5-21-09, 8:41 am

Original source: Global Times (China)

The fall of the Berlin Wall kick-started the return of rogue economics. This is not a new phenomenon; on the contrary, it is part of our history. It is a force constantly lurking in the background of progress, kept at bay by politics, a force that comes out at times of great transformation: when governments lose control of economics, economics falls into the hands of ruthless rogue entrepreneurs.

Globalization has led to a global deflationary policy and the era of easy credit. At the same time, cheap labor flooded Western economies, increasing the return on capital.

GDP grew, but data show that it was not properly redistributed. Today the median income in Western countries is lower in real terms than in the 1970s.

The key characteristics of rogue economics are:

The proliferation of gray areas where rogue entrepreneurs can blossom and where new, at times surreal, economic interdependencies are created;

The transition of the nation state to a market state;

The market matrix, a web of commercial, economic and political illusions that alters consumers and voters perception of reality.

One of the best examples of how rogue entrepreneurs blossomed in the gray, unregulated areas of rogue economics is the rise to power of the Russian oligarchs. They stripped the wealth of the Russian nation. As much as $400 billion was taken out of the country in the early 1990s, and yet all the schemes they employed were legal because of the absence of legislation that prevented the looting of national assets.

The fall of the Berlin Wall also saw an unprecedented increase in the supply of prostitutes and sex slaves from the former Soviet Bloc.

It badly affected female employment; in many sectors with a predominantly female labor force, such as textiles, unemployment rose up to 80 percent. Women were traded as merchandise by the Russian mafia, which lured them into prostitution or slavery.

Thatcher and Reagan in the 1980s had already sustained the process of privatization, in which Western banks led the sale of state enterprises in the West and in developing countries. The end of Soviet Bloc marks the beginning of global capitalism because with it came down not only financial and economic borders but also political divisions. The world became Western capitalism's oyster.

As Western democracy spread so did slavery, another surreal interdependency of rogue economics. From 1989 to the mid-1990s, the number of democratic countries rose from 64 to 118. Over the same period slavery increased, reaching 27 million at the end of the 1990s. And when I use the term slaves I refer to people who are owned by others, people who are traded as merchandise. The correlation between democracy and slavery is not a new phenomenon. Already in the 1950s, during the decolonization process, economists had detected a strong correlation between slavery and political independence. As colonial powers left their former colonies, people in these countries became enslaved by their countrymen.

Globalization marked the transition of the nation state to the market state. While the nation state purses the interests of the community, the market state's final aim is to create the conditions for the individual to become rich. This is a state, therefore, which pursues financial deregulation.

Estimates are that during the first half of the 1990s the supply of labor doubled, pushing salaries down. Deregulation allowed companies to offshore and outsource their businesses. As labor became cheaper and the cost of production fell, the return on capital rose. But the new wealth was not equally redistributed. Instead it ended up in the pockets of a small percentage of the population. Salaries of CEOs rose much faster than other salaries so that the difference between earnings of middle and top management began to widen.

Another surreal correlation: the dismantling of Soviet Bloc prompted the financial weakening of America's middle class, the backbone of the United States. The salary erosion has been so effective that today the US real median income, the one sandwiched in between the rich and the poor, is lower than it was in the 1960s.

To end the reign of rogue economics we need to become conscious of our world.

Understanding is the key to bringing governance back into the picture, to make sure government, not rogue economics, is in control of our world.