $72 trillion,
of which about $58.5 trillion is owed by the Western industrialized states and
Japan, about $5.5 trillion is owed by the developing nations, and about $8
trillion is owed by the industrializing and major oil-exporting nations.
Liberating Nations from Debt
Today, most nations face mountains of
debt and huge budget deficits that hinder their abilities to create jobs for
the unemployed and help the poor, causing poverty to spread and a sense of
hopelessness to overwhelm a majority of people in many parts of the world. Since
the debt problem is not limited to the euro zone and the United States only, it
must be viewed as a global issue. To address this issue and the social ills it
has precipitated, I present below a plan that defies conventional wisdom; yet
it has the capacity to help all states and peoples and restore global financial
stability. The plan is as follows:
- To
designate the IMF a global central bank, with powers to issue an international
currency to be called “Ramo,” divided into 100 zents and to issue bonds in
Ramos, in additions to its current functions;
2.
To set the value of the Ramo at the rate of the IMF Special
Drawing Rights unit, which actually means converting the virtual IMF currency
to a real one;
3.
To give each state the opportunity to repay its debt
and interest due until maturity by issuing money notes and credit certificates
in its own currency payable to the IMF;
4.
To authorize the IMF to open a trust account or an
escrow account in which all such funds would be deposited and kept to meet the
debt obligations of member states; the IMF would pay all debt notes on behalf
of its members as they become due;
5.
To ask each state to pay an amount equivalent to 10
percent of its total debt obligations as management fees; the fees would
generate enough hard currency to pay the poor nations’ debt obligations and
initiate programs outlined hereunder;
6.
To require each state to reduce its budget deficit by
at least 5% annually and balance its budget within 12 years;
7.
To establish a $1 trillion educational fund to build
50 new universities, with a mission to promote peace, cultural diversity,
tolerance and critical thinking, encourage creativity and innovation, and
develop environmentally friendly technologies; universities would be
strategically located to serve as many regions of the world as possible;
8.
To establish a $1 trillion humanitarian fund to help
victims of war and natural disasters such as hurricanes, tsunamis, earthquakes
and serious diseases worldwide;
9.
To establish a $5 trillion Sustainable Development
Fund to assist all developing nations to grow out of poverty, reduce dependency
and join the industrialized world; and
10. To create a few
international corporations and agencies under the supervision of the World Bank
to help poor nations develop and industrialize.
The moment a nation pays its debt and
the management fees to the IMF, it becomes free of debt, and the IMF assumes
full responsibility for its debt obligations. Since a global economy needs a global
central bank to function properly, the new role assigned to the IMF and the
issuance of the Ramo would restructure the international monetary system,
basing it on a ‘new gold standard.’ Since the IMF does not have enough gold, a
golden Ramo, backed by the good faith and currencies of all member states,
would become the international standard against which all currencies would be
pegged, making them more stable and less susceptible to manipulation by traders
and politicians. Exporters of oil and other minerals and strategic commodities
will be able to set the prices of their exports in Ramos, enabling them to
forecast future incomes more accurately. Using the Ramo to price oil will also
guarantee fairness; no nation would pay less as the value of its currency
appreciates against the dollar; no nation would pay more as its currency
depreciates against the dollar. The issuance of the Ramo will mark a new era in
our history in which the international community of states will have finally
acknowledged that all economies are not just interdependent but largely
integrated.
Since budget deficits include
interest payments on the debt, many states would see their deficits vastly
reduced the moment they pay their debt. The United States, for example, would
see its budget deficit decline by approximately 30%; a few states like Germany
may even have a surplus. Such a development would calm the financial markets,
restore investor and consumer confidence, and give all states a decade or so to
restructure their spending and tax policies.
Concerns and Fear
of Inflation
Some
economists will most likely argue that repaying the public debt in this manner
amounts to printing money and issuing credit certificates not backed by solid
assets. This is true, but so is the printing of dollars and euros and pounds
and other currencies today; these are currencies backed by the good faith of
the states issuing them, not by gold or other assets. The Ramo will be backed,
not only by one state, but by all IMF member states. Furthermore, if the debt
is not paid now, any debt payment in the future will be made in dollars or
euros or another currency. All loans are made and repaid in regular currencies
that lack material backing. Therefore, the means to pay today as well as later
are the same; the only difference is to pay today and free all nations from
debt, or wait until the highly-indebted states begin to default one after the
other due to the heavy weight of indebtedness and cause the banking, credit and
trading systems to stop functioning.
Other
economists might argue that creating so much money would ignite inflation and
hurt consumers everywhere. This is simply not true. The IMF has no mandate to
spend the money it will receive except as outlined above. This arrangement
changes the identity of the debt payer, not the amount to be paid or when to be
paid. Though the IMF is required to pay debt notes as they become due on behalf
of member states, it could arrange, in coordination with concerned parties, to
rollover some loans and keep some money as deposits for as long as needed to
maintain stability.
There is
no doubt that paying some $70 trillion over 20 years is a cause for concern;
however, existing needs and available financial tools are capable of managing
this money and easing all concerns. Trillions of dollars are needed to
strengthen European and American banks and enable them to repay loans to central
banks. And since paying the debt does not eliminate the budget deficits of most
states, borrowing will resume immediately after the debt is paid, but at a
slower pace. Moreover, states can issue bonds to reduce financial liquidity and
central banks have the power to tighten money supplies, and the IMF is able to
play a role in managing international liquidity. However, the biggest demand
for investment capital will come from the developing countries, where millions
of investment opportunities are expected to be created year after year due to
the Sustainable Development Fund, to be outlined in the next section. Moreover,
as the IMF pays back loans, it should give lenders the option of getting paid
in the same currencies of the loans or in Ramos. This action would limit the
increase in the supply of almost all currencies, and pave the way for the Ramo
to play its intended international role.
The
belief that increasing the supply of money causes prices to rise rapidly and
ignites inflation is based on assumptions that have long been invalidated. Such
assumptions include the notions that national economies are largely closed,
money is not free to cross state borders, and trade is subject to restrictions.
The major cause of inflation today is supply shortages of essential goods, not
excess supply of money. People often have money but have no desire or need to
spend more; therefore money alone cannot ignite inflation. If demand for
essential goods increases rapidly or shortages of such goods are suddenly felt,
inflation will be ignited, even in situations of tight money supply. Since the
world’s capacity to produce most goods and services exceeds its capacity to absorb
such goods and services, no shortages are expected to occur and cause
inflation. Food and energy products are the only exceptions and their prices
are beyond anyone’s control because shortages are often caused by bad weather,
monopoly, price manipulation and political instability.
In the late 1990s Mr. Allan Greenspan,
the former chairman of the Federal Reserve began to raise interest rates in
fear of inflation. Since I saw no inflation coming, I wrote a short article
under the title, “The Ghost of Inflation,” in which I argued that inflation no
longer presents a real threat to the industrialized states; it has become a
ghost to be feared, but not to be seen. There are many forces that have
transformed inflation from a real threat to a mere ghost; they include the
internationalization of capital and investment markets, free trade and the ever-growing
industrial capacity of Asia. While it may be unwise to declare that inflation
is dead, inflation has lost most of its teeth; it may be able to bite, but it
cannot hurt. Unfortunately, none of the newspapers that received the article at
the time bothered to publish it. Had it been published, the unintentionally
engineered recession of 2000 could have been avoided; and the situation we are
in today might have been different.
Germany,
which fears inflation more than any other state, spent hundreds of billions of
dollars within a few years on German reunification without igniting inflation. Moreover,
in response to the Great Recession and the 2008 financial crisis, the US
government and the Federal Reserve increased the supply of money by more than
$2.5 trillion within months, also without igniting inflation. Nonetheless,
Inflation remains a threat to poor states struggling to feed their populations
and grow their stagnant economies, and where states are largely corrupt and
essential commodities are monopolized by small groups of greedy merchants. The
plan to pay the debt of all nations is also a plan to deal with the threat of
serious inflation. It provides developing states with the capital and knowledge
and technical assistance to develop their economies and improve food security
and transform their cultures. Nonetheless, no plan can guarantee that
corruption and price manipulation will disappear; the issue of moral hazard
will stay with us for as long as we live. No rich or poor nation is immune to
it.
It is
now widely accepted that the cost of bailing out any state will be shared by
the banks and investment funds that made the loans. This makes all lenders fear
losing a significant portion of their assets and discourages them from lending
even to each other. The issuance of the Ramo and the repaying of the debt
remove all risks associated with possible state defaults. Meanwhile, the
establishment of the Sustainable Development Fund will expand international
trade and stimulate all economies and thus create millions of new investment
opportunities for investors to exploit.
Would the repaying of the debt and the creation
of the Ramo have a negative impact on the US dollar? The answer to this
question is yes and no. The issuance of the Ramo would stabilize the dollar and
free all currencies to play their traditional economic and monetary roles; it
should also make it difficult for politicians and traders to play one currency
against another. With the Ramo being the world’s reference currency, each state,
including the United States, will be able to revalue and devalue its currency
at any time to manage its trade balance, exports and import. Nonetheless, the
Ramo is expected to weaken the attractiveness of both the dollar and euro as
reserve currencies. Since both currencies have been weakened by the financial
and debt crises, the Ramo is needed to supplement them and foster the
international monetary system.
Sustainable
Development Fund
The rapid economic development of
several Asian states has caused the industrial production capacity of the world
to surpass its absorption capacity, creating a wide gap between the global
supply of and demand for most goods and services. Without expanding global
demand to narrow this gap substantially, it is not possible to create enough jobs
for the unemployed in the West, contain trade deficits and stabilize the world
economy. And without growing the economies of developing states and making the global
economy fair, it will be even less possible to produce enough food to feed the
world’s poor. If helping poor nations was a luxury in the past, it is a
necessity today. Political stability will not be sustained, and radicalism
cannot be contained without economic growth and a fairer distribution of income
among social classes and nations. Economic aid and charity cannot create enough
jobs for the unemployed to undermine radicalism in poor states or increase
global demand to enable the American and European economies to resume healthy growth
and deal with their social problems. Since our world has become a global
village, no nation is able to live in affluence for long unless other nations
feel at least financially comfortable; and no nation will feel secure unless
its neighbors feel largely secure as well.
Despite the fantastic increase in
China’s and India’s industrial capacity, they still have millions of people
without work. Every new industrial job created in those countries will further
aggravate the imbalance between the global supply of and demand for most goods
and services. Failure to acknowledge this fact and act accordingly, will
heighten the vulnerability of the world economy to recurring recessions and
financial crises; it will also worsen trade gaps, increase budget deficits and
public debts, and deepen social and political problems everywhere. The history
of the last three centuries demonstrates that when production increases,
consumption increases as well, but not enough to absorb all that is being
produced. This is why the balance of trade is never balanced, economic
recessions continue to occur, and disputes among nations have never stopped.
As mentioned earlier, the debt
obligations of all nations are estimated at $72 trillion. The 10 percent debt
management fees would generate about $7.2 trillion, of which about $6 trillion would
come in hard currencies. $2 trillion of the fees would be used to launch the
educational and humanitarian initiatives, and $5 trillion to launch the
Sustainable Development Fund (SDF). A societal development plan would be
prepared by the World Bank for each state, and money would be spent over 20 to
25 years to purchase whatever is needed to foster national development plans.
The following goals define the mission of SDF:
1.
To help all nations build modern roads and railroads
and airports, bridges and dams, as well as electrical grids and water and
sewage systems, and basic industries;
2.
To modernize agricultural farming techniques and
irrigation systems as well as water management, train farmers and develop rural
communities and industries;
3.
To build enough schools, hospitals and clinics, and train
enough teachers, physicians and nurses to meet the needs of urban and rural
populations;
4.
To design special training programs to enable workers to
acquire the right attitudes and skills in order to keep a growing economy
functioning properly;
5.
To support national universities and establish
specialized research institutes committed to identifying national and local
problems and finding home grown solutions;
6.
To increase the size and effectiveness of civil
society organizations, and train judges and media professionals to help empower
the courts to fight corruption, enforce the rule of law and protect people’s
rights;
7.
To improve the quality of education and healthcare and
environmental awareness;
8.
To facilitate the creation of a large and confident
middle class as well as a new, socially responsible entrepreneurial class;
9.
To strengthen food security programs at the national
and international levels; and
10. To launch a genuine
sociocultural transformation process in each state.
The
educational fund is intended to train the world’s future leaders. Though our
world has become a global village, it lacks a leadership committed to the
general welfare of this village and its inhabitants. What we have today is a
largely narrow-minded leadership that thinks small and works to divide rather
than unite peoples; and because of this, it has failed to convince the
village’s many tribes to stop fighting. Students attending the global
university system would be chosen on the bases of their grades and aptitude
tests, and the educational fund would pay for their education. To enable
students gain a global outlook and learn about other cultures and peoples through
living, all students would be required to spend their college life at two or
more campuses. Universities would try to have equal numbers of undergraduate
and graduate students, as well as males and females. And while undergraduate
programs concentrate on educating young people to be global citizens committed
to peace, equal opportunity, social justice and environmental protection,
graduate programs would concentrate on research in all fields, with emphasis on
developing innovations to make our lives more enjoyable, our global economy
sustainable, and our world more peaceful.
The
humanitarian fund is intended to meet the needs of all regions and peoples
affected by natural disasters such as tsunamis, hurricanes, earthquakes,
floods, starvation, epidemics and war, including refugees. The fund will have
its own staff and system to deliver assistance wherever it may be needed, as
well as the necessary supplies to respond immediately and comprehensively to emergences.
The fund will work with other national and international organizations to meet
the urgent needs of suffering people, and will act as an agency to evaluate and
accredit not-for-profit organizations working in the field of relief and
assistance.
Since
development is a comprehensive societal process, no economic development plan
can succeed in traditional society without being preceded by or accompanied with
a sociocultural transformation plan. Economic change, sociocultural
transformation, and investment in education healthcare, which SDF intends to
do, would increase women’s awareness and free them from the chains of ignorance
and traditions and empower them to become active workers and members of
society. And these developments, in turn, would cause population growth rates
to decline substantially, leading the demographics of most developing nations
to approach those of Western Europe by the end of this development phase.
Therefore, the full implementation of the Ramo plan should reduce world
population growth rates to near zero within 30 to 40 years, and place the world
economy on a truly sustainable growth path.
As societal
development proceeds and begins to produce tangible results, most developing
nations will enter a stage of “rising expectations,” causing demand for
necessities such as food and energy to increase rapidly and fuel some
inflation. But since one of the major objectives of SDF is to raise
agricultural productivity and strengthen food security, shortages of food
supplies and bursts of inflation should be mild and short. On the other hand,
spending $7 trillion over a 20-25 years should create hundreds of millions of
jobs and expand demand substantially to absorb almost all supplies of goods and
services on the international market, and therefore, vastly reduce the chances
of a new worldwide economic recession. Millions of these jobs would go to
European, American and Asian young men and women working for multinational
corporations and not-for-profit organizations helping poor nations develop and
industrialize. SDF should also lift at least 2 billion people out of poverty,
enable not less than 1 billion more to join the ranks of the middle classes,
and train millions of scientists, engineers, thinkers and artists to keep the
world economy growing and enrich the lives of all peoples.
Within
the coming 20 to 25 years, several industrial societies in the West and East
are expected to reach a state of equilibrium, where national economies
and domestic demand grow at a slow pace. Several factors are contributing to
creating this reality; many states have already built the big projects that had
to be built, have population growth rates at near zero, with aging populations
that prefer leisure over work, and whose needs are limited and desires hardly
growing. In addition, I believe that within the same period few other nations
will enter a largely permanent state of diminishing expectations, where
people expect less in the future and are resigned to accept the less that is
expected to come. These anticipated developments will have a moderating impact
on global demand for goods and services as well as natural resources. Japan is
a good example of a nation about to enter a permanent state of diminishing
expectations; Germany is a good example of a nation approaching a state of
equilibrium; France, Italy, Spain, the United States, China and many other
states are not far behind.
If the public debt is not repaid now,
it is doubtful that it will ever be paid; the sheer size of the debt and
interest payments have already become crippling, while the economies of all
highly indebted nations are suffering. This may be the last chance to solve
this problem in its entirety before we face wholesale defaults no one can
manage, and the consequences of which no nation can escape. The captains of the
international monetary system at the IMF acknowledged during a closed meeting
in January 2011 that they do not know how to deal with a new financial crisis,
or what might trigger such a crisis, or how it might unfold. Nevertheless, they
believe that the mounting public debt is likely to instigate the next crisis.
Concluding Remarks
In the early 1980s, a $1.2 trillion
Third World debt was considered a serious threat to the international financial
system, leading the rich states, the World Bank and the IMF to intervene and
force the indebted nations to adopt economic reform programs that caused many
of them to lose a decade of economic growth. If the 1980s were a lost decade
for several African, Asian and particularly Latin American nations due
primarily to having borrowed approximately $1.2 trillion, the decade that
started in 2006 could be catastrophic for the Western states which have already
borrowed $44 trillion. In fact, Japan lost the 1990s and the United States and Italy
have lost the first decade of the 21st century, while Greece, Spain,
Portugal and Ireland are likely to lose more than a decade. The experience of
Latin American states seems to indicate that a nation that loses a decade of
economic growth is unlikely to fully recover and resume growth as the lost
decade ends. The European and American debt crisis and the West’s general loss
of competitiveness are slowly being transformed into a deep social crisis.
For example, If Greece, which has a
population smaller than the officially unemployed Americans were to default, several
European and American banks and investment funds would fail, causing many
nations and countless individuals holding dollar and euro assets to become
utterly poor or poorer overnight. The ensuing global social and economic and
political consequences would be devastating. In fact, a default by any nation
is more likely to cause a run on many European and American banks and interrupt
most life activities.
Experience dealing with economic, social
and political issues is normally a good thing to have; nevertheless, all experience
is limited in scope and time. If we were living in a traditional state in
Africa or the Middle East where societies change very slowly over time, past experience
would be all that a leader needs to manage the challenges his community may
face. But in a world that changes every second, experience rooted in the past
is more of a liability than an asset. ‘Experts’ tend to think of the future as an
extension of the past, leading them to stick to outdated ways of thinking. The
newly published records of the last 2006 Federal Reserve meeting indicate that
the ‘experts’ failed to foresee the housing bubble. “The Federal Open Market
Committee members weren’t stupid, lazy or uninformed. They could draw on a
massive staff of economists for analysis. And yet, they were clueless.” (Robert
J. Samuelson, “Why the Fed slept?” The Washington Post, January, 23, 2012). Since we have never lived in a world
as complicated and integrated and transient as the one we live in today, tools
used in the past have become largely dysfunctional. Putting the ‘experts’ in
charge to deal with an evolving crisis in a shifting situation is a mistake; it
is an attempt to recycle unrecyclable ideas and use unusable tools. Global
challenges require global answers; and new times require new ideas.
Each idea, theory, system and road
map has a life of its own that could be interesting or dull, productive or
sterile, short or long, but never perpetual; eventually all such things will
die. While most systems and road maps die naturally due to old age and loss of
energy; others die rather abruptly due to transformational changes that
overwhelm society and render old ideas obsolete. Nevertheless, some systems,
such as capitalism possess a great capacity to change and prolong their
productive lives. Others, like dictatorships are born sterile and live largely
unproductive and violent lives until their death. However, every system and
road map is a product of a particular time and place and stage of societal
development, and therefore it cannot have universal application or perpetual
life.
When systems and road maps die
naturally, strategic thinkers are usually able to track the deteriorating
health of such systems and develop new ones to replace them. However, when
systems die abruptly, it is difficult for thinkers to realize the extent of
change in time to develop new systems. During transitional periods that connect
one civilization to another, an atmosphere of crisis usually overwhelms
reality, causing people to lose their sense of direction, which limits their
capacity to think clearly and develop new road maps to replace the ones that
are being invalidated. Traditional thinkers, being a product of the dying times
and ideas, usually devote their energies to defending the failing systems and
inventing information and arguments to prove their validity. In such
situations, the lag time between the death of the old systems and the birth of
new ones is prolonged, causing the crisis to be extra painful. Responding to
societal transformations requires new thinkers and new ways of viewing reality;
these are times of evolving crises that cannot be managed by recycling outdated
ideas.
The globalization of capital,
investment and trade markets has caused worldwide economic changes that led to
undermining the power of traditional monetary and fiscal tools to deal with
economic and financial crises. While stimulus programs and near zero interest
rates have failed to revive stagnating economies, austerity measures are only
able to make a bad situation worse. Austerity tends to hurt the people who need
help most and undermine the abilities of states to invest in vital social
programs. For example, it seems particularly harmful and short-sighted to raise
public university tuition fees and reduce allocations for public schools. These
are self-defeating policies; while they save some money in the short run, they
guarantee more poverty, less human and social capital, less social mobility and
weaker middle classes in the long run.
At the same time, it is hard to
imagine how capitalism and democracy could be saved while the public debt grows
rapidly, unemployment remains stubbornly high, the income and wealth gaps keep widening,
the middle class continues to shrink, poverty spreads and educational standards
decline. No nation can live on borrowed money or time forever; eventually, every
nation will have to grow its economy and increase exports to generate enough
revenues to balance its budget and repay its debt. Western nations need first
to repay their debt; second, expand world markets; third, regain lost economic
competitiveness; and fourth, rebuild their middle classes and manufacturing
sectors. Since these issues involve other nations, solutions have to be sought
within a global context; global problems require global solutions; unique
issues demand creative thinking.
Attempts to deal with the European
debt crisis as an isolated issue will not succeed; likewise, plans to
facilitate the exit of one state or more from the euro zone are more likely to
cause a run on banks in more than one state. Christine Lagarde, the IMF
Managing Director, warned, “We could easily slide into a 1930s moment…
ultimately leading to down-ward spiral that could engulf the entire world.” (Howard
Schneider, Taking Germany to task, The Washington Post, January 24, 2012) In fact, it was reported in late
December, 2011 that the United Kingdom had drawn contingency plans to evacuate
British citizens, estimated at 1.5 million, residing in Greece, Spain and
Portugal if a run on banks were to occur. No state or group of states is able
to manage a run on banks and restore financial stability in time to prevent a global
recession, especially since the first, third, fifth, sixth, and eighth largest
economies in the world are highly indebted and have low credit ratings. The
debt issue and the euro zone crisis are mere symptoms of a chronic disease; and
no symptoms can be treated without treating the disease itself.
In times
of social and political stress and economic uncertainty, people tend to lose
their self-confidence and sense of direction. As a consequence, they begin to doubt
the utility of the value systems and lifestyles that got them in trouble in the
first place and to modify their attitudes according to a new mental model
characterized by "diminishing expectations," leading them to become inward
looking and socially and politically more conservative. Meanwhile, a feeling of
economic decline leads them to expect less in the future, and to be content
with the less that is expected to come. Such a phase causes economic recovery
to be slow and painful and less inclusive. Diminishing Expectations is
defined as "a historical era characterized by a general human presentiment
that the future does not promise as much as the past did, and a resigned
acceptance of the less that is expected to come." (Mohamed
Rabie, The New World Order 1992, 18) Nevertheless, diminishing
expectations do not present problems only; they present opportunities as well.
However, problems are usually easy to identify, while opportunities are hard to
recognize, leading most people to concentrate on solving problems and overlooking
opportunities. While stiff measures are usually viewed as necessary to address
pressing vulnerabilities, opportunities are often ignored as risky endeavors.
In
contrast, during eras of Rising Expectations people tend to concentrate
on opportunities that exist, and ignore vulnerabilities that keep emerging. Voices
calling for paying attention to the vulnerabilities are usually met with stiff
resistance because people tend to view them as unwarranted anxieties that dampen
optimism, causing the ability of intellectuals and concerned scientists to
identify problems and warn the public of their probable implications to be
constrained. And while the rich are allowed to exploit the opportunities and gain
more economic and political power, the poor are left to languish in poverty and
negligence. Due to the unsubstantiated
fear of dampening optimism, decision makers usually avoid making the necessary
corrections, leaving problems to fester until they reach the crisis level. This
is what happened during the Bush years that paved the way for the housing
bubble and the financial crisis of 2008, and what happened in Europe over the
last four decades.
During
the brief era of rising expectations which stretched from 2002 to 2006, the
American people spent more and saved less; many in fact spent more than their
incomes because they were able to borrow from banks using their homes and stock
equities. For 8 years, starting in 2000, Americans spent and invested about 6
percent more than their GDP, because foreigners sent to America about $2
billion a day. In
contrast, during the era of diminishing expectations that began in late 2007,
Americans spent less and saved some of their incomes. In light of the continued
high unemployment and economic uncertainty and lack of confidence in the
future, bringing the level of optimism to the 2006 level has become a daunting
task. And without expanding consumer demand, most producers of consumer goods
seem unwilling to take the usual risks and invest to create new jobs. A vicious
circle has thus been created, where producers wait for consumers to increase
spending to invest more, and where consumers wait for the new jobs to get the
income to increase spending.
While
the rich are doing everything possible to keep what they have, the rest are
being asked to pay for mistakes made by the political and economic elites which
have for decades been accumulating wealth and power at the expense of everyone
else. Since the poor and the middle classes gained almost nothing during the
last 40 years, they are unable to pay the price needed to correct previous
mistakes. As a consequence, the economic situation in the United States in
particular has become oppressive causing a social crisis to develop slowly. The
latest public polls indicates that over 60 percent of the American people say
they are poor or feeling poor, while about 66 percent see “strong” conflicts
between the rich and the poor.
As
mentioned earlier, the world society is passing through a transitional period
from the industrial age to the knowledge age. The Ramo plan is an attempt to
address the short term, the medium term and the long term challenges related to
this transition. The plan’s main objective is to facilitate the transition of
the 20th century industrial society to the 21st century
knowledge society. And as the plan deals with the problems and fears of change,
it gives special attention to the opportunities associated with change. Paying
the debt of all nations is meant to address the short term issue by solving the
debt crisis and enabling states to regain confidence to address other economic
and social problems. The sustainable development fund is meant to address the
medium term issue of expanding world markets to enable all industrial states to
produce and export more and grow their economies without fear of a new recession.
As the fund provides enough capital and knowledge to help developing nations
industrialize and transform their cultures, it facilitates the transition of
traditional society into an industrial one. The establishment of the
educational and humanitarian funds is meant to address the long term issues
related to creating a new world characterized by stability, fairness, peace and
hope. As a consequence, the full implementation of the Ramo plan will help us
reach the desired goal of transforming our world into a stable, peaceful and
enjoyable one.
Years
ago, power was defined more in military terms and less in economic ones. Today,
power is defined more in economic terms and less in military ones. While no
military power can be built and sustained without a strong economy, military
power has lost its capacity to achieve strategic objectives using violence
only, as the wars in Iraq and Afghanistan have demonstrated. The longer it
takes to solve the debt crisis, the more complicated other economic and social
issues will become; and this in turn will strengthen the chances that a wider
global economic crisis will occur and cause far reaching strategic changes. Such
a development is likely to force all major world powers to devote a great deal
of their energies to protect their interests instead of cooperating to grow
their economies and foster world peace and stability. Since all states are in
one boat sailing against strong winds, avoiding an impending global catastrophe
demands that all powers cooperate and share sacrifices; and that all thinking
leaders and leading thinkers of the world think collectively and creatively and
humanely to guide our boat to safety.
link to book: http://www.palgrave.com/products/title.aspx?pid=661333
link to book: http://www.palgrave.com/products/title.aspx?pid=661333
Mohamed Rabie
Dr.
Rabie is an author and a professor of international political economy at EGE in
Rabat. He has studied, lived and taught in 4 continents, lectured at more than
60 universities and research institutes worldwide. He has published over 30 books
and more than 50 academic papers, and over 1,000 newspaper articles. In
addition, he has participated in over 80 conferences throughout the world. Dr.
Rabie’s interests, writings and activities reflect a strong commitment to
peace, freedom, justice and human development, as well as to dialogue among
different peoples and cultures.
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