One outcome of the G-20 meeting (as I wrote yesterday) was an agreement to earmark as much as $1 trillion for developing countries, where the economic crisis is having a life-threatening impact. This figure is in line with what the United Nations estimates is needed to “buffer the blows of the global downturn on the most vulnerable.”
In fact, $1 trillion is the least the rich countries owe to the poor, considering the chaos and suffering our own economic policies and practices have brought upon them. In part, the additional hardships now being experienced by the developing nations result from the recession trickling down in a way that wealth never seems to do. But there’s more to the story than this.
Some of the heightened suffering in the developing world can be traced back to the Clinton and Bush administrations, when a series of legislative and regulatory changes paved the way for rampant speculation on the commodities market. What happened next is explained in a report by the Minneapolis-based Institute for Agriculture and Trade Policy (IATP), the most comprehensive source of information on this subject.
Wall Street went to work and bundled together groups of commodities futures–everything from oil to copper to basic staples like corn, wheat, rice, and soybeans–into commodity index funds, similar to what you find in the mutual fund business. The subsequent explosion of buying and selling by a handful of Wall Street firms (led by Goldman Sachs and AIG) ran the prices of different commodities up and down with little relation to any actual market or to the so-called laws of supply and demand. (James Galbraith describes the process in detail here.)
In the five years leading up to the recession, commodity index speculation increased by 1900 percent. In this way, Wall Street not only pushed the price of oil through the roof, but directly caused skyrocketing food prices and food shortages around the world. In short, the IATP report concludes:
U.S. government deregulatory steps opened the door for large financial services speculators to make huge “bets” that destabilized the structure of agriculture commodity markets. According to the United Nations, global food prices rose an estimated 85 percent between April 2007 and April 2008. Prices rose for wheat (60 percent), corn (30 percent) and soybeans (40 percent) beyond what could be explained by supply, demand and other fundamental factors, according to the report.
For people in the poorest countries, these changes sometimes meant the difference between subsistence and starvation: In 2007, according to the UN Food and Agricultural Organization (FAO), an “estimated 75 million people were added to the 850 million already defined as under-nourished and food insecure.”
In view of all this, the United States and the other wealthy nations that dominate the world economy owe the developing world more than a bailout. (Such a bailout would, in any case, constitute a fraction of what we’re giving to the banks–the very institutions that increased world hunger for the sake of profits). We also owe them a reformed global financial system that will prevent such travesties from happening again.
But it doesn’t look like those reforms will be happening any time soon. Bills to regulate commodities exchanges have been floated in both houses of Congress, but according to the IATP, they are progressing slowly and leave a lot to be desired. President Obama’s nominee to the Commodity Futures Trading Commission, Gary Gensler, is a former Goldman Sachs executive who, while working in Clinton’s Treasury Department, backed the very deregulatory moves that allowed commodity speculation to run wild in the first place (as exposed in Mother Jones last year). Senator Bernie Sanders is seeking to block Gensler’s nomination for this reason.
And on the international level, as IATP pointed out in the runup to the G-20, regulation of commodities exchanges was a subject conspicuously absent from the meeting’s agenda—despite its potential life-and-death impact on food and energy security worldwide.
This absence is part of a larger problem, as described in a new report from the Congressional Research Service, which finds that “There seems to be no international architecture capable of coping with and preventing global [financial] crises from erupting.” The report, made public today on FAS’s Secrecy News blog, concludes:
The financial space above nations basically is anarchic with no supranational authority with firm oversight, regulatory, and enforcement powers. There are international norms and guidelines, but most are voluntary, and countries are slow to incorporate them into domestic law. As such, the system operates largely on trust and confidence and by hedging financial bets.
In other words, despite any incremental progress made at the G-20 meeting, what we have is more or less a global version of the Alan Greenspan doctrine, which proclaims that all will be well if we leave the financial markets, and the large institutions that dominate them, to voluntarily “police themselves.” And we all know how well that turned out.