Wed Jun 27th, 2007 at 09:27:28 AM EST
Nowadays we are so used to concepts of globalisation and floating curency markets that we might forget there was a time when neither existed. And yet until 1972 currency exchange rates were fixed through the Bretton Woods agreement which determined global foreign exchange policy from the second world war by setting a fixed price of gold against the dollar.
During a prolonged period of deep international crisis where much of European productive capacity was being rebuilt, any unnecessary form of instability woud have been calamitous. The ability of national governments to negotiate and fix exchange rates for months at a time led to a period of very advantageous trading decisions in the western world and enabled Europe's economies to recover from their wounds.
Naturally, such a useful macroeconomic tool was anathema to the increasingly influential group of (as yet unlabelled) monetarists aggregating around Milton Friedman at the Chicago School of Economics. Friedman was one of Nixon's principal economic advisors from 1967 and in August 1971 Nixon unilaterally took the dollar away from the gold standard. Within a year currency trading markets were established all around the world; the first, naturally, being in Chicago.
The '70s were a difficult period for many economies around the world, the OPEC crises of '73 and '74 led to many countries around the world falling into recession. One of the hardest hit was Australia and it was at this point that the Forex markets discovered their power, a power almost devoid of repsonsibility. The Australian dollar, still then a new currency, came under increasing attack from the markets that, smelling blood, operated in a wolfpack feeding frenzy, leading to a genuine crisis in the entire economy and the government had to cease attempting to support the dollar rate, leading to a near 20% devaluation. A result that makes the crisis that made George Soros' name in the UK seems like a picnic.
It took a while for the consequences to sink in but the markets eventually realised that they had become supra-national trading agents. National governments were no longer in a position to regulate their own financial environments and, with international cooperation in abeyance, control of the world economy moved away from elected representative into the hands of those who made the best spot price.
It wasn't long before large international companies realised that they could play the same game and the modern era of global corporates began to appear. Organisations reconfigured themselves so that their profits circulate in cyberspace, never quite touching any national tax regime unless they are so benign as to be effectively a free parking space. Now these companies exert pressure on governmental policy, causing countries to compete with one another regarding favourable tax regimes, employment regulation. Indeed Blair promised Rupert Murdoch he could have a personal veto over the UK's relationship with the EU
Tony Blair promised Rupert Murdoch that he would be consulted on any change to Britain's policy towards Europe, according to a diary kept by a former Downing Street press officer.
So we now live in a world where the dominant economic structure is no longer the nation-state, but the Global Corporate and the relationship we, as individuals, have with our rulers is no longer a democratic mandate as citizen of a country but as merely a self-actualizing economic productive unit that may or may not have temporary utility. Political commentators are increasingly dismayed at "single-issue" protesters who ignore the traditional political sphere. But when one looks at the pathetic pro-corporate stitch-up that was the G8, maybe it's the time that the politicians realised that they're as much outside the fence as the protesters.