In 1971 President Nixon unilaterally dismantled the Bretton Woods Agreement. This multi-lateral agreement on monetary policy was put in place to help the world recover financially from WWII. It spawned the IMF and the World Bank. In the same year the UK introduced the Competition and Credit Control Act. The main effect of these changes was deregulation, which allowed private sector debt to begin to accumulate.
From 1945 to 1971 was a period of economic stability, with no notable crises. The IMF tell us that since 1970 "there have been 147 bank crises, 218 currency crises and 66 country-financing crises". In 1971 the motto of Polonious was decisively thrown out. The world began to borrow to finance consumption and to gamble on asset prices. Debt fuelled consumption and speculation, especially the latter, pushed up prices causing inflation. Inflation required pay rises, and further price rises. Until it all collapsed in a recession. Then began to pile up again. Each cycle was a little worse because some of the debt carried over. In the Third World it rapidly lead to ruin and poverty for many. In South-East Asia ruin and poverty came in the late 1990's. Now the First World faces ruin.
The response to this was to further deregulate the economy, but particularly finance. This allowed for more debt, and more risky lending. Banks, who make money from debt, were happy to oblige. Sucessive governments around the world followed similar policies.
The finance sector generated huge amounts of income but concentrated it in the hands of a tiny minority. It generated even hugher amounts of debt. Today the UK is the most indebted country in the world. Recent estimates place our private sector debt at 507% of GDP, household debt (including mortgages) at 100%, and Government at just 81% of GDP.
The most recent crisis exposed corruption in the finance sector, and the massive scale of our indebtedness. Five years later we're still going down hill, with Europe teetering on the brink (of what?). Many first world banks are technically insolvent but somehow reporting record profits. Now we learn that some have been manipulating interest rates. They are propped by government borrowing amounting to a trillion pounds. Executive pay is increasing exponentially. Unemployment is high. So much for the "free market". Many intellectuals are pointing to distrubing parallels with Europe in 1931.
The same trend has excerbated environmental problems. Governments seem paralysed by fear of the business sector. The political will to address any of these problems does not exist at present.
How did this happen?
The second major event of 1971 was the Lewis Powell Memorandum to the US Chamber of Commerce entitled "Attack on American Free Enterprise System". Powell characterised the situation as a war in which business interested were threatened by social change emphasising the values of cooperation and mutual aid (our values). The memo makes a series of detailed proposals for an aggressive response by conservative businessmen.
Businessmen should endow universities with chairs to teach conservative business practices, and financially support conservative institutes. Powell proposed that a number of very well resourced think-tanks be set up. These would help to create and promote a consistent, potent message. Deregulation was central to their agenda. They needed to train spokesmen in communicating the conservative message, and create booking agencies to help organise speakers. They also invested in media companies to ensure access. They did all this, and needless to say they funded conservative political parties. Nixon appointed Powell to the Supreme Court two months after the memo was published.
At the same time US conservatives began to politicise fundamentalist Christians who had been disengaged to that point, creating a whole new constituency of millions of ultra-conservative voters.
The results have been spectacular. Conservatives all over the world have benefitted from this coordinated strategy to hijack democracy in the USA, and fight a war against their own people. A steady stream of graduates with PhDs in what amounts to conservative ideology, finds jobs in universities and think-tanks to explore and publish their ideas and influence new generations of students and intellectuals particularly economists. There are close linked between Neo-Conservative though and Neo-Classical Economics. Through manipulation and control of the media a constant presence of the conservative message is maintained. Powell's memo is one of the most important documents of the 20th century, it is the founding charter of the Neo-Conservative religion.
As a result conservative ideas have been at the forefront of politics. Deregulation has wrecked the world's economy, and helped to wreck the environment. Conservatives set the agendas on which elections are fought (they are doing so again in the UK right now). Business policy became political policy; business values became social values.
Progressives tend to use the language of conservatives when critiquing conservative ideas, because they don't understand that even a negative mention helps to reinforce the idea. This is simply illustrated by saying "Don't think of an elephant". We cannot help but think of an elephant. The conservatives also manage to portray opposing views as against the common good, out of touch, or naive. Ironically self-interested conservatives gang together, and community spirited progressives are often deeply divided. Resistence has been ineffective.
Clearly the very great likelihood is that this will all continue with rather horrific consequences. This how American businessmen suceeded in changing the world, and
The question I'm asking myself is "OK, I've understood this, now what?"
Submitted to the journal of the Buddhist Order I am a member of. July 2012