After Rio - Earth Summit

What I shall do today is first to give a very brief report on the Rio conference, which I attended as a correspondent for Monthly Review and the Bulletin of the Oil, Chemical, and Atomic Workers Union. Then I want to locate the Earth Summit within the context of an international capitalism that is stagnating and discuss the factors which have given rise to its stagnation. Finally, I shall suggest how the future of the world economy will affect the prospects for dealing with our environmental problems.

The conference itself had two faces---the official U.N. Conference on Environment and Development, or U.N.C.E.D., which was held in Rio Centro, a two-hour bus ride from downtown Rio, and the unofficial Global Forum, which brought diverse organizations from all over the world to a beautiful park near downtown Rio. U.N.C.E.D., which was the main arena of struggle among government, represented the worst aspects of the U.N. in the new world order. Behind closed doors, bureaucrats from North and South debated matters that would have major consequences for the world's people, the great majority of whom were not represented in the deliberations.

Across town, the Global Forum was completely different, more like an outdoor fair than a conference. On a typical day one could choose among over thirty all-dayworkshops, including "Financing and Managing Environmentally Sound Technologies for Development," "The Earth Charter: an Initiative by the World's Religious Community," and "Agenda 21: by the Women's Environment and Development Organization". There were over thirty more half-day meetings, ranging from "Mining, Energy, and Indigenous Peoples" to "Mother's Breast: Source of Life."

At an official level, I do not think that the Earth Summit produced much tangible progress. Many environmentalists felt that it was a step back from the Stockholm declaration twenty years earlier, which proclaimed much more ambitious goals. Despite the fact that pollution and global warming now really threaten our species, the focus of political leaders was on the whole extremely shortsighted. The worst villains, of course, were the United States and George Bush, who, by threatening not to attend, coerced European and Japanese leaders into deleting specific timetables for stabilizing carbon emissions. And a few days before the summit, Bush made his own feelings clear when he told a U.S. audience that he was not going to allow environmental controls to hurt American jobs.

But it would not be accurate to portray the U.N.C.E.D. conference as a tussle between a villainous United States and a virtuous community of nations. The other industrial nations were seeking only marginal improvements in environmental conditions, such as maintaining 1990 levels of carbon emissions to the year 2000 and introducing a tax on hydrocarbons, at least partly because they seemed to feel they had a lead over the United States in anti-pollution technology. And all the industrial countries were united in their desire not to give serious money to the Third World for the transfer of environmentally sound technology. Moreover, whatever aid would go to the Third World would be fumeled through the World Bank, an ever-reliable instrument of industrial-world interests.

But some of the Third World countries also were jockeying for their own narrow interests, threatening to continue to allow the destruction of their forests and jungles, which would badly worsen global warming and endanger thousands of species. Unfortunately for these Third World governments-- given the absence of a Soviet Union to force the United States to give foreign aid, the serious economic crisis in the industrial countries, and the short time horizons of their leaders--the predictable outcome was that the industrial countries took the position of apres nous le deluge, and dared the Third World to do what it would.

In some ways the present situation is like the 1950s, when the United States was the dominant military, economic, and political superpower and ruled the international political arena, including the United Nations, with a heavy hand. The differences are that today U.S. military and political hegemony are not matched by corresponding ,economic power, and that the 1950s was a decade of economic expansion while the present is not.

Now I would like to turn to the present economic situation. With unemployment in Australia at a post-depression high of 11 percent, I need not tell this audience that there is a serious problem in the economy. Moreover, as you are undoubtedly aware, this is part of a worldwide contraction, with unemployment in the United States at close to 8 percent, in Canada at over 11 percent, and in most, of the European countries at around the 10 percent level or above. Even the vaunted Japanese economy is beginning to show signs of a slowdown. And this, of course, is not to mention the unemployment rates in Eastern Europe, which are approaching the 15 to 25 percent rates that are typical of the Third World.

Conventional wisdom attributes these high rates to the fallout of the crash of 1987, or the peaking of real estate bubbles around 1989. The focus is cyclical. In this tale, following the 1981-1982 recession there was a relatively long period of growth up to 1988, and now we are in a cyclical decline, the end of which is likely to come in late 1992, or 1993 at the latest. Given this perspective, the focus of first world governments is on taking the usual marginal steps to get out of recession-- push for lower interest rates, perhaps do a little pump priming with expenditures. But not too much of the latter, since governments almost everywhere are running large deficits and have huge debts, and one must not do anything to frighten capital markets. All in all, it is fair to say that governments around the world have been timid due to the fear of capital flight, the triumph of the ideology of privatization, and the belief that if markets are just left alone they will eventually right themselves. Thus economists and political leaders seem bemused when interest rates are cut time after time and yet the economies not only fail to respond but sink lower. Then they say that the recession is rounded on a crisis of confidence. If only people and businesses would show a little more faith in the future and spend more, things would move smoothly back to normal.

The trouble with this analysis and the prescriptions which follow from it is that it mistakes the basic nature of the problem, which is not cyclical but structural. Taking a long view, if we look at the post Second World War period, we have steadily moved from a period of high economic growth in 1945-1970 to a period of increasing stagnation in the last two decades. Thus, for example, if we take figures for the growth rates of real GNP in the United States since the Second World War, we find that they averaged about 4 percent per year from 1945 to 1970, 2.8 percent in the 1970s, 2.5 percent in the 1980s, and less than 1 percent in the first three years of the 1990s.

What has caused that shift from a high growth economy in the first two decades after the Second World War to a low growth economy in the next two decades? In the United States, which emerged from the Second World War as the dominant world economy and as the locomotive of economic growth, there was tremendous pent up demand for both consumer and investment goods and a huge pileup of savings to turn these needs into effective demand. So there was an explosion of the production of television sets, automobiles, and new housing for a public whose needs had been thwarted by depression and war. The growth of the 1950s and much of the 1960s was led by suburbanization and the vast housing boom, highway construction, and expansion in the automobile industry that went with it. Along with single-family houses in the suburbs went the need for all kinds of commodities, from furniture to swimming pools, and for ]public infrastructure like schools, roads, and utilities. In addition, the Korean War of 1950-1953 gave the U.S. economy another boost when it was starting to have a cyclical decline. And the almost steady growth of military expenditures during the following years became another pillar of economic growth.

So while there were the usual recessions within the period--such as 1949-1950, 1953-1954, 1957-1958, and 1960-1961--they were generally short, and were followed by strong recoveries, making the average growth rate quite high. All in all, the twenty or twenty-five years after the Second World War were a period of prosperity and growth. Prices were relatively stable, wages were rising, and profits and investment were high. Furthermore, as first Europe and then Japan began to recover from the war and grow rapidly, the combined effect was to create a strong demand for Third World agricultural and mineral products, making this a growth era for these countries as well. So in a sense it was a golden age for international capitalism.

But at some point in the late 1960s the forces of stagnation began to set in. A number of factors seem to have been involved. First, beginning in the United States and coming later in Europe, there was a relative satiation of the demand of private consumers. By around 1970, :autos, televisions, dishwashers, washers, and dryers had penetrated most middle and upper class households. And the great road building and suburban housing efforts of the post Second World War period had been played out. Second, whereas the boom period was a sellers' market, by 1970 com. petition from Europe and Japan was becoming stronger. And because of these two factors, the high profit rates of the previous era were beginning to weaken. And most importantly, there were no major technological innovations which could replace the auto, highway, and housing investment complex as a stimulus to growth.

In the 1980s there began an enormous growth in transactions in physical and financial assets of a speculative nature. Moreover, such financial speculation was not limited to the United States. A couple of years ago, when Business Week characterized the United States as having become a "casino society", in fact Japan had become even more so. Underneath the surface of a smoothly efficient corporate machine, turning out autos and electronic goods better than anyone else could, there was an incredibly speculative ferment. Debt to equity ratios in Japan climbed far higher than in the United States or Europe, and in recent years Japanese corporations have been getting a very high proportion of their profits from financial speculation. Underneath it all was a rampant real estate boom, in which at one point a small section of Tokyo was worth more than the whole state of Florida. Indeed, if one could have stepped back from the prevailing views of the 1980s, it would have been obvious that markets were seriously out of balance when the market value of all Japanese companies was greater than that of U.S. companies.

At the same time, the Reagan-Thatcher years of deregulation and privatization were accompanied by a tilt in government tax and expenditure policy which shifted income and wealth sharply towards the rich. And as Republican insiders have revealed, it was deliberate Reagan policy to increase the debt enormously by raising military expenditures and reducing taxes so that when the Democrats came back to power, they would be hobbled by such a cumulative deficit that they could not increase the dreaded social welfare expenditures. The result of the shifting of income and wealth towards the rich and the hobbling of expenditures has been to enervate the demand for real goods and services. After all, how many Mercedes can the rich buy? And how many do they want to buy when their asset values are declining? Moreover, with the end of the Cold War, the mainstay of the U.S. economy in the 1980s--military expenditures--no longer has much justification, making it increasingly difficult to pursue a policy of pump-priming through "military Keynesianism". And if the government cannot prime the pump, what can it do?

The upshot of these various forces is, in my opinion, that there is not going to be a cyclical rebound for economies around the world. Rather, I think we are in for a period of prolonged stagnation, if not serious decline, in the capitalist world. After all, what has blown up over the last decade or so has been one of the great speculative bubbles of history. And the classic market solution to such a bubble is a period of prolonged financial bloodletting, in which asset values decline and debt is wiped out by bankruptcy and default.

We have seen a start to this process in the market crash of 1987. But in the United States, the stock market has bounced back to record highs. The Japanese market, which weathered the 1987 crash, began its own decline in 1989, and has since fallen 60 percent. Both markets seem still to have a lot of room to go down, since high stock valuations are predicated on an.expectation of substantial rises in corporate earnings. And this seems highly unlikely in ,m era of weak final demand and sharp international competition.

The dangers of the situation are perhaps epitomized by the international banking scene. The extraordinary growth of real estate values in the 1980s in Japan underpinned a tremendous increase in the size and lending capacity of Japanese banks, to the point where eight of the ten largest banks in the world are Japanese and the largest U.S. bank, Citicorp, ranks only twentieth. The overvaluation of the Japanese banks, which have already come down sharply in price, still seems very great. The top six banks have ratios .of market value to book value of between two and three, while the two leading British banks have ratios of about one to one, and Citicorp has less than that. Considering that these six Japanese banks have combined assets of over 2.5 trillion dollars, the potential economic collapse if they are forced to retrench is incalculable.

Basically, I feel that under the present economic and political conditions the likelihood .of seriously tackling our growing environmental problems is quite poor. The only good news is that with economies; worldwide stagnant or declining, the reduced level of economic activity will mean less drain on resources and less pollution than with normal rates of growth. But this is scant consolation. The annual amounts of pollution have already reached such high levels that small cutbacks will barely make a dent in the problem, which will be increased simply by normal population growth. The fact is that the earth is finite, and if we just go along with business as usual, with only minor adjustments, then within our lifetimes we may well pass the point of no return. The razing of forests, destruction of bio-diversity and species, pollution and global warming--all will have catastrophic effects on humanity and all other species. And the problem we face is that in periods like the present, jobs become the overriding issue and the environment be damned. Both political and economic leaders have short time horizons--four years is an eternity for a President of the United States.

Moreover, today is an era when privatization and the market-knows-best is seen as the solution to all social problems. Thus, in the United States, rather than increase regulation and enforcement to reduce pollution, the government's strategy is to set up a market in which companies can buy and sell the fight to pollute--the theory being that it is less efficient for society to force a steel producer to spend on pollution control than it is to allow the steel producer to buy the rights from an electric utility that can reduce its pollution by the same amount.

While this is technically true, note that there are two problems with the Reagan-Bush-Thatcher efficiency solution. First, the focus is on reducing the cost of lowering pollution levels rather than on lowering the levels themselves. Second-- and this goes right to the heart of the market ideology--is the assumption that monetary demand is the best measure of what is good for humanity.

When you untangle all the arguments of the market ideologists, from Adam Smith to the neoconservatives and neoliberals, there is a crucial assumption hidden under the claim that a market economy maximizes human welfare, which is that the distribution of wealth is a just one. The most that the market ideologist can show is that for a particular distribution of wealth, free trade and competitive markets will lead to the maximum human welfare possible with that distribution. It does not say a word about whether one distribution of wealth is better than another.

But the maldistribution of the world's wealth is a central problem. Worldwide, the distribution of wealth is far more unequal than the distribution of income. In the United States, for example, whereas the top 20 percent of the population might get 50 percent of the annual income, typically they would have over 95 percent of the wealth. So you have the obscene circumstance that one family in the United States-- the Walton family of Walmart fame---has a fortune of 26 billion dollars, the annual income from which would be enough (according to UNICEF estimates) to wipe out severe malnutrition for hundreds of millions of children in the Third Wodd.

But equity aside, the concentration of wealth has created a situation in which the capitalist class is an impediment to growth,just as the landlord class was in Ricardo's day. Worldwide debts have reached such proportions that I believe we can usefully resuscitate the term "the dead hand of capital." In the United States, for example, the total public and private debt combined is about 12 to 13 trillion dollars. And if you take a rough average interest rate of about 8 percent on that, you come up with annual interest payments of about 1 trillion dollars--or close to one-fifth of the U.S. gross domestic product. Both businesses and consumers are choking on their debts, and their interest and repayments are major barriers to refloating the economy.

Finally, the dominance of the market in a period of economic crisis means that the approach to the environmental problems will be increasingly to shove them under the rug, in the sense that immediate pollution and environmental degradation will be shifted from wealthy areas to poor areas-- both within countries and from the industrial world to the Third World. Since there will be relatively little money offered by the industrial countries to the Third World to pay for large-scale transfers of environmentally sound technology, as these countries desperately seek to develop they will push for economic growth regardless of environmental cost. They will be aided and abetted by the multinational companies such as those in oil, which are increasingly blocked from new development in the industrial world by environmental laws and citizen pressure. And of course, since ultimately all of us earth dwellers live under the same roof, the likely outcome is a continued poisoning of our environment.

As Barry Commoner has shown so well, curing the environment is not possible simply by :minimizing the levels of pollution in producing various commodities. What is needed is source reduction--shifting from production of goods and services which are polluting to those which are not. For example, shifting from oil and coal to solar and wind power. This in turn calls for a massive restructuring of the way we organize societies. For example, much more mass transport and far less individual transport. And if we are to meet the legitimate demands of the Third World to bring its people a reasonable standard of living, there is going to be a need to re-share the earth's resources. How long can humanity endure the kind of maldistribution reported by Martin Khor Kok Peng of the Third World Network: "New Yorkers use more energy commuting in a week than the energy used by all Africans for all uses in a year"?

None of the major restructuring of wealth and economic production that would be required is in the cards now. In the period ahead we are likely to see less cooperation and coordination, as each country scrambles to serve its own immediate interest in a world in which the economic pie is shrinking.

But I will not end on a hopeless note. One thing I am fairly certain about is that the present crisis will not be solved by the workings of the market. Moreover, unlike in the 1930's and earlier eras when most people felt that long depressions were inevitable and had to be suffered through, in the post Second World War period people came to see that such was not the case. After all, there had been people like Keynes, not to mention Marx, who said that we need not be helpless in the face of the market, and that the state could do what was needed to end the misery. One thing that is necessary in the period ahead, I believe, is to revive these intellectual legacies. This will be tough challenge in an era when "that's history" expresses utter contempt and "looking at the bottom line" is the highest form of intellectual effort. And, of course, meeting this challenge effectively also requires working hand in glove with political activists around the world. But if we are to stop before we reach the point of no return, it is a task that we intellectuals need to get on with.

Let us not...flatter ourselves overmuch on account of our human conquests over nature. For each such conquest takes its revenge on us. Each of them, it is true, has in the first place the consequences on which we counted, but in the second and third places it has quite different, unforeseen effects which only too often cancel out the first .... Thus at every step we are reminded that we by no means rule over nature like a conqueror over a foreign people, like someone standing outside nature--but that we, with flesh, blood, and brain, belong to nature, and exist in its midst, and that all our mastery of it consists in the fact that we have the advantage over all other creatures of being able to know and correctly apply its laws.

--Friedrich Engels

Michael Tanzer, a frequent contributor to Monthly Review, is an economic consultant living in New York. This is an edited version of a seminar he delivered in Sydney, Australia, at the University of New South Wales after attending the Earth Summit in Rio.

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