[Debate] (Fwd) Banker power (Sarah Bracking)

[Patrick Bond]

Private equity and hedge funds: you, your children and your environments 
are not our problem - anywhere!

by Sarah Bracking

The European debt crisis is moving on apace, as was strangely 
illustrated in two separate reports from The Independent (UK) on 
abandonment this past weekend. The first, last Saturday, reported a 
‘surge’ in the amount of parents in Greece abandoning their children 
because they can’t afford to feed them, with one note left with a 
kindergarten teacher - "I will not be coming to pick up Anna today 
because I cannot afford to look after her….Please take care of her. 
Sorry. Her mother." (14th January, 2012). The second, on Sunday, 
reported that in Britain there had been a 280 per cent increase in the 
abandonment of horses (15th January 2012). Now cynical readers might 
wonder about the relative values of children and horses in Britain, and 
whether the British bother to count the number of the former left 
abandoned, given the UK league table topping figures for child poverty. 
But that aside, what is clear is that the financial meltdown in 2008, 
and the debt crisis subsequently have lead to European wide riots, 
strikes and a noxious level of social deprivation and dissembling the 
like of which has not been seen in 60 years. But how have once strident 
economies been brought to their knees, and what does this mean for 
Africa (aside from the chortling about Europe now having to take the 
same IMF medicine).

It is worth bringing in some vintage (German) political theory, from 
Claus Offe, who once said of the relationship between the state and 
capital (translated to ‘the private sector’ if you are not a Marxist), 
that the state is defined “a) by its exclusion from accumulation 
(similarly translate to ‘economy’), b) by its necessary function for 
accumulation, c) by its dependence on accumulation, and d) by its 
[political] function to conceal and deny a), b) and c)” (Offe 1975). 
Events in Europe this week brought this classic definition to mind, 
since they show how these separate statements contribute to the 
dysfunctional whole that is the state in most countries, in a 
financialised world economy where banks have most of the power.

In other words, the state relies on private firms for money and taxes to 
fund itself, meaning that it has to support capital disproportionately 
in relation to other interests, such as labour; and for political 
reasons it has to simultaneously represent itself as independent, and 
not doing any of this b) at all. Interesting stuff when you consider the 
bankruptcy of Europe, since this began with collapsing derivatives and 
toxic debt from the private sector. And then came the big blackmail, 
that states couldn’t let the banking sector collapse because of social 
chaos, a reference to c) above (why did states not just ring-fence 
retail accounts, and let the tax haven based funds go hang?!). So states 
hand over the money as in b). But then a) the banks recover and start 
talking about their independence from the public sector and unnecessary 
regulatory reform. More, they make sure their private customers offshore 
get their money back first, so no repayment for the state despite c), 
its sorry dependence on them for revenue. So now the states are bankrupt 
instead. As French government bonds lost their AAA rating this week and 
succumbed to an AA+, Sarkosy must really regret that he hasn’t read 
Claus Offe on the political importance of d), as French voters are a 
proud bunch, and the national sovereignty has been slurred by the 
bankers who are ruining them.

And to add some salt into Sarkosy and Merkel’s wounds, in last weeks 
round of crisis talks, the European leaders were told by the private 
hedge funds that they were not prepared to take a ‘haircut’ (reduction 
in value) on their Greek debt to save the French and German bailout and 
the Eurozone. Some of the big banks were, and the bilateral public 
lenders, but not the private hedge funds – because – wait for it - they 
are privately insured (as well as by the state it seems through the 
blackmailing routine)! They have debt default swaps against Greece going 
bankrupt. They would rather not be paid at all as Greece collapses (and 
collect the full value of their Greek bonds by their insurers) than be 
paid 50 per cent in a deal to avert further social disaster. In other 
words, the life of a private hedge fund is untouchable. If things go 
catastrophically wrong financially, even if it is your own greed at 
fault – you blackmail the state to bail you out. But if the state has a 
problem, you turn and run, leaving Europe in the grips of a vicious 
cycle of austerity. This was recently well summarised by the economist 
Professor Richard Wolff, in the context of the downgrading of countries 
bond ratings because of their failure to implement enough austerity 
(from the bankers’ point of view):

“So the creditors are now pressing governments to ensure the safety of 
the national debt (to themselves)…….The references to “satisfying the 
markets” simply disguise the whole outrageous process. The crisis drama 
deepens: creditors’ pressure on governments increases austerity policies 
that increase mass opposition that frightens creditors who increase 
their pressure on governments……….” (Wollf, 28th December, 2011)

This shows that bankers are (a bit) worried by political fallout, if 
only in so far as angry and resisting citizens can adversely affect 
profits. But cheeky? Absolutely, because the European states are only in 
this much debt because they handed over the contents of the public 
vaults to the bankers, no less than three years ago. So Offe’s d), his 
idea that states must hide their role in markets. What is the political 
fallout? How much does it matter that we can see the state as ‘managing 
the common affairs of the whole bourgeoisie’ as Marx once put it?

Well the most obvious answer, for capital, is not much. Outside of the 
social crisis, profits are up. Why? I can only think that it is because 
capital has been so successful in already building its new life in the 
tax haven bunkers used to store the majority of the banks’ money. Before 
the divorce with the European state, the mistress offshore was well 
prepared! And here is why this all matters a lot for Africa, because 
from these tax havens (and shored up with European tax payers money), 
the banks go raiding into the economies of Asia and Africa, whose 
peoples and environments are vulnerable from poverty and prior 
historical disadvantage (caused by prior European colonisation). The 
banks use ephemeral private equity funds and special purpose vehicles, 
to take control of the commanding heights of whole industrial, energy, 
infrastructure and mining sectors. Their underlying companies, never 
watched that attentively, then ensnare children and their mothers to 
mine cadmium for phone cases in Congo, HIV/AIDS orphans to break stones 
at quarries or pick rubbish at landfills, and young men to risk life and 
limb in unsupported mine shafts, while the investors, directors and 
shareholders greedily suck profits into their offshore funds.

Take the case of South Africa, where the private equity market is worth 
ZAR100 billion, with the majority offshore and dedicated to 
infrastructure, energy and mining. In actual projects onshore, only 
about 20 per cent of these funds would routinely do environmental impact 
assessment. The risks of killing people in industrial accidents, or 
despoiling nature, or exploitative employment practices, and the risk of 
being found out for any of the above, are generally the property of the 
onshore business partner, or government in the cases of public private 
partnerships (for example, the Africa Infrastructure Funds in Mauritius 
and the N3 toll company). The only risks the private fund carries is 
that affected communities might chance litigation (low) or that sites 
might be disturbed by protestors (also low, given police practices). The 
asset related risks are held by the construction and implementing 
partners, (such as landslides, cost overruns), or government (community 
opposition, low usage for roads), whereas the income stream from the 
underlying asset (the ATM that is the tollgate in the case of roads) 
flows straight offshore into the fund.

In short, banks and their funds have successfully globalised social 
crisis. As European states should have known back in 2008, you don’t 
kill a snake by feeding it! So are there now grounds for a deeper global 
solidarity between the two continents? European citizens (in good times) 
have looked the other way for so long about how banks have historically 
privileged them, and exploited other people, that many in Africa will 
find it hard to be empathetic to a struggling Europe, particularly since 
levels of social deprivation in ‘off grid’ Africa remain acute and 
arguably worse. But peoples in both continents are being abjected by the 
same (newly fattened) banks and funds, so there has never been a more 
expedient reason to work together.

References
Offe C, (1975), “The Theory of the Capitalist State and the Problem of 
Policy formation”, in L. Lindberg et al. (eds.), Stress and 
Contradiction in Modern Capitalism, Lexington, Mass.
The Independent, 15th January, Thousands of horses abandoned by owners 
last year 
http://www.independent.co.uk/environment/nature/thousands-of-horses-abandoned-by-owners-last-year-6289936.html?origin=internalSearch 

The Independent, 14th January, While technocrats haggle, ordinary people 
feel the pain, at 
http://www.independent.co.uk/news/world/europe/while-technocrats-haggle-ordinary-people-feel-the-pain-6289553.html?origin=internalSearch 

Wolff, at http://groups.dev-nets.org/read/archive?id=344878 28th 
December, 2011).