Finance as magnetic signs

Sculpture José Resende / “A Negona” / Rio de Janeiro/ photo: M. Rio Branco


The reasons for a new financial system

Household, corporate and government debt reached $164 trillion in 2018, more than double the world's GDP. Interest on this mass of resources drains the capacity to expand household demand, business production and government financing of infrastructure and social policies. In the case of Brazil, resource extraction by rentiers has reached levels that paralyze the economy. In reality, as observed with the 2008 crisis itself, the process affects the world economy. Exploitation through indebtedness has become the main means of appropriating social surplus by those who do not produce it; and, to the extent that the State itself, instead of regulating, becomes a partner in extracting this surplus, the trap begins to involve the entire system.

Zygmunt Bauman evaluates this “parasitic capitalism” in a humorous text: the current system is a “successful in transforming an enormous majority of men, women, old and young into a race of debtors.[…] Without mincing words, capitalism is a parasitic system. Like all parasites, it can thrive for a period as long as it finds an as-yet-unexplored organism to provide it with food. But it cannot do this without harming the host, thus destroying, sooner or later, the conditions for its prosperity or even its survival.”1

By capturing all those indebted in an endless flow of interest, the volume of which radically exceeds the productive contribution of credits, a permanent drain is formed. Financial intermediaries even hate good payers. The best customers are those who, from refinancing to refinancing, become a permanent source of power for the system. "The customer who promptly repays borrowed money is a lender's nightmare."2

In Brazil, in particular, more and more people realize the absurdity of depositing money in banks that remunerate them at a level that barely covers inflation, while when they need the resource – which does not come from the bank – they pay astronomical interest. Usury and loan sharking are practices with roots in prehistoric times; with electronic money they have become a planetary system. Even the most humble contribute to the banks with every credit card purchase, with every remittance to the family. However, this same capillarity of the virtual system allows the inversion of the process. In other words, we have to find in the same technological transformation the basis for our release from the permanent drain to which we are subjected, a toll that is not only useless but counterproductive.

Do we need these intermediaries? We have the alternatives of cooperative banks (Poland), community development banks (114 already in Brazil), local savings banks (Financial Institutions, in Germany), social currencies (palm, sampaio and many others in Brazil), local public banks (Bank of North Dakota, in the United States), credit NGOs (Ethical Placements, in France), direct contact between producers and customers without middlemen (family farming in Kenya) and even more radical disintermediation with virtual currencies and commercial exchanges through technologies blockchain. All this is still very little, but who said that money as a virtual signal cannot be transacted directly between those who use it in a productive way, without having to pay so much intermediation that stops instead of helping?

Existing banks will be able to find their role by returning to what justifies their creation: adding savings to loans, with regulated modalities and interest rates, which allow the development of productive activities, generating employment and income. This, of course, takes work. Identifying good investments, evaluating projects, monitoring their execution, that is, promoting the real economy, providing technical support, with fair remuneration. Necessary work, centered on the systemic productivity of the economy. The calculation of the financial viability of an investment project makes it possible to perfectly identify which interest rate guarantees that the undertaking is viable. Instead of advertising, fraud and loan sharking, banks can do their homework and contribute to the economy like any other industry.

It is particularly important to understand that financial resources are just magnetic signals and that financial flows must be part of an economic policy whose main objective is to guide them towards activities in which they will be more productive. And we know how to do it. Today we have enough experiences with cooperative banks, community development banks, microcredit systems, municipal savings banks, social currencies and non-monetary exchange systems to rescue the usefulness of money and credit and redirect the use of our resources.

By directing resources to the base of society, to families that transform their income into consumption, we increase the demand for goods and services. This demand allows for an expansion of productive activities by the business world. Both consumption (through the consumption tax) and business activity (through taxes on production) generate revenue for the State, which allows it to recover what it initially put at the base of the economy, covering the initial deficit and expanding its capacity to expand the dynamics with investments in infrastructure and social policies. In turn, investments in infrastructure boost business activities and jobs. And social policies, in health, education, culture, security and the like, constitute investments in people, ensure collective consumption that improves the well-being of families and makes the economy as a whole more productive. Activities of teachers, doctors and security agents are also necessary jobs and products, they are not “spend”.

This economic-financial cycle, in which families have better access to consumer goods and collective consumption, in which the market for companies expands, in which unemployment is reduced through the general expansion of activities and in which the State rescues its financial balance through the corresponding taxes, it is simply called “virtuous circle”. It worked in facing the 1929 crisis in the United States (New Deal), with a strong tax on financial fortunes (up to 90%) and the expansion of social policies and redistributive processes. It worked in the post-war reconstruction of Europe (Welfare State, welfare State), with a systematic increase in the purchasing power of the popular classes, a systematic increase in wages proportional to the increase in productivity and, naturally, social policies for health, education, security and others, based on universal, public and free access. It worked in the reconstruction of South Korea, which maintained a very low degree of inequality. It works today in China, which has been prioritizing the expansion of popular consumption and State investment in infrastructure and social policies. And it worked, obviously, between 2003 and 2013 in Brazil, while the reaction of financial circles did not break the system. The blatant obvious is that we know perfectly well what works in economic terms.

What we don't know is how to reconcile the model that works with the desire of the financial groups, now dominant, to extract from the economy more than they contribute to it, and even more than it can support. We have a financial system of the 1st century, with virtual currency and planetary movements, controlled by financial giants, but our laws and forms of economic organization are from the last century, from the industrial age. Do we still imagine that more money in the hands of the richest will be transformed into more productive investments, jobs and products? The only result will be greater financial fortunes and the drama we face of the top 99% owning more equity than the bottom XNUMX%. The narrative they push us, that the rich know better how to promote the economy, no longer fits.

Here we present some axes of opportunities that arise with the era of knowledge and the economy of intangibles. The same technological advances that put us at the service and under the dominion of giants – Google, Amazon, Facebook, Apple and Microsoft (Gafam) or Baidu, Alibaba, Tencent, Xiaomi (BATX) – make room for horizontal network articulations3. Virtual currency and widespread connectivity between people and producing companies make it possible to disintermediate finance and make it productive and cheap. The network society, which Manuel Castells so well describes, makes horizontal decision-making processes viable, reducing the role of authoritarian verticality. Connectivity, combined with intelligent search systems, makes it possible to radically expand collaborative forms of production, a field in which we are only taking the first steps. And the planetary rise of social policies as the main area of ​​human activity points to differentiated dynamics in terms of expansion of the public sector, civil society organizations and decentralized and participatory forms of management.

These are new configurations and opportunities, but what we have been facing so far is the invasion of privacy and social control by the commercial media giants, unbridled exploitation by indebtedness, corporate power pyramids that, in addition to not being regulated by governments , control the political process itself. Connectivity allows corporate giants to endow themselves with longer fingers. The private appropriation of social policies leads to harmful forms of rent-seeking expansion in vital areas such as health, education and security. We thus have a universe swept by technological advances and the construction of new equilibria with insecure definition, which can either lead to BigBrother of George Orwell how to generate more open, democratic and participatory societies. For now, the corporate world is clearly winning the game. Our problem is not a lack of resources, but the ability to use them intelligently. We have more powerful technologies, but with increasingly dubious motives and simply disastrous purposes.

We have a growing conflict between the diffuse interests of society and the specific interests of corporations. A public consultation on the need to preserve the Amazon rainforest would certainly obtain an almost unanimous favorable response from Brazilian society, but this dispersed and fragmented interest, even representing millions of people, becomes impotent in the face of a corporation that sees the opportunity of earning millions of dollars, for example, exploring mahogany. The corporation will know how to finance politicians, judges or control bodies until it obtains its advantages. Point power has much more penetrating power than general interest. We all want to preserve the oceans, but between the widespread interest of the population and the immediate profit that overfishing or the disposal of chemical waste directly into the waters can generate for some economic groups, the fight is simply unequal. With the weakening of democratic processes at the national level, and their almost non-existence at the world level, we are witnessing the destruction of the environment and the over-exploitation of populations at an increasingly dramatic level. With the erosion of democracy, the ability to represent the general interest is appropriated by the corporate groups themselves. In the name of reducing the State, they generate an increasingly invasive and controlling machine.

Another powerful mechanism is constituted by corporate gigantism combined with the formation of clusters of interests. The “arc of fire” that destroys the Amazon rainforest provides a clear illustration. The world of hardwood – precious woods that didn't have to be planted – is made up of strong corporations, and exploitation is reinforced. After the cream of the forest is removed, another group of interests, in particular that of soybeans, finances burning and clearing, which will allow for some excellent harvests, important for the equally powerful world of grains. With the soil weakened, due to the loss of forest cover and the over-exploitation of monoculture grains, space is opened for extensive livestock farming; it's the turn of the powerful meat interest group. The convergence of the interests of the timber companies, the agribusiness of grains and the meat production chain enables an impressive dominance of the national political space, with a representation in Congress that allows weakening the legislation for the protection of forests and riparian forests, as well as approving the Project of Law 6299/2002, known as PL do Veneno.

Both the concept of diffuse interests and the concept of clusters of power help to measure the broader forms of concentration of power that escape the control of democratic systems of representation, when they do not appropriate them. We return to the title of the study by Octavio Ianni, “Politics has changed places”. And the question we face more and more is quite obvious: will we, Homo sapiens that we are, with our ability to rationally analyze the dynamics and take action, how to reverse the trends?

*Ladislau Dowbor is professor of economics at PUC-SP. Author, among other books, of A era do capital improvutivo (Other Words & Literary Autonomy).

Originally published on the website Other words.


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