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Grenada Declaration on the Right to Food
Before turning to this topic I would like to report that the recently concluded 23rd West Indies Agricultural Economics Conference held in Grenada from July 9-14 passed a resolution in support of Caribbean peoples enjoying the Right to Food. The Grenada Conference supported the global re-commitment (undertaken at the recently concluded World Food Summit - Five Years Later) to the 1996 Rome Declaration to halve the number of malnourished people in the world by 2015. It also supported the resolution passed by representatives at the FAO Latin America and Caribbean Regional Conference in April 2002 urging the FAO to make food security its first priority and to pursue the establishment of an Inter-Governmental Group to promote a Voluntary Code of Conduct on the Right to Food. The Grenada resolution identified certain interventions such as a regional framework for monitoring and reporting on food security; regional research and development directed at food security; and, promoting the roles of women and education in achieving food security. The Caribbean Association of Agricultural Economists sponsored the Conference.
Financial exuberance
Two years ago one of the longest booms in the history of the US economy came to an end, and with it the financial bubble it fed. During the boom, the Federal Reserve Chairman Greenspan had politely warned of the "financial exuberance" being exhibited in US stock markets. This was largely ignored until events triggered the dramatic collapse of Enron and Arthur Andersen. Readers would recall that this series spent several weeks discussing these events. Unfortunately, the situation has worsened since then, both because more financial irregularities and scandals have been unearthed and the lengthening of the recession in the United States.
The history of past business cycles reveals that when financial bubbles burst, during the ensuing fall-out all manner of scams, scandals, and skullduggery perpetrated by big players and beneficiaries of the bubble environment are revealed. These occur because of one of the fundamental points made in this series, which is, wherever private markets rule, greed, avarice, and fraud do not lurk far behind. They are in every corner of the market place. To ensure efficiency, markets must be regulated so that they operate in a transparent, trustworthy, and 'stick to the letter and spirit of the rules' manner. Unsupervised and unregulated private markets are among the unconscionable institutions created by human beings.
From this perspective, therefore, what has been happening with the collapse of US stock markets and the criminal revelations that have surfaced are consistent with the cyclical pattern intrinsic to private financial markets. What has not been typical, however, is the sheer scale and magnitude of the financial irregularities and frauds that have so far been uncovered. World Com, now under investigation by the US Congress, has the discredit of having pulled off the biggest financial fraud in history.
'Infectious greed'
If this were the only case, it would be bad enough. However, in the wake of World Com several other top US companies have been uncovered. Indeed the list of US companies under investigation for financial irregularities, bogus trading, or misleading investors with biased stock reports, reads like a Who's Who of American business. These include: Xerox, Dynergy, Bristol-Myers, QWest, Tyco, Adelphia Communications, Im Clone Systems, Global Crossing, Halliburton, and Computers Associates. There has also been some spillover to other companies, which has affected their share prices, for example, AOL Time Warmer, and PNC Financial. The Chief Executives of World Com have pleaded Fifth Amendment protection from self-incrimination at the on-going Congressional hearings. Last week the Federal Reserve Chairman Greenspan politely described the present situation as one of "infectious greed."
The impact of fraud
Fraud on this scale, whatever its origins, is bound to have a considerable impact on the US economy and society and indeed further afield in the wider world. To begin with, the erratic behaviour, but consistent decline of US stock market prices over the past couple of years, has knocked billions of dollars off the wealth held by individuals, firms, institutions, and countries worldwide. In turn, this has adversely affected not only the standard-of-living of those directly involved, but also indirectly all those who make a living from supplying goods and services to those whose wealth has been written-down in this way.
A good example of this is to be found among persons in the age group 55-64 in the USA. The data show that in recent years persons in this group have had twice the amount of money invested in stocks when compared to the average American. As a result they have been the hardest hit by the stock market collapse. Much of this loss represents savings held for retirement. They were encouraged to purchase these stocks in the boom years marketed under the label of buying into a 'new economy,' where capitalism was promoted as being in permanent boom. Given the collapse of stock prices over the past two years and given the limited time this group has 'to wait for things to change,' it is clear that persons in this age group face unprecedented disaster. Not surprisingly, many of them who have already retired are now re-entering the labour force. Indeed, US labour force data reveal that the 55-64 year group has been the fastest growing group in the workforce over the past two years!
Another example of the impact of these events is that the day in day out reporting of fraud involving firms considered to be among the most respectable, dynamic, and innovative in the USA has undermined consumer confidence. Thus a July CNN-Time poll shows that only 30 per cent of Americans believe conditions will get better. This is down from 52 per cent, which held the same view in March of this year. The poll also shows that 24 per cent of Americans believe that conditions would get worse. This was up from only 14 per cent in March of this year. Finally, the poll found that 42 per cent of Americans expected that conditions would remain the same, up from 33 per cent in March of this year. There are of course economic consequences, which we shall consider next week.