Friday, April 11, 2008

Economic rogues run amok in the world

By Charlie Smith, Straight
Publish Date: April 10, 2008

As democracy spread through the world in the 1990s, it was accompanied by a dramatic increase in slavery, according to the author of a new book. “The correlation between democracy and slavery is one of the consequences of rogue economics, a recurrent phenomenon in history, often linked to rapid and unexpected great transformations,” Loretta Napoleoni writes in Rogue Economics: Capitalism’s New Reality (Seven Stories Press, $27.50). “In the midst of profound changes, politics can lose control of economics, which becomes a rogue force in the hands of new entrepreneurs.”

In an April 8 interview in Vancouver, Napoleoni told the Georgia Straight that she thinks other analysts of world economic trends, such as the irredeemably optimistic Thomas Friedman of the New York Times and Columbia University’s more cautionary professor Joseph Stiglitz, wrote books about globalization before it was clear what was taking place. “You can’t analyze such an amazing change at the beginning,” Napoleoni said. “You have to sit there and watch how things are changing. We are living in perhaps the most exciting time in history because everything is changing.”

Her book explains how the transition from communism to globalization in the 1990s unleashed a brutal and corrupt form of capitalism that cannot be tamed by national governments. Rogue Economics shows how Russian oligarchs stripped the country of its resources, depositing their profits in safe banking havens. Entrepreneurs in China and other countries unleashed counterfeit medicines on the world, causing untold harm to human health. The Bulgarian Mafia recruited former athletes to act as enforcers, and sex slaves were exported from Eastern Europe. Criminal gangs control urban areas in Africa and the South American drug trade.

“The epicentre of the economic and financial world is moving eastward, which means the political epicentre will move eastward as well,” she said.

Napoleoni, an economist and former banker, suggested that the current U.S. subprime-mortgage market problems are another manifestation of rogue economics. She said that new opportunities arose through the use of derivatives, which are complex financial products that can be used as a hedge against risk. Investment bankers used derivatives to convert bad real-estate loans into products that could be sold to unsuspecting investors. When the borrowers—U.S. homeowners who probably shouldn’t have been in the market in the first place—couldn’t repay those mortgages, it triggered a financial crisis, battering the U.S. dollar.

“Politics could not predict this outcome,” Napoleoni said. “You may say that’s immoral for a bank to do that, but it’s not illegal.”

She emphasized that rogue economics flourishes in countries like China, where citizens don’t have the political power to rein in the behaviour of outlaw entrepreneurs. In the meantime, she predicted that the U.S. dollar will continue falling against other currencies because the country is less competitive in a world in which rogue economics thrives. Western corporations create goods in places like China. Those goods are often counterfeited, and she suggests in her book that this will harm the corporations’ futures.

Napoleoni said that the U.S. economy is currently experiencing “stagflation”, a combination of rising prices and no economic growth. “I think unemployment is going to skyrocket,” she said. “I think there is going to be
a depression.”

She also expects Chinese entrepreneurs to work more closely with the Muslim world, which is already occurring in Sudan. In the end, she anticipates that a new Islamic monetary system will emerge and that the dinar, pegged to the price of gold, will become the reserve currency of the world.

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