Vatican and Britain unite in call for new development bank

  • March 26, 2009
{mosimage}When G-20 leaders gather in London April 2 to try to fix a broken global economy they will have to deal with a challenge their host, British Prime Minister Gordon Brown, laid out on the front page of  L’Osservatore Romano Feb. 19.

Brown’s manifesto in the Vatican newspaper followed a meeting with Pope Benedict XVI in which the son of a Presbyterian minister and the supreme pontiff discussed the role of morality in keeping capitalism on track.

The former Chancellor of the Exchequer (Britain’s finance minister) argues that the rich, Western nations who form the G-8, and even the new broader coalition with emerging economies in the G-20, cannot solve their economic problems in isolation from the vast, poor majority living in 116 developing countries.

Brown wants a “Global Vulnerability Fund” specifically for the poorest and most vulnerable. “We have a responsibility to those people who have been pushed into poverty as a result of this financial crisis, and we’ll do what we can to be of help,” he said.

L’Osservatore Romano has pushed the idea with further front page editorials by Italian economist Ettore Gotti Tedeschi.

46 million more will join the ranks of the poor

By the Catholic Register Staff

Macroeconomics isn’t just mathematical formulas in text books or headlines in the Wall Street Journal. The global financial crisis has real-life implications for the poor, according to a March 8 World Bank report.

In “Swimming Against the Tide: How Developing Countries are Coping with the Global Crisis,” the World Bank claims the financial meltdown will throw 46 million people around the world into poverty.

How is this happening?

The economies of 94 out of 116 developing countries are already grinding to a halt;

Private capital flows to emerging markets are on pace to fall to 17 per cent of their 2007 levels;

In 2007, African countries raised $6.5 billion on the international bond market to finance infrastructure. In 2008 there were no international bond issues by African countries;

Falling demand in the West has created the biggest, quickest drop in world trade in 80 years;

As capital dries up and companies go bankrupt, millions are retreating from the cities and returning to subsistence farming. In Rwanda nearly half the growth in gross domestic product per capita from 2000 to 2006 was the result of people moving out of agriculture and into the manufacturing and service sector. Back on the farm, Rwanda is vintage Third World;

The measurable job losses include 30,000 jobs gone in Cambodia’s garment industry and 500,000 jobs cut in the last three months in India — mostly in gems and jewelry, the auto sector and textiles;

Workers abroad are losing their jobs, putting an end to cheques from abroad. In Tajikistan if foreign remittances are cut in half poverty in that country jumps to 60 per cent from its present 53 per cent.

Tedeschi argues the G-20 can’t just set up a “bad bank” — a fund that would take over toxic debt piled up by banks and insurance companies that made bad bets on the U.S. housing bubble. There also needs to be a “good bank” that will ensure developing countries keep growing.

Tedeschi’s “good bank” would return the world of finance to its original purpose — to enable real, productive enterprise — rather than a source of magic money for speculators. A moral market would recognize that finance is a way of helping businesses buy new machines, hire more people, build new factories and not mathematical voodoo, he said.

“The rich world has been stupid — and not only selfish — in refusing to recognize the necessity of moral authority and laws, thus confusing the means with the ends,” Tedeschi wrote.

The World Bank likes the idea of a global vulnerability fund and has called on the G-8 nations to contribute at least 0.7 per cent of their stimulus spending to it.

It’s not a crazy or naive idea that just appeals to otherworldly prelates with foggy notions of economics, said Rottman School of Management economics professor Walid Hejazi.

“It’s a terrific idea,” Hejazi told The Catholic Register from his University of Toronto office.

There’s no such thing as a made-in-Canada or made-in-U.S.A. solution to a global economic crisis, he said.

“The developed countries understand, the policy makers understand, that, since we’re in an increasingly integrated global economy, if these developing countries go into crisis it affects the banks in developed countries that have loaned to them,” he said.

But the economic reality and the political reality may not line up.

“To take off a big whack of money to try to help people over there, it’s less politically feasible,” said the economist.

Canadian voters and political parties may decide stimulus starts (and ends) at home, in the auto sector and ailing lumber and paper mill towns.

So far it seems Canada is not exactly on the same page with Brown or the Vatican. Finance Minister Jim Flaherty came away from the G-20 finance ministers’ meeting March 14 in Horsham, England, talking about the need to fix the U.S. banking system and pooh-poohing any talk of international regulation.

The Prime Minister’s Office e-mailed The Catholic Register to say, “It’s a little premature to comment on the vulnerability fund.” According to a PMO spokesperson, “The primary focus at the G-20 will be on co-ordinating stimulus in the member economies and to co-ordinate action to repair global banking and credit networks.”

Poverty and war

By the Catholic Register Staff

In the polite language of international reports, the World Bank worries about the future "stability" of governments whose countries are falling off an economic cliff.

But how likely is the financial crisis to lead to revolutions, riots, civil wars and wars?

"Poverty in general correlates to violent conflicts, but not every impoverished place or country has violent conflicts," said Project Ploughshares executive director John Siebert.

Project Ploughshares, a Waterloo, Ont.-based ecumenical think tank, has tracked a 10-year decline in the number, length and severity of wars around the world with no corresponding decrease in poverty, scarcity of resources or other economic causes of armed conflicts. Academics who study war and peace have concluded that the world, and the United Nations in particular, has gotten better at managing conflicts through peace keeping operations, negotiations and special representatives to the UN Secretary General.

"There are water wars from increasing desertification, climate change wars, food riots because food prices went up last year, now financial collapse," said Siebert. "The problem is that all of these can lead to greater conflict, but conflicts don't necessarily lead to war."

Though the poor in Africa are not getting richer the number of conflicts on the continent has dropped over the last generation, said Siebert.

The famous Pax Christi dictum, picked up by Pope Paul VI in his 1967 encyclical Populorum Progressio, "development is the new word for peace" may not be true in the short term. But Siebert economics and war are total strangers.

"A general increase in economic and other forms of justice can't help but contribute to slowing the causes of violent conflict," he said.

The Ministry of Finance will only say that Canada continues to increase its foreign aid spending by eight per cent a year, as it has since 2001-2002.

At the finance ministers’ meeting Canada did sign a statement that said, “We are committed to helping emerging and developing economies to cope with the reversal in international capital flows.” But Hejazi gets the feeling Flaherty’s heart wasn’t in it.

“It’s awful. There’s no talk of that (from Flaherty). This is the time aid to those countries should be increasing, but we don’t see talk of that at all,” Hejazi said.

Hejazi describes himself as a committed free market economist, but he has no problem with injecting morality into markets.

“The Vatican is absolutely right to say that you’ve got to have (moral) macroeconomics,” he said. “It’s got to be healthy. You’ve got to let business people, the banks, the central bank operate efficiently. But the government needs to have a role in ensuring that people that lose from this social orientation are not left behind.”

Economist John Dillon of the church-financed KAIROS ecumenical social justice network is much more skeptical of liberal economics than Hejazi. Along with church social justice agencies around the world, he has for years blamed the Bretton Woods institutions — the World Bank and International Monetary Fund — for creating more poverty than they solve. He thinks it’s time to replace those institutions with new bodies that will represent the interest of the borrowers rather than protect the interests of the small handful of lending countries.

Dillon takes his cue from Belgian theologian and sociologist Fr. Francois Houtart, a member of the United Nations high-level task force on the financial crisis. In the 1960s he was one of the theologians advising bishops on Gaudium et Spes at Vatican II.

“All those crises are related with a fundamental logic, the logic of the capitalist system,” Houtart told a conference in Belgium recently.

The logic of the capitalist system means it is more profitable to create increasingly sophisticated goods and services for an increasingly narrow band of the richest people while leaving 80 per cent of the world’s population to fend for themselves, said Houtart.

“It is irrational if we define the economy as a service to the people,” he said. “But it is very rational if we define the economy as a function of the profit of capital.”

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