Thursday, April 30, 2015

The Fetish of Finance

Research reveals that we are living through the largest investment boom in human history. UN Secretary General Ban Ki-moon stated, "Urgent action is needed to mobilise, redirect, and unlock the transformative power of trillions of dollars of private resources to deliver on sustainable development objectives." Oxford University's Bent Flyvbjerg, an economic geographer who specializes in mega-project planning and management, estimates global mega-project spending at between $6-9 trillion annually. This is 8 percent of the world's combined GDP. A single "mega" (million-dollar) project can easily exceed the national economy of a low-income country; a single "giga" (billion-dollar) project can outpace the earnings of a middle-income state; and a single "tera" (trillion-dollar) investment project can compare with the GDP of one of the world's top 20 richest nations.

Mega-projects are are growing in number and in scale. Investments in behemoth infrastructure projects in the transportation, energy, water and agricultural sectors, in particular, are rapidly increasing. Between 2004 and 2008, China alone "spent more on infrastructure in real terms than during the entire 20th century” according to a 2014 paper published in the Project Management Journal by Oxford University's Bent Flyvbjerg, an economic geographer who specializes in mega-project planning and management.  According to private sector estimates, an additional $60-70 trillion of infrastructure capacity will be required by 2030 to spur economic growth. With current investment trends suggesting $30-35 trillion per year forthcoming from public sources and $10-15 trillion per year from the private sector, this leaves $15-20 trillion unaccounted for. This "infrastructure gap" can only be met by tapping into the roughly $85 trillion of long-term institutional finance held in sovereign wealth funds, pension funds, hedge funds and insurance schemes around the world.

Titanic players in the world economy are forging ahead with their plans for investment in infrastructure. China's the $100 billion Asian Infrastructure Investment Bank (AIIB), is designed to finance infrastructure projects in the Asia-Pacific region and has 46 countries among its founding members.
The Group of 20 (G20) launched the Global Infrastructure Initiative, a multiyear program aimed at improving the environment for public and private investment in large infrastructure projects worldwide.
The International Monetary Fund (IMF) and seven major multilateral development banks (MDBs) expressing the need for additional investment in "quality infrastructure." These seven institutions - the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, the Islamic Development Bank and the World Bank Group - and the IMF announced their collective capacity to provide $130 billion of financing for infrastructure annually.
The World Bank unveiled its own Global Infrastructure Facility (GIF) described as a "global, open platform that facilitates the preparation and structuring of complex infrastructure Public-Private Partnerships (PPP) to enable mobilization of private sector and institutional investor capital." Comprised of other MDBs and 16 private sector partners that include Citibank and HSBC, the GIF's partners hold over $8 trillion in assets and has $80-100 million at its disposal, to "operate globally, to support infrastructure projects in Emerging Markets and Developing Economies (EMDE)" in the energy, water and sanitation, transport and telecommunications sectors.

Already the World Bank's contribution to infrastructure development is huge: In 2014, it provided $24 billion for this purpose. But this is apparently not enough. The Bank's president, Jim Yong Kim, explained, "Our loans and projects will fall far short of what the developing world needs. The infrastructure gap is simply enormous - an estimated $1 trillion to $1.5 trillion more is needed each year."

Brent Blackwelder, president emeritus of Friends of the Earth International, calls "the ABCs of economics" - namely, whether projects deliver their stated benefits, on time, within their allocated budget - only one in 1,000 mega-projects meets the criteria for success. Flyvbjerg reported that "nine out of 10 projects have overruns" while "50 percent overruns in real terms are common and over 50 percent are not uncommon." In real terms, these overestimates end up costing billions: The delayed Channel Tunnel - a 50-kilometer passage connecting the United Kingdom with France - went 80 percent over budget, costing the British economy about $17.8 billion.

"Very frequently, the government, taxpayers and consumers meet the cost of these delays and extra expenditures," Nancy Alexander, director of the Economic Governance Program at the Heinrich Böll Foundation explained. Financialization entails creating infrastructure as an asset class, so that investors - especially long-term investors - can finance portfolios of public-private partnerships (PPPs). Yet, here again, there is no evidence that financialization (especially speculative finance) will not "socialize losses and privatize gains," since the state is required to provide significant protection of investors and guarantee certain rates of return. According to Alexander, neither the international financial institutions (IFIs) nor the United Nations has engaged in a serious assessment of how - or whether - financialization of investment plans will serve the public interest. PPPs reveals little evidence of success and ample proof of failure.

"An independent evaluation group (IEG) of the World Bank did an evaluation of PPPs last July and found that, in financial terms, 67 percent of World Bank-funded energy distribution projects failed," she explained. The same held true for 41 percent of water-related projects. “Why the massive scaling up of PPPs without waiting for better results?" she asked. "It isn't really logical."
The Program for Infrastructure Development in Africa (PIDA). In PIDA's first phase, the collective price tag for these mega-projects touches $68 billion, and the result is a continent severed by highways, pipelines and dams with no apparent assessment of their impact on the environment or the poor. The governance bodies of PIDA show little regard for transparency, information disclosure, consultation with civil society or participation by affected communities. To the contrary, they have blocked engagement and some governments have threatened those who challenge their plans. "Most of these projects are directly counter to any notion of sustainability because they are producing incredibly long-term costs ... and are putting the risks of failure on to the public rather than onto private investors," Blackwelder said. "The result is ... billions of dollars going into the coffers of transnational corporations [while] compromising the lives of the poor and undermining all life support systems on this planet needed to sustain a global population of more than 7 billion."

Even now, Ethiopia's gigantic Gilgel Gibe III hydroelectric power project on the Omo River, which feeds the world's largest desert lake, Lake Turkana, in Kenya, is causing widespread hunger and threatening the lives and livelihoods of several hundred thousand people who have relied on these fisheries and surrounding forests for generations. This is just one example. The International Consortium of Investigative Journalists (ICIJ) revealed that World Bank-funded projects displaced an estimated 3.4 million people between 2004 and 2013, the majority of those displaced were from Asia and Africa, where the Bank pumped $455 billion into 7,200 projects over a single decade. While the bulk of the projects were aimed at strengthening transportation networks, energy grids and water supply systems in some of the poorest countries for the purpose of reducing inequality, in reality, they have added to the impoverishment of some of the world's most destitute people - farmers, indigenous communities, slum dwellers and fisher-folk.

Experts fear that public-private partnerships will only build on this history, broadening - rather than shrinking - an already gaping wealth gap. In a presentation to the Manchester Business School in July 2014, Nicholas Hildyard, founder-director of the UK-based research and advocacy group The Corner House, broke down the myths surrounding PPPs, concluding that they are less about "financing development" and more about "developing finance" - which in turn "enables the extraction of public wealth for private gain." In a world where the wealth gap between the richest and poorest nations has increased from 35:1 during the colonial period to 80:1 at the turn of the millennium, and the world's richest 85 people control more wealth between them than one half of the entire earth's population put together, the question remains: Who is this investment boom for? The IMF, World Bank and others have been aggressively lending to the developing world by mainly dealing with corrupt head's of states. They convince the corrupt officials to borrow for costly projects that have actually been found to have harmed those nations since the true aim of the lenders are to collect hefty profits from the interest and fees not what happens to the project after the contracts have been signed.

"We are building more pipelines, more dams, more bridges than we can maintain and roads to nowhere," Blackwelder said. "We have now reached a crossroads, where we have got to change the vision of what is 'sustainable' and start investing in an entirely new mentality."

The socialist do present a new mentality and our criticism is broader and deeper than mere reform of
investment policies. Reliance on the imagined powers of money runs through every problem. The fetishism of money is part of the ideology of the profit system that claims uncountable victims across the world. Every day politicians give lack of money as a reason why we cannot provide better infrastructure, health-care or reliable electricity and water supplies or the many other public services that are in urgent need of improvement. Throughout the world the same mantra is chanted week in and week out, year after year, “if only we had more money, something could be done”. This ignores the fact that productive resources are materials, means of production, transport, energy, communications and networks of infrastructure through which goods and services are produced. And all these depend on one single resource which is labour. These are the real resources on which the lives of communities depend and there is an abundance of labour to provide for needs. At times there may be millions of unemployed people, factories standing idle and unused materials being stockpiled but capitalist politicians still repeat, “We do not have the resources.” They are unable to see the availability of real resources because their minds are pre-occupied by the illusion that only money resources count. They imagine that real resources can only be brought into use by money, whereas the opposite is the truth. The powers of the community to solve problems can on be fully released with socialism and the abolition of money.

The need for international bank-loans and appeals for finance are a pathetic substitute for the availability of real resources and the freedom that communities in socialism would have to immediately use them. A “fetish” means when an object is worshipped on account of its supposed magical powers. We sacrifice our children in homage to the god of money, on the altar of the capitalist system.

1 comment:

Mike Ballard said...

What are money resources other than the wealth the working class produces or will produce in future? Money is just the measuring stick used quantify the wealth workers create in exchange for wages.