When I was in high school, one of my most formative educational experience was the National High School Model United Nations (NHSMUN). Every spring, after a full year of preparation, we got to sit in the actual UN building in New York City and debate and deliberate as if we were actual countries' delegates. Whether sitting on the UN's most powerful committee, the Security Council, or sitting on a less powerful committee, we learned to see each of our national identities as something that was in some way subordinate to this international body of power.
There was a time in history when the UN itself was a new invention. In response to new economic and political challenges following the end of World War II, world nation's leaders helped to establish first the League of Nations and then the United Nations as we know it today. Although the UN did remove some degree of national autonomy and sovereignty from each member country, it did still have the benefit of concentrating political power in a visible, fixed location. Even the poorest Third World nation, which did not have the gravitas of nations like Russia, China, and the US, could at the very least send delegates to observe any UN meeting it wanted. Any nation in the UN could physically keep abreast with any economic or financial decisions being made that might affect the flow of capital to the nation, its people, and its economy.
In "Financial Derivatives and the Globalization of Risk," the authors race the displacement and subordination of the UN and other postwar systems of international order--known collectively as the Bretton Woods system. Starting in 1973, the authors assert, visible international financial decision-making has been replaced by less-visible, supranational financial power, exercised through organizations like the OECD and the IMF. The collapse of the Bretton Woods system consolidated cash flow and the flow of capital decisively in the consumer and investor nations of the Global West while disenfranchising the producer nations of the Third World.
"For those who like to mark transitions with dates, the year 1973 seems to be the significant turning point, the period when the fulcrum of power and profit began to shift from the production of commodities to the circulation of capital. In that year the destabilization of global currency markets (culminating in the collapse of the Bretton Woods system) interacted with a host of other historical events to create an economic and political force endowed with its own direction and momentum. The transformative end that hastened processes already in motion was OPEC's embargo on the export of petroleum and the ensuing escalation in energy prices, followed by price increases in other goods that precipitated a period of stagnation and inflation.
"Before the embargo, the price of petroleum on world markets hovered around $3 per barrel of crude, but by the time the decade had come to a close oil prices had surged by a factor of thirteen to $39. Oil producers opted to denominate petroleum prices in US dollars; this compelled every oil-dependent nation (except the United States) to obtain dollars, and in very significant amounts, through the foreign exchange market. Especially for emerging states, this precipitated an enormous transfer of wealth from oil-dependent nations to OPEC members. Recycling petrodollars was essentially a process by which the current account surplus of OPEC financed deficits in nations that imported petroleum. According to the then-conventional and now discredited wisdom--encapsulated in the OEC's (in)famous McCracken Report (Organization of Economic Cooperation and Development 1977)--OPEC would deposit its titanic surplus in the international money markets, where it would then be recycled through the global banking network, ending up back in the hands of what, at the time, were called the LDCS, or less-developed countries. The economic mantra was that privatized global financial markets would restore economic equilibrium by selling their excess funds to emerging nation-states, thereby allowing them to obtain petroleum in exchange for debt.
"There was, however, no logical or institutional reason why global money markets should recycle petrodollars according to humanitarian principles of social fairness or justice. As World Bank records would later underline, for the remainder of the decade the net flow of capital to developing countries was actually negative, even as G-7 nations absorbed somewhere north of $150 billion per year. Without access to the capital surplus of petroleum producers, developing and transitional nations could generate the precious foreign exchange they needed to purchase oil only by forgoing other, non-oil imports, including the capital equipment needed to sustain employment and productive output. Among other things, the free market model of international finance apparently forgot that bankers are loath to buy a stream of short-term variable funds--the tens of billions of dollars of OPEC revenues held as short call deposits--and then extend long-term fixed rate loans under any conditions, let alone to economically strapped and already indebted countries. Predictably, international capital markets would furnish balance-of-payments financing only to countries they deemed credit-worthy, which essentially excluded much of the postcolonial world. That the advanced industrialized nations actively colluded in dividing up almost all the available capital meant that the negative consequences of the worldwide net capital deficit fell mainly on the shoulders of those who could least afford it. Thus, the recirculation of petrodollars gave postcolonial nations their first introduction to a form of political violence so abstract and mediated that its structural dynamic remained all but invisible" (pp. 67-69).
The authors proceed to explain options, futures, swaps, and other key financial derivative instruments in the post-Bretton Woods financial system. As they do so, they raise concerns about the ways that the derivatives market consolidates cash flow and the flow of capital in the nations of the global West at the expense of Third World nations, who find cash flow increasingly tight and capital increasingly scarce. The "political violence" of the financial derivative market is the fact the visible, accessible financial decisions of Bretton Woods are no longer particularly visible or particularly accessible, even as their felt impact becomes more and more consequential in the lives of Third World populations.
After reading this book, I'm definitely inspired to take more time to learn more about what life is like in the Third World. Most of the books I checked out from the Georgetown library this summer deal with the lifestyle, economy, and attitudes of the global West. It's fine to be passionate about learning more about the immediate culture where I live, but I feel a responsibility to learn more about the lives of people in the Third World--lives that seem to get more and more difficult as Americans' and Europeans' lives get easier.
Future books on my reading list include the remainder of David Brooks' writings, anything by Harvard president emeritus George Eliot, and the novels of Chimamanda Ngozi Adichie.
Photo: "Chicago Board of Trade II" by Andreas Gursky
There was a time in history when the UN itself was a new invention. In response to new economic and political challenges following the end of World War II, world nation's leaders helped to establish first the League of Nations and then the United Nations as we know it today. Although the UN did remove some degree of national autonomy and sovereignty from each member country, it did still have the benefit of concentrating political power in a visible, fixed location. Even the poorest Third World nation, which did not have the gravitas of nations like Russia, China, and the US, could at the very least send delegates to observe any UN meeting it wanted. Any nation in the UN could physically keep abreast with any economic or financial decisions being made that might affect the flow of capital to the nation, its people, and its economy.
In "Financial Derivatives and the Globalization of Risk," the authors race the displacement and subordination of the UN and other postwar systems of international order--known collectively as the Bretton Woods system. Starting in 1973, the authors assert, visible international financial decision-making has been replaced by less-visible, supranational financial power, exercised through organizations like the OECD and the IMF. The collapse of the Bretton Woods system consolidated cash flow and the flow of capital decisively in the consumer and investor nations of the Global West while disenfranchising the producer nations of the Third World.
"For those who like to mark transitions with dates, the year 1973 seems to be the significant turning point, the period when the fulcrum of power and profit began to shift from the production of commodities to the circulation of capital. In that year the destabilization of global currency markets (culminating in the collapse of the Bretton Woods system) interacted with a host of other historical events to create an economic and political force endowed with its own direction and momentum. The transformative end that hastened processes already in motion was OPEC's embargo on the export of petroleum and the ensuing escalation in energy prices, followed by price increases in other goods that precipitated a period of stagnation and inflation.
"Before the embargo, the price of petroleum on world markets hovered around $3 per barrel of crude, but by the time the decade had come to a close oil prices had surged by a factor of thirteen to $39. Oil producers opted to denominate petroleum prices in US dollars; this compelled every oil-dependent nation (except the United States) to obtain dollars, and in very significant amounts, through the foreign exchange market. Especially for emerging states, this precipitated an enormous transfer of wealth from oil-dependent nations to OPEC members. Recycling petrodollars was essentially a process by which the current account surplus of OPEC financed deficits in nations that imported petroleum. According to the then-conventional and now discredited wisdom--encapsulated in the OEC's (in)famous McCracken Report (Organization of Economic Cooperation and Development 1977)--OPEC would deposit its titanic surplus in the international money markets, where it would then be recycled through the global banking network, ending up back in the hands of what, at the time, were called the LDCS, or less-developed countries. The economic mantra was that privatized global financial markets would restore economic equilibrium by selling their excess funds to emerging nation-states, thereby allowing them to obtain petroleum in exchange for debt.
"There was, however, no logical or institutional reason why global money markets should recycle petrodollars according to humanitarian principles of social fairness or justice. As World Bank records would later underline, for the remainder of the decade the net flow of capital to developing countries was actually negative, even as G-7 nations absorbed somewhere north of $150 billion per year. Without access to the capital surplus of petroleum producers, developing and transitional nations could generate the precious foreign exchange they needed to purchase oil only by forgoing other, non-oil imports, including the capital equipment needed to sustain employment and productive output. Among other things, the free market model of international finance apparently forgot that bankers are loath to buy a stream of short-term variable funds--the tens of billions of dollars of OPEC revenues held as short call deposits--and then extend long-term fixed rate loans under any conditions, let alone to economically strapped and already indebted countries. Predictably, international capital markets would furnish balance-of-payments financing only to countries they deemed credit-worthy, which essentially excluded much of the postcolonial world. That the advanced industrialized nations actively colluded in dividing up almost all the available capital meant that the negative consequences of the worldwide net capital deficit fell mainly on the shoulders of those who could least afford it. Thus, the recirculation of petrodollars gave postcolonial nations their first introduction to a form of political violence so abstract and mediated that its structural dynamic remained all but invisible" (pp. 67-69).
The authors proceed to explain options, futures, swaps, and other key financial derivative instruments in the post-Bretton Woods financial system. As they do so, they raise concerns about the ways that the derivatives market consolidates cash flow and the flow of capital in the nations of the global West at the expense of Third World nations, who find cash flow increasingly tight and capital increasingly scarce. The "political violence" of the financial derivative market is the fact the visible, accessible financial decisions of Bretton Woods are no longer particularly visible or particularly accessible, even as their felt impact becomes more and more consequential in the lives of Third World populations.
After reading this book, I'm definitely inspired to take more time to learn more about what life is like in the Third World. Most of the books I checked out from the Georgetown library this summer deal with the lifestyle, economy, and attitudes of the global West. It's fine to be passionate about learning more about the immediate culture where I live, but I feel a responsibility to learn more about the lives of people in the Third World--lives that seem to get more and more difficult as Americans' and Europeans' lives get easier.
Future books on my reading list include the remainder of David Brooks' writings, anything by Harvard president emeritus George Eliot, and the novels of Chimamanda Ngozi Adichie.
Photo: "Chicago Board of Trade II" by Andreas Gursky
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