Good for the United States, but bad for the rest

Actions by the US government since 9/11 last year, seem to have turned neo-liberal economic policy prescriptions on their head. Jeffrey Ndumo* takes a look at how the US government has taken a growing interventionist stance to deal with problems in its economy.

All over the world governments are busy trying to liberalise trade, keep inflation rates low and their budget deficits at less than 3% of Gross Domestic Product (GDP). This is the medicine prescribed by the International Monetary Fund (IMF) and World Bank. The prescription is known as the ” Washington consensus” [See box].

Ironically, at home the US is finding it difficult to live by the “Washington Consensus”, which in developing countries has impoverished and caused untold misery to many of the world’s countries and its people. It looks as if in regard to economic policy and other policy prescriptions, “what is good for the US is bad for the rest of the world”.

What is the “Washington Consensus”?

“Washington Consensus” known as “Structural Adjustment Programme” or Neo-Liberal Policy. It sets out the economic policy prescriptions necessary to revive dying economies so as to achieve economic growth. These economic policy prescriptions are normally prescribed by the IMF to developing countries in order to qualify for IMF loans, or loans from other banks and other private-sector lenders. These policy prescriptions entail the following:

Monetary Austerity: tightens the money supply including raising internal interest rates to whatever heights are needed to stabilise the value of local currency.
Fiscal Austerity: increases tax collections and reduce government spending dramatically.
Privatisation: selling of government owned enterprises – telephone companies, railroads, steel producers, public utilities – to the private sector.
Liberalisation of money markets : financial markets are open to participation by foreign-owned institutions.
Trade liberalisation: eliminating tariff, quotas, subsidies and other barriers to free trade.
Fear of default: maintenance of the fictitious notion that countries do not default in settling their debts with IMF or private banking institutions.

No ” Washington consensus” for Washington

After the disintegration of the Soviet Union , the US became the only superpower with the capacity to project its military reach across the globe and also to prescribe to the rest of the world, through the IMF and World Bank, specific economic prescriptions as laid down by the “Washington Consensus”.

Today, the US rules the economic and political world like an empire. As the American historian Paul Kennedy, puts it, “no country has been as dominant culturally, economically, technologically and militarily in the history of the world since the Roman Empire “.

Although, economic policy “double standards” and inconsistency were the hallmark of President Bill Clinton’s administration, deviation from the “Washington Consensus” has worsened since the tragic events of September 11, 2001.

While the families of the victims of that tragedy were attending funerals and mourning the death of their loved ones, President Bush met with US policy advisers and leading corporations to map out and subsequently unveil a series of policy announcements.

These policy announcements involved a variety of measures:

massive cuts on company taxes,
an increase in subsidies and quotas,
promotion of export of products that are required by the local market,
assistance to companies to charge lower or minimum prices for their products,
anti-dumping and countervailing measures against imports.

Instead of minimising state involvement in the economy, as prescribed by the “Washington consensus”, the US is promoting massive state intervention in order to buttress and protect declining industries at home.

Bailouts and tax cuts for US companies

The first beneficiaries of September 11 tragedy were the airline companies. Citing a plunge in passenger numbers, the airline industry was the first to call for government assistance. Airlines corporations alone received a $15 billion bailout.

The other industries that benefited were the defence and energy industries. The military and reconstruction industries received $ 40 billion emergency appropriation funds. $ 2.6 billion went to oil and gas companies to increase exploration. A tax credit of $ 13.1 billion to extend the corporate research and development tax, was also announced.

As if subsidies were not enough, the Bush administration went out to cut taxes for US companies. On October 27, 2001, President Bush instituted $1.35 trillion 10-year tax cut plan, by repealing the minimum tax law. Just 30% of the proposed tax relief would go to individuals, with the rest helping a handful of corporations, including large, prosperous ones like: IBM, General Electric, GM, Daimler Chrysler, United States Airline, Enron, Phillips Petroleum, American Airline and IMC Global. The tax cut is a massive give away to the rich.

According to the Institute for America’s Future and Citizens for Tax Justice, President Bush’s move to repeal the alternative minimum tax law, which requires hugely profitable corporations to pay at least some federal income tax each year, means that many US multinational corporations will pay little or nothing in income tax. Moreover, these companies would be able to get full refunds of all the alternative minimum tax they have paid for the last 15 years by shifting their funds on paper to corrupt foreign tax havens.

The US does not believe in the religion of free trade

Despite its preaching of trade liberalisation at the IMF, World Bank and World Trade Organisation (WTO), the US continues to protect its industries against foreign competitors.

Annually the US provides about $ 2 billion subsidy on about $150 billion or 25% of US exports, despite a WTO dispute settlement panel having declared this practice illegal.

This is not something new. During President Clinton’s term of office, his government instituted a subsidy for the iron and steel industry in the form of $1 billion in loan guarantees. For years now, US steel producers have been shielded from foreign competition by quotas, voluntary export restraints, and hundreds of anti-dumping and countervailing measures.

Following Clinton’s lead, Bush this year implemented a 30% anti-dumping measure designed to protect the steel industries. He passed a farm bill which gave the agricultural sector substantial subsidies amounting to $180 billion. This cheapens US agricultural products and makes it difficult for products from developing countries to compete with US agriculture.

By providing these enormous subsidies, rebates and tax cuts for the military industrial complex, the rhetoric of maintaining a “balanced budget” to obtain a healthy economy was effectively thrown out of the window. Economists predict that the US budget deficit could reach 1,5% of its GDP by year end. Although still below the 3% of GDP that the Washington Consensus prescribes, when added to the US’ government debt of $6.2 trillion, it means that payment of national debt is the second largest expense in the federal budget. It is not an accident that the country is known as a “debt junkie”!

The effects of policy “double standards”

While the US is implementing policies that are contrary to Washington Consensus policies, developing countries like South Africa are compelled to implement these policies which are resulting in high unemployment, rising crime and social dislocation.

Tight monetary policy leads to sky-rocketing interest rates and stops productive investment. This fosters unemployment and a drop in production and therefore income.
Fiscal austerity reduces government spending and further depresses aggregate demand. This reduces output and increases unemployment.
Privatization of public utilities.
Trade liberalisation amounts to wiping out domestic industries in developing countries, which are not yet ready to compete with global giants.

As the only existing “imperial super power”, the US continues to preach and impose neo-liberal policies on the rest of the world, while it does the opposite at home. For the US ruling class, what “is good for the goose cannot be good for the gander”, –Imperialism par excellence.

Jeffrey Ndumo is NUMSA’s researcher