•History tends to vindicate those who keep their eyes on it
For all the righteous melodies coming out of Western capitals exalting the rule of law, openness and democracy, when their money is jeopardized, these governments reach for a different fiddle to play a discordant, crasser tune. The rule of law retreats in the face of the imperatives of power. These nations berate African states for inconstancy in economic and financial policy and practice. When it comes to the crunch, we now know these countries commit similar misconduct. In fact, they may have authored it.
Decades ago, a courageous intellectual, Walter Rodney, wrote the seminal work How Europe Underdeveloped Africa. Sadly, Rodney left us prematurely without finishing the contributions he could have rendered to mankind. If alive today, the West Indian would likely feel a sense of vindication, even schadenfreude, at the economic woes Europe currently experiences. The book he would write today would bear a startling title: How Europe Underdeveloped Itself.
A few weeks ago, a courageous Cypriot government tried to buck the heavy financial pressure levied against by a venal trinity: the German government, the EU and the IMF. The rebellion offered by the tiny island was as futile as it was brave. Given the size of the island’s economy compared to three behemoths against it, the Cypriots’ stood not a chance. We predicted they would be forced to do what they loathed. The choice before the beleaguered people was one no sovereign nation or innocent person should face. By sticking to principle, they would face sudden and certain financial death. Through surrender to greater power, they would consign themselves to protracted economic recession tantamount to death through slow but gradually compounding torture. Since the latter delayed the execution, thus providing a sliver of a chance for reprieve, the proud Cypriots bowed their heads, tendering to Berlin and its cohorts their dignity in exchange for the less dramatic but equally moribund fate. With heads lowered, they were forced to drink of a bitter cup, the taste of which shall sting well into the next decade.
The price they paid was a steep one. The Cypriots relinquished to the Venal Triumvirate the scant chards of economic sovereignty the island still possessed. The harsh trio showed little mercy in putting the island to the lash. With the strength of an absolute monarch’s medieval edict, the Venal Trio turned the rule of law into the rule of might with one tragic blow. Heretofore, bank deposits were sacrosanct, insured so savers felt secure in parking their earnings in banks. This no longer applies to Cyprus. The largest depositors lost most of their funds through no fault of their own save bringing their money to Cyprus in the first instance. This effectively destroys the nation’s commercial banking sector. Now only the maddest of mad man would lodge his money in Cyprus. The only men known to be that insane are the North Korean and Syrian leaders both of whom are currently too preoccupied with other matters to bestow such largesse at the moment. For a nation where banking stands as one of two major industries, this is not a mere knell. It is the presence of Death itself.
Moving from the terrible to the sublimely catastrophic, the Trio of Doom imposed currency controls on Cyprus. Basically, any euro already there must remain on the island. Any that enters must stay save a minimal amount per individual exiting the isle. Also, most business transactions on the island have been reduced to cash. However, there is daily maximum limit on bank cash withdrawals. With these restrictions, the only tourists with the desire to visit Cyprus will be ascetics who neither like money nor enjoy the normal comforts upon which money is spent or those who have so little money that the restrictions are inapplicable and who most likely cannot afford to come to the island in any event. Upon neither class of people can tourism be revived. For a nation with tourism as its other large industry, this is akin to deboning a turkey while the fowl is yet alive.
Add to these debilitating measures, the biting fiscal austerity placed on government expenditures, Cyprus has descended into the deepest gaol of depression. The island state shall not see the light of prosperity until after it has forgotten such a light exists.
These controls blatantly contravene the EU treaty’s (Articles 26 and 63) provisions guaranteeing the free movement of money, people and goods. When it comes to extracting demands from weaker nations, the Unholy Three have the same lack of qualms as a hardened racketeer. They gutted core EU principles in order to extract a pound of Cypriot flesh. For them, the rule of law comes distant second to the rule of money. To legitimize their mischief, they passed measures and regulations giving the appearance of propriety. No matter the ribbons and bows place on it, what they did remains a strong-arm confiscation as if done at gunpoint. Pasting butterfly wings on an elephant doesn’t convert it to a jumbo jet. Drafting these onerous measures on EU parchment neither eases the misery caused thereby nor makes the overbearing intimidation any more ethical. There lies a broken body in the street, the casualty of a financial mugging of the worst order.
In superficially attempting to save the Euro, this martinet plan makes the first structural crack in the euro zone’s architecture. The essential principle of a monetary union is that of a uniform currency. This is no longer the case. The dire restrictions placed on money in Cyprus means the “Cyprus euro” is less useable, thus valuable, than the regular euro. Two currencies effectively are in use. Cyprus now exists in a netherworld. It is of the euro zone but not completely in it. Only the future can tell if it returns to full membership or goes in the opposite direction. Exiting the zone’s strictures would better serve the nation’s interests but it would take politicians of the rarest courage to hew that path. Thus, the nation’s future is to be written by the pen of sorrow. Meanwhile, predator nations will swoop on the supine island and purchase its ample gas reserves on the cheap. Have you ever seen an island sink? It is a rare thing but you shall witness it if you keep your eye trained on Cyprus.
Since Cyprus is such a small economy, all this might seem like a tempest in a teapot. More accurately, it is a teapot tossed in a tempest. A majority of banks in the EU are illiquid; many of these are insolvent. This means the EU financial crisis is buried but not dead. Like most living things, it detests life underground. It wants to surface. More banks will crash. EU officials now contemplate applying the Cyprus medicine to banks in other nations. Even the American Federal Reserve is considering measures that will lessen the government’s heretofore ironclad guarantee of bank deposits.
Before our very eyes, a financialism counterrevolution is underway even before the progressive revolt was had. If this method of writing off bank losses becomes practice, depositing savings in a bank will soon assume the same risk as investing in the stock market. The very nature of savings and commercial banking will alter. People will feel compelled to ply their savings into more speculative forms of investments. Non-bank investment houses, known as the shadow banking sector, will enjoy a field day.
If this becomes fashion in the developed economies, it may quickly infect African economies given our penchant for mimicking what comes out of the West without fully understanding the consequences.
However, what recently took place in South Africa offers a thin hope that the days of mimicry may be ending. On March 26-27, BRICS nations (Brazil, Russia, India, China and South Africa) held a summit in Durban whereby they attempted to turn their grouping into something more material than just a notion. They tried to bring some organizational structure and purpose to the unit. They succeeded in part and failed in part.
At its most ambitious stance, BRICS represents the non-Western world’s latest attempt to restructure the global economic order. BRICS nations are not paradise and their leaders are not always sufficiently versed or statesmen enough to overcome the peculiar national tasks they each face. Thus, creating a supra-national entity transcending geographical bounds and somehow harmonizing these disparate economies is a herculean endeavor. But, some of these leaders tend to run when it comes to most forms of heavy lifting.
Heretofore, the unity of BRICS has been a negative one. BRICS joined hands not because of what they were; they did so because of what they were not: they were not the West. However, this anti-identity does not do much except if all that is wanted is a new global platform to publicize Western failings. Those failings are so self-evident that limiting BRICS to such a role would quickly render the grouping an intricate but wet fuse.
BRICS needs to be something more than a club of large economies not situated in the North Atlantic. In Durban, the process of lending the group a positive identity took a few steps. The most noteworthy is the agreement in principle to establish a development bank. Funded in the amount of 100 billion dollars, the bank is envisioned as an alternative to the rabidly financialist IMF and, to a lesser extent, the World Bank. Such a bank will be condign but all will be opposed by established powers. They will see it as directly threatening their ability to impose conservative economic strictures on struggling, beggar nations that now must visit the IMF because there is no other place to go. But IMF remedies are like those of the mad physician who relieves a patient’s pain in the neck by poking a sharp dagger in his back.
Unfortunately, the agreement regarding the bank was only in principle. The summit could move no further on this issue because BRICS members disagreed over structural and operational details for the bank. Also, it is one thing to stand before the klieg lights and pledge 100 billion dollars before a supportive audience. It is quite another thing to return home to write the checks. Allocating funds to the bank entails cutting funding for extant priorities. Influential elements in each government will be unhappy, seeing the bank as a foreign policy romp prematurely, thus quixotically, made. BRICS also stepped toward strengthening their Business Council. Also, China promised African nations 20 billion dollars in concessionary loans.
In all of these, China is the biggest winner. Under cover of BRICS, China will pursue its agenda to influence numerous African nations, thus securing supplies of raw materials. However, instead of chasing the hare as a unilateral action, China will do more of this as a member of the BRICS collective. This may help Beijing blunt criticism that it pursues an agenda as equally hegemonic as those of developed nations. However, such criticism is proper and justified given Chinese recent antecedents in Africa. Its policies have revealed a China disinterested in Africa’s independent development. China’s driving mission is to position itself to control African raw materials and strategic industries at their source. The neo-imperialism of the West focuses on gobbling African raw materials then exporting finished manufactured goods and specialized business services to Africa.
Departing from this model, China reverts to old fashion colonialism. They want to snatch raw materials but are all too willing to export millions of Chinese citizens to run factories and open businesses in Africa. The face of 21st century resident colonialism in Africa is not the face of the Occident. It is the face of China. The “chinafication” of African economies is noticeable in several countries. It may initially bolster local production and GDP. The uptick comes at the longer-term price of mortgaging the nation’s economic sovereignty. As Cyprus and the other nations of the southern tier of the euro zone have shown, sacrificing long-term independence for short-term profit is a wretched bargain.
Consequently, Africa should applaud the ongoing institutionalization of BRICS. At this point, a group offering a perspective of the world economy different than Western financialism is a positive counterpoise. Western financialism is a corrosive way to model any economy. It is especially disastrous for Africa. We need something else. BRICS may not be the final remedy but perhaps it may be a transition providing some breathing room. For BRICS to be more than a stopgap, it must expand its membership and advocate a more reformist agenda than the one now implied. In some ways, BRICS nations don’t want to amend the current system. They just want to negotiate more room for themselves at the top of the appalling heap.
With this in mind, Africa must keep an eye on the West and one on China. Both want to keep Africa in subordinate so as to exploit her resources. Africa must be wise by leverage each against the other. If not, this century will not be the advent of Africa’s climb out of poverty. It will be the century of Africa’s compound abuse because this time it will not be just the West larruping us the East too will pounce and extract its portion.
In the end, talk about economics as an exact science and about the objective rules of finance is the stuff of fables. This is an elaborate nursery tale told to those who the architects of the current global economy would rather have believe in make believe. Too many of Africa’s people are too poor to afford the luxury of believing in things that do not exist and in ideas that do not work except against those who obey them. Africa needs to come to the place where it understands the rules of the current game offer it no respite. The economic and financial regimes set by organs such as the IMF and World Trade Organization are so stacked against the evolution of African economies that should one of them a grow into a developed economy, it will be by accident. Africa needs to confront these regimes to which it has sheepishly agreed. The continent needs to formulate ideas, ways and means that promote its own interests. Then it must use these things to build its own positive economic life and structure, brick by painstaking brick.
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