Dr. Dr. h.c. Hans Köchler

Professor of Philosophy, University of Innsbruck, Austria

Life Fellow, International Academy for Philosophy (IAPh)

President of the International Progress Organization (I.P.O.)

Member of the International Co-ordinating Committee, World Public Forum "Dialogue of Civilizations"


The Collapse of Neoliberal Globalization

and the Quest for a Just World Order

Statement delivered at the international conference

 Prague Dialogue on Europe in the XXI Century

 jointly organized by

 World Public Forum "Dialogue of Civilizations"

 and

 Klub Rusko / Dialogues in Prague

 Prague, Czech Republic, 14 May 2009

Speech by the President of the International Progress Organization at the opening session

I.P.O. Online Publications

International Progress Organization, A-1010 Vienna, Kohlmarkt 4, Austria

 © International Progress Organization, 2009

(I)

On the 1st of May, 1974, the General Assembly of the United Nations, in its Sixth Special Session, adopted the “Declaration on the Establishment of a New International Economic Order” which gave special emphasis to the sovereign equality of states. Highlighting the basic principles of a just economic order, the Declaration demanded “[f]ull and effective participation on the basis of equality of all countries in the solving of world economic problems in the common interest of all countries.” (Paragraph 4[c]; emphasis H.K.) At that time, the member states of the United Nations also emphasized the importance of “full permanent sovereignty of every State over its natural resources and all economic activities.” (Paragraph 4[e])                                               

The General Assembly subsequently adopted, at the same session, a “program of action” concerning the international economy, with one chapter dealing with the international monetary system. It may be of interest – in view of the situation we find ourselves in today – to recall some of these points made by the representatives of the international community. First of all, the UN member states demanded measures “to eliminate the instability of the international monetary system, in particular, the uncertainty of the exchange rates.” The second point I would like to mention here was the member states' emphasis on the “maintenance of the real value of the currency reserves of the developing countries.” In that regard, they called – more than three decades ago! – for the “creation of international liquidity … through international multilateral mechanisms.”                                  

In a meeting of experts on the idea of a new international economic order, which the International Progress Organization held in Vienna in April 1979, our experts had also emphasized the principle of “mutual economic responsibility” at the international level, and the need of “shifting the emphasis,” as far as the value system is concerned, “from having to being, and from consumption to quality of life.” In general, we had demanded at this meeting that the economy be founded on ethical principles. In a conference on the challenges of globalization, held at the University of Munich in 1999, our organization had further warned of the threat of global instability resulting from totally unregulated markets, operating on the basis of a misunderstood notion individual freedom.

 (II)

Regrettably, in the more than three decades that have passed since the United Nations initiative for a New International Economic Order, the global economy developed into the opposite direction. The General Assembly’s vision of a new international economic order was effectively rejected by the industrialized countries at the Summit of 22 world leaders (including leaders from 14 developing countries) in Cancún, Mexico, in October 1981. I would like to recall here the leading role of the United States delegation under President Ronald Reagan as far as the rejection of the demands of the developing countries was concerned. The whole notion of a new international economic order was effectively buried at that time.                                                       

Since that moment the neo-liberal project of globalization went on, with ever-increasing ideological zeal, in spite of the warnings and protests of many leaders from the developing world. As far as the ideology of globalization is concerned, I would like to give the following characterization: What we have witnessed unfolding during these decades, namely since the beginning of the 1970s, is an almost crazy belief in a kind of financial perpetuum mobile, that means an assumption as if wealth could be created by means of financial transactions, or so-called financial instruments, alone. That belief was obvious in certain attitudes and practices which included, for instance, policies according to which regulatory mechanisms have deliberately been weakened, or completely given up, in the name of economic liberalization. One should recall here the role of the U.S. Federal Reserve Chairman Alan Greenspan during this crucial period. It cannot be emphasized enough that the regulatory authority of the state has been completely eroded in favor of what was, and still is, called, “the free flow” not only of commodities, but of money, beyond borders; and all of this has been idolized through the slogan of globalization. The World Economic Forum in Davos has undoubtedly served as one of the ideological fora and public relations venues to promote that ideology.

However, instead of a new world order, such as the one proclaimed by President George Bush, father, in 1991 in the United States Congress, a state of global disorder has eventually been brought about as a result of the abdication of the state's sovereignty over economic and financial policies. The state gradually had to give way to powerful, but completely unaccountable, vested interests at the transnational level. Under the slogan of globalization, the “cycle of greed” in which the economy got entangled has brought about a systemic crisis not only of the methods of international economic exchange, but of international relations in general.            

In spite of the magnitude of the problem, the advocates of neo-liberal ideology still insist to address the crisis by way of dealing with its symptoms only, and they do engage, as far as one can see, in a rather stubborn denial of reality when it comes to the identification of the real causes for the collapse of globalization: namely, first and foremost, its exclusion, not only of geographical, but of all moral boundaries that must govern economic activity.

It, thus, appears appropriate to get “back to basics” and pay attention to fundamental philosophical considerations about money. It may be worthwhile, in this context, to reconsider the principles of finance that have been outlined almost two and a half millennia ago in the era of classical Greek philosophy. Aristotle has made us aware of the fact that money does not have a natural value, that it is not a commodity like others. Its value is determined by the human being, namely by governments, through agreement (conventio) or law – νόμ (nómo) in the Greek terminology –, i.e. through a determination, a rule. To make the point, Aristotle referred to the etymology of the Greek term for money, namely: nómisma (νόμισμα), which is derived from νόμος, the Greek word for law or regulation.

According to Aristotelian philosophy, money is the means that enables the exchange of goods, because it allows to measure the value of goods. It ensures the commensurability of the goods we want to exchange. If the “numismatic” character of money – if we may allude to the etymology of the Greek term nómisma – is ignored, currencies are traded as if they were commodities. International currency speculation as a means to generate wealth by artificial methods has indeed been one of the causes of the global financial crisis, as we all know by now.

Furthermore, the value of money, and in particular the relative “weight” of each currency in international financial exchange, is to be rooted in the wealth represented by the real economy. There exists no such thing as an abstract value of money as such. If this basic truth is overlooked or ignored, financial speculation will thrive, and so-called financial instruments will be “created” in a never-ending sequence – as if real wealth could be generated in a fictitious and illusionary manner. In actual fact, these are all merely artificial transactions – if they are not embedded in value-generating activities of the real economy. This is the reason why wealth generation by means of “financial instruments” alone, just to name trading in currencies, stocks, futures and so on, is, in fact, of the nature of a pyramid game. The pyramid will inevitably collapse at the very moment when the real economy demands its right and people momentarily lose confidence in the myth of wealth creation through speculation, a development which abruptly ends the cycle by which ever new amounts of liquidity are being provided.                                        

Not only in a philosophical, but in a wider context of social responsibility, is it important to stress the intrinsically unethical nature of financial speculation, whether in currencies, stocks, futures, etc. In this way, wealth – artificial wealth – is created at the expense of others who are effectively expropriated in the course of the inevitable collapse of the system, something which we are witnessing right now. Recalling the emphasis the Greek philosopher has made on the “unnatural” form of the creation of wealth through mere financial transactions, one should also be aware of the famous dictum in Πολιτικά (Politiká) Book I, part 10, where a procedure is being condemned through which someone “makes a gain out of money itself, and not from the natural object of it.” That is a clear-minded, 2500-years-old reminder of the importance of the real economy. The Aristotelian verdict is not only directed at taking interest on money, but it does apply to financial speculation in general, highlighting the unproductive nature of this kind of quasi-economic activity. This approach is further illustrated by other phrases coined in that treatise, namely, of the “birth of money from money,” or the “breeding of money,” as the most unnatural form of acquiring wealth.

(III)

The time has come to revisit the age-old insights of Greek philosophy into the nature of money as a means to determine the value of goods, to make those goods comparable and thus allow economic exchange; and, finally, to consider the ethical principles that govern this activity. It is often said that “globalization knows no borders.” We also have to be aware that the method of international economic and financial exchange that is being idolized in this common dictum has not only no geographical boundaries, but is often understood as having no moral limits as well. As a result of this perception, we are now confronted with a systemic crisis of epic dimensions. One of the basic reasons of this predicament – which many did not want, and still do not want, to acknowledge – is that the moral rules of economic behavior have been systemically ignored, and even rejected.

This regrettable state of affairs makes it imperative to reflect upon the principles of economic activity as such. In particular, we will have to reconsider those ideas which link finance to the real economy, namely to the manufacturing of goods, and we should seize this opportunity for propagating the creation of a genuine new international economic order, one that is based not on the myth of globalization and the philosophy of greed, but on principles of wealth-creation that are oriented at the bonum commune, the common good. This implies, inter alia:

-- acknowledging the regulatory authority of the state, as an integral part of the exercise of the state's sovereignty;

-- the establishment of regulatory mechanisms at the international level, by means of inter-governmental agreements, i.e. accords concluded on the basis of sovereign equality;

-- the banning of patently unethical practices that are essentially based on speculation instead of genuine economic activity (that would be founded on rational expectations). The “globalized” brand of “casino capitalism” includes methods such as the so-called short-selling of stocks and every kind of transaction that is related to the derivatives market and to currency speculation; in general, it is evident in all practices that are based on generating individual wealth by triggering the devaluation of currencies, stocks, etc., namely on systematically and deliberately making gain by speculating on the losses of others, in fact through effectively “expropriating” other participants in an unequal game. Not to be forgotten in this non-exhaustive enumeration of dubious practices are all transactions that are based on the rationale of gambling, namely all forms of financial betting, which are still considered by many financiers as a legitimate form of economic activity.    

Summing up this quick review of the consequences of unregulated markets and of a false and artificial perception of the nature of finance, one may state that, at this point in time, we witness the bankruptcy of globalization as the epitome of neo-liberal ideology. Apparently unexpected – that's what they say – by the neo-liberal ideologues, globalization has by now shown its real face; it has been proven to be an illusion of wealth, driven by individual greed. As such, the doctrine of globalization has been proven to be essentially irrational. The belief in the miracle of wealth creation by means of unregulated, virtually borderless economic exchanges has indeed all the characteristics of mass hysteria.         

It is an undeniable fact that we live in an ever-more interconnected world. The course of history, and the development of technology in particular, can not be reversed. However, under the present circumstances, it is of utmost importance that leaders and citizens who are committed to the common good do everything in their power to arrest the repeating cycles of greed which have ruined the lives of several generations, indeed millions of people, in the course of the history of the “free markets.” The global casino into which the unregulated financial markets have degenerated has to be shut once and for all. There is no doubt that this goal can only be achieved by the joint action of the states as the principal actors in international affairs and, thus, guarantors of the global order. Only bold steps, collectively undertaken, towards responsible financial regulation will make possible the establishment of what the United Nations member states had envisioned: namely a just new world order as a system of international relations in which all nations can conduct their economic affairs, and engage in economic exchange, on the basis of sovereign equality. This was the original idea behind the resolution of the Special Session of the United Nations General Assembly in 1974 and – in view of the unprecedented crisis of the global economy – it deserves even stronger consideration today.

 *****