The humbling of President Obama: Lessons for the Third World
Posted on August 14th, 2011

By Garvin Karunaratne, Ph.D.(Michigan State University)

 The World breathed fresh air for once when President Obama won the US Presidential Election in 2008. The United States under President George W. Bush had got involved in two wars, one for Oil wealth in Iraq and another in Afghanistan in the quest of Osama Bin Laden, the alleged master mind of the 9/11 twin towers disaster. Both wars had ultimately became disasters of the Vietnam Type, where the only course of action is to pull out with some dignity. The economy was in the doldrums with high levels of unemployment and American citizens were sick to the teeth and every one had high hopes of President Obama. It looked as if a new vision for the World had dawned. I for one happened to break into song in my writings. It all sounded great.

 However in the real world, things never work as planned.

 President Obama had inherited an economy that was in recession since December 2007. President George W. Bush had tried to curb the effect of the recession with a $ 152 billion tax cut in the sincere hope of spurring the economy. President Obama criticized President Bush with the words: “They(Republicans) gave tax cuts to millionaires who did not need it”, but followed with a stimulus package of $ 862 billion. This was spent on funding the financial institutions that had crashed and funding State administrations that could not make ends meet.

 The Total Public Debt of the USA had grown steadily from $ 6.3 trillion in 2003 to $ 7.5 trillion by 2005 and had reached S14.3 trillion, the limit placed on it by Congress. The humbling of the President was forced by the Republicans who have agreed to increase the limit by $ 2 trillion, provided President Obama makes $ 2.4 trillion in cuts. This puts the USA economy in a serious jeopardy because there can be little hope of any recovery. It is easy to surmise that the Republicans want to grab the presidency at the next election. This is clear because President Ronald Regan had the public debt limit increased eighteen times and he was never castigated.

 The economy of the USA was run with an annual deficit. In the year 2003 the deficit was $ 403 billion. This increased to $ 696 billion by 2008. President Obama’s first year deficit was $ 1.4 trillion while in 2010 the deficit was $1.3 trillion. To fund this deficit the US has to borrow a billion dollars daily from foreign lenders.

 It was well known that the ship will flounder. As far back as 1981, President Jimmy Carter in his first address to Congress stated: ” Can we who man the Ship of State deny that it is somewhat out of control?” That was when the national debt was at one trillion dollars. Yet the debt and the deficit went on increasing.

 President Obama at the helm was helpless because his chief lieutenants in the prestigious financial institutions in their misadventure caused the economy to crash. His sleuths in charge, Ben Bernanke and earlier, Alan Greenspan failed in the task of guiding and supervising banks. They failed to provide a recipe for growth. They relied on the private sector as the engine of growth. The attempt to spur the economy was done by manipulating interest rates. In 2000 the interest rate was at 6.5% and this was gradually reduced to 1.0% by June 2003 Next it was increased to 5.25% in 2006 and thereafter reduced to 0.25%. The financial experts sought to spur investment and growth by reducing interest rates and when inflation knocked on the door, increased interest rates to stop inflation. Homeowners who had obtained mortgages when the interest rates were low found that they could not meet the repayments when the interest rates were increased. They reneged on payments and the house market crashed. Some banks had given loans to the extent of 125% of the value and this added fuel to the fire.

 This was due to pure mismanagement by financial wizards. As Noble laureate Professor Joseph Stiglitz said, “The financial markets have mismanaged themselves. It was clear that our financial markets weren’t doing what they were supposed to do”¦. They allocated hundreds of billions of dollars to mortgages beyond people’s ability to pay. They didn’t manage risk. They created risk.”

House values dropped and as much as 3.1 million foreclosures took place throwing people out of their homes. The banks had no funds- were bankrupt, and President Obama provided funds for the banks to provide money to entrepreneurs and for companies like General Motors to jump start the economy. The mandarins of the banks and leading companies instead walked away with fantastic bonuses in addition to salary payments. For example Countrywide was bailed out by the Bank of America for $ 4.1 billion but its Chief Executive got a compensation package of $ 22.1 million. The financial packages by President Obama to the banks and Companies failed to resurrect the economy. While the tax payer bore the burden the mandarins that had done the misadventure were rewarded.

 The situation became a stalemate, with imports steaming in while exports kept slumping. Things were really out of control. As much as 13% of the people were in poverty. 45 million people- almost a sixth of the population did not have health insurance. In some States there were soup kitchens providing soup and bread free to the poor. Many may disbelieve but I know this for certain as I came across them in my recent travels. In some areas(the Imperial County of California) the unemployment rate was as high as 28%.

All that President Obama could do was to provide some additional funds for building up a few roads to provide even a low income for some of the unemployed.

 The decision of Standard and Poor to demote the USA from its AAA rating to AA+, down grading the US was only to be expected

 President Obama, the free marketer he was, failed to take on the economy under his wings and steer it towards prosperity. Earlier Presidents had really risen to the occasion to take charge.

 The USA has had a record of successes. Within living memory we know of the success of President Clinton. In 1993 to 2001 it was a three pronged strategy, “establishing fiscal discipline, eliminating the budget deficit, keeping interest rates low and spurring private sector investment through education, training, science and research, investing in people and opening up foreign markets” He created 22 million new jobs, exports grew by 74% mainly through trade agreements opening up markets abroad and by the year 2000 instead of a deficit there was a surplus of 237 billion. His North Atlantic Free Trade Pact, forced on his neighbours- severely dented the economies of Canada and Mexico but gained jobs and riches for the US.

 Harking back to an earlier date, the USA saw the Land Grant University Program where State Universities were established to develop practical agriculture, animal husbandry and industry.. The success of the economy of the USA was entirely due to this Program. President Roosevelt established many employment creation programs, including – the Civil Works Administration. These created employment for millions. There was also the Comprehensive and Training Act (CETA), and a plan to develop Community Development Corporations to attend to development planning and establish community enterprises. The current Small Business Administration perhaps held the key to development. But nothing innovative was done.

 The Universities of today attend to train graduates. Their research is provided to companies to boost their production. The Universities no longer follow the Land Grant ideals of attending to development planning and creating jobs. Instead all the Universities of today boast of Business Management. Training students for the MBA is hailed as a great achievement. The erudite dons that man the institutes of higher learning do teach the BMA post-grads the art of developing “strategies for the creation of profits- how to make things cheaper and how to get workers to work more”, while the economy slumps. Instead, “the Universities should take on a national development outlook- the emphasis should be on management techniques for achieving national development in terms of employment creation and poverty alleviation.”(From Reinventing the Economy of the USA:2010)

 The free market theory- the theory that the private sector will bring in prosperity if finance is provided has proved to be a non runner. This capitalist strategy has enabled the rich to become richer and the poor to be relegated to further deprivation.

 An interesting factor is that the USA authorities blame the demise of the economies of Greece, Italy, Portugal and of the European Union for causing the demise in the USA while the EU countries claim that the contagion came from America.

 In the meantime what is clear is that Germany the strongest EU country did its development planning to boost its industries and is a glorious success while others belong to the category of NATO- no action: talk only.

 The problem to my thinking lies in walking on one leg- the private sector. One has to understand that the private sector will never take risks- risk that is inevitably a part of long term development. In the last decade we have seen the closure of Blue Mountain Pottery in Ontario, Canada and Edinburgh Crystal in Scotland, both thriving industries because the owners were not satisfied with the profits. The Private Sector does insist on vast profits with incomes for non working stock owners. National development, employment creation and poverty alleviation are not their concern. If one is not to continue to limp to further disaster, a country has to walk on two legs- the Private Sector and the Public Sector, where each sector will reinforce the other. An essential factor in this approach is that there has to be development planning through County Councils aided by the Universities where there is some target for the private sector while other riskier targets are to be tackled by the Governments through Universities in the “Land Grant” mode, guiding Community cooperative enterprises. It is only then that the goal of employment creation and poverty alleviation, the goal that the entire American citizenry yearn for today can be achieved.

 Many authorities hold that Governments cannot create jobs. Professor Thomas J. DiLorenzo, Fellow of the Cato Institute opines that Governments cannot create jobs and that when Governments create jobs, it takes on a vote catching device at elections. He questions why Governments should help a particular category of people- the unemployed.(The Myth of Government Job Creation: Cato Institute Policy Analysis 48)

 It is true that the history of development is littered with skeletons of unsuccessful employment creation programs. But there are a few successes like the Land Grant Program, the US Army Corps of Engineers to talk of. If not for their contribution the development of the USA would not have been possible. Overseas, there is the Comilla Program of Rural Development spearheaded by Michigan State University, one of the Land Grant Universities, which in an attempt to find the best method of bringing about development in Bangladesh developed a Thana, a divison of the Comilla District to a situation of full employment and doubled the yield of paddy within nine years. There is also the Youth Self Employment Program of Bangladesh which has transformed a mass of two million youths from a situation of unemployment to become self employed in the period 1982 to 2010 and continues to train and guide 160,00 tannually to become self employed. These Programs do prove that Governments can create employment. The crucial element lies in designing programs that will enable the unemployed to get on their feet and produce items or products that the country needs. The expenditure involved in training and guiding is amply rewarded by the people becoming productive members to the economy. Designing such programs is a skillful art and requires multi disciplinary expertise in education, economics and industry.

 Assessing the current recession on both sides of the Atlantic in the global context is essential in groping for a solution..

 It is important to understand that it was the wealth extricated under colonial policies from colonies that enabled the Developed Countries to become prosperous and it was the stoppage of these riches that caused the demise of the Developed Countries.

 In detail, the colonies provided raw materials for the mother country’s industries, trade and riches from natural assets. Once the colonies became independent, they developed industries, became self sufficient in their needs and curtailed imports from the Developed Countries. This process led to the Developed Countries facing stagflation-a combination of unemployment and low growth. In order to restore their lost prosperity the Superpowers came up with the Structural Adjustment Programme, which they forced on the Third World countries through the IMF. During this time the World Bank under Robert McNamara commenced giving loans on a liberal basis as opposed to the earlier policy of strictly adhering to lending only on productive projects. This inevitably led to the countries becoming indebted. As Martin Wolf, a former World Bank’s executive admits, “they were under great pressure to lend money virtually regardless of the quality of the projects on offer or of the development programs of the countries”.(Why Globalization Works:2004). John Perkins a leading executive of a multinational has in his book Confessions of an Economic Hitman:2005) has admitted to have fabricated false project reports to provide loans to El Salvador in a manner where the country will be indebted but the funds will flow back to the donor country with interest. In that process El Salvador became severely indebted. It is through this process that all Third World countries are indebted today.

 The first recent dent in global capitalism was the East Asian Financial Crisis of 1997, where the East Asian Tigers- countries that were fully accepted as show pieces of success crashed. In my own words:

It is my own opinion that the East Asian Crisis that took toll of the economies of Thailand, Indonesia, the Philippines and South Korea, spread then to Russia, to Brazil, Argentina and now finally is at the USA. This exposes the weakness of the market oriented economy”¦ In the case of each crisis the IMF has solved by pouring in money The 1994 Mexican bail out was $ 52 billion, in 1998 Thailand was given $ 17.1 billion, South Korea $ 58.2 billion, Indonesia $ 39.9 billion. In every case it was insisted that the local economy should be prise opened more to foreign investment This means that the doors are yet being opened for foreign exploitation. What happens to the money that was poured in? This is paid back to the US, the creditor banks the IMF and the World Bank as interest and capital repayments(From How the IMF Ruined Sri Lanka: 2006)

 The Developed Countries are now a prey to their own capitalist free market theory.

 It would be found that in recent years, the cardinal strategy for the development of the USA has been “opening of foreign markets” where US multinationals and financial institutes invest abroad and bring in riches. Again in my own words:

In the days when the United Nations functioned independently, there was the UNCTAD which dealt with trade. Now the World Trade Organization, the successor to the UNCTAD has been hijacked by the Western Developed Powers to do their bidding. In December 1997, under the aegis of the WTO, “102 countries agreed to open their banks, insurance companies and other financial institutions to foreigners. This deal gives various levels of ownership and operating rights to financial companies whose interests are protected by the WTO”.

 In other words the USA and other Developed Countries earned money from the Third World and Middle Income Countries. For instance as stated by Bade Onimode: multinational companies control 80% of Africa’s trade in mineral and agricultural raw ma terials and from Nigeria alone they recorded an net export capital of over $ 2.7 billion during 1970-1980. Two of the main notorious mechanisms of exploitation by Multinationals involve the net repatriation of super profits- $ 13.5 billion during 1970-1980 and a technology rent of $ 35 billion from the debtor countries.

 Foreign investment in the Middle Income Countries and the Third World countries is the method used by the US and other Developed Countries to siphon off riches and with almost every Middle Income and Third World country becoming indebted in the past two decades this strategy has now dried up as a source of income. Foreign investment was a key strategy that was used by President Clinton, but today the cash starved countries can no longer buy goods manufactured in the Developed Countries due to the lack of funds.

 Thus the US has to look more towards developing its own resources and thereby creating employment for its own people in an attempt to get over the recession.. The USA has vast resources of land, water and natural resources and also a variety of climatic zones, that can easily be tapped to provide employment and riches. It is not necessary to borrow and depend on outside countries. President Obama failed in this task and that is why the recession continues unabated. George W. Bush’s sacrificing the home front and becoming the policeman of the world has proved to be a total failure and the earlier the USA can get out of this bind the better. The US then stands to earn greater prestige and dignity

 The Lesson in all this for the Third World countries lies in the fact that they have to get away from the stranglehold of the IMF in its Structural Adjustment Programme. That was a Programme where the countries were forced to liberate the use of foreign exchange even when the country could not meet such expenses from within its resources. The IMF advised the countries to raise loans to meet the expenses and to depend on Foreign Investment. The latter was the strategy of the US and Developed Countries to siphon riches from the Third World to their countries. This inevitably led to the countries becoming more indebted. Instead, they have to get down to development planning and manage their foreign expenses within the foreign exchange they can earn without resorting to raise further loans. They have to say Good Bye to the Structural Adjustment Programme of the IMF and commence managing their foreign exchange in the national interest.

 As far as the USA is concerned the debt is not a worry because it has the privilege of printing dollars that have a ready value, though it may cause some inflation. Third World countries that are saddled with debt have to live with it.

 Today the Republicans have humbled President Obama. It is hoped not for long. However development can be achieved. It is a question of designing programs that with a small expenditure will transform the millions of unemployed to become productive. The ideas expressed for the rejuvenation of the US in this paper were culled out of my earlier writing: Reinventing the Economy of the USA, ( Lanka Web August 18, 2010) Dr. Dennis Proffit, Professor of Business Management, South Western College, Arizona has stated that the USA is not yet ready to accept my suggestions. The time has come for New Programs to emerge to take the US forward. This task awaits a personage like President Obama if only he wants to take charge of the economy without lingering at the peripheries.

Garvin Karunaratne Ph.D.

Author of

How the IMF Ruined Sri Lanka, Godages: 2006
Success in Development, Godages: 2010
The Author designed and implemented the Youth Self Employment Program of Bangladesh in 1982, and trained the staff to continue it.
[email protected]

14, August , 2011

4 Responses to “The humbling of President Obama: Lessons for the Third World”

  1. AnuD Says:

    In the USA, the president is a puppet of the system. He understands it very well, I suppose, only once the confidential briefings began. Other than that, for politicians, it is a game. For them it is republican, democractic and now another tea party. For people, to live borrow to spend and party – style life. If the president is intelligent enough. Who ever comes they have to go through this for next little while and people do not want to understand the reality. So, they may defeat govts and may win new govts. Yet they have to go through it.

  2. Leela Says:

    During his election campaign, Mr. Obama promised to close down the infamous detention facility at Guantanamo bay, Cuba. On Jan 21, 2009, the day after Obama was sworn into office, he had directed prosecutors to suspend legal proceedings against the suspected terrorists held at that facility. Not just that, a day later, the new administration issued an executive order to shut down the said facility within a year.

    To date, we all know detention facility of Guantanamo is still there, most of the prisoners are also languishing there as before. All President Obama had done was signed an executive order to make number of changes to policies regarding those detained there.

    In spite of such shortcomings not many Americans would say that Obama is a hypocrite or a President that lied to the nation. Its the same story for economy as well. Whatever it is; the truth is, he has no choice.

    The President of the sole super power has become a lame duck for men with real powers are the Jews and their backers that pull strings from behind.
    Leela

  3. Rohan8 Says:

    There is only one man who can restore America and bring respect and honour back to America. That man is Ron Paul. Restore the land of people like George Washington, Thomas Jefferson and Thomas Paine.Great people of history who stood up to British Tyranny and the evils of london directed imperialism and one of the few nations to actually take on the British Forces of the time 1770s almost 230 years ago on the field of battle and send them packing with their tails between their legs back to London.
    It is ironic that same nation became the very thing it hated, an imperialist nation that had its own empire modeled on the Empire it’s founders like George Washington and Thomas Jefferson or Thomas Paine hated so much the British Empire.

    Barack Obama is an imperialist warmonger. A western establisment boy through and through.
    Ron Paul should have been elected as President of the United States in 2008.
    America has another great chance to elect Ron Paul for 2012 as President. Ron Paul is like America’s founding fathers a staunch anti imperialist. He has vowed to end the American Empire that his predecessors have meticulously built over the last 100 years.

    The establishment media in America like the mouthpiece in Britain the BBC. Don’t like candidates who espouse an anti imperialist way forward as opposed to the western imperialist hegemonic agenda espoused by the ruling establishment in countries like America and especially Britain.
    That is why you don’t see much heard about Ron Paul in the mainstream western media.
    America needs to get back to its roots. A country that fought British Imperialism and won!
    It needs to elect Ron Paul as president in 2012.
    Any Sri lankans who are American citizens if you truly care about America please make sure you vote for
    the humble elderly American gentleman Mr Ron Paul.

  4. ranjith Says:

    Anyone elected to US President cannot solve independantly even a petty trivial matter without a nodding of jewish lobby.

    Even if the President is powerless, the jewish powerful media show to the world that the US executive President has enormous power, etc – in dealing with anything. Their PR is so powerful.

    That is why, tamil terror bandits too tried many times lobbying with jewish leaders of US.

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