AMID wars and the struggles of failing major western capitalist economies, it is a challenge to reinvent Pakistan’s economy and foreign policy. Yanis Varoufakis has proposed simple solutions to these complex issues in his book “Techno Feudalism: What Killed Capitalism.” He is an economist and politician who resigned as Finance Minister, decrying ‘debt bondage’ after his PM accepted more debt to save the EU at the cost of Greece, overriding the overwhelming “No” vote in the national debt referendum.
By advocating for the replacement of capitalism with Techno Feudalism (TF), Varoufakis makes a case for shifting to digital currency. He believes that, like China, it will enable the creation of a national free payment system and use national identity card numbers to provide every citizen with a free digital currency central bank account, allowing them to share the benefits of modern economic systems. This approach would help bring central banks under State control, return to the gold standard and end reliance on fiat currencies and foreign currency debt, ultimately combating inflation. China has built up a four percent gold reserve with 2330 tons and more than 70 percent of the world’s central banks are rebuilding their gold reserves (as of 7 July 2023, according to Bloomberg, WGA, and Reuters).
The fundamental issue is the management of economies and foreign policies to serve democracy, the public and national interests. After the scrapping of the gold standard and the Bretton Woods Agreement in the seventies, the world needs a new system. Central banks, privatization, fiat currencies, and de-manufacturing policies have failed. Populism is eroding democracy. Despite having democracy, democratic institutions, and systems of checks and balances, western economies and foreign policies are failing, as evidenced by wars, a cost of living crisis, growing unemployment, poverty, and homelessness in the West.
Fiat currencies are exporting poverty, fuelling corruption, and driving economic migration while indebting their own countries. For example, after the two world wars, the debt of the UK and US in 1979 was £250 billion and $850 billion, respectively. After the reforms of Thatcher and Reagan in the 1980s, the UK and the US now have £2.4 trillion and $33 trillion in debt, respectively. They abandoned manufacturing, embraced privatization, reduced government job creation in the public sector and cut taxes. Presidents Obama ($8.7 trillion), Trump ($8.9 trillion), and Biden ($4 trillion) have added more than $21 trillion to the total US debt and the US must pay $1 trillion in debt servicing by 2030. In 2022, it paid $476 billion, a 35% increase from 2021 ($352 billion).
To halt this unsustainable trend, countries need to reshape their economies. This is where Varoufakis’s ideas become important. The EU initially refused to engage with him, but today, major western economies across the Atlantic are heavily indebted and on the brink of bankruptcy. Chancellor Sunak has warned the UK of a recession due to high-interest rates and a significant drop in factory output. Five decades of stagnant wages in the West have resulted in a $300 billion annual revenue loss for America. Workers in the UK and the US are worse off by £11,000 and $17,887, respectively, while productivity has grown by almost 62 percent (as of October 2022, according to the Economic Policy Institute). Women receive 15 percent less pay in the UK and the US (as of February 23, 2023, according to The Guardian). As a result, they work without pay for two months and are unable to enter the pension system due to low pay and multiple jobs, which hinder their social mobility and that of their families, with lifelong consequences for single mothers and their children. With hardly any social mobility in the UK over the last three hundred years, lineage becomes destiny, placing Britain in 1650s (Social mobility barely exists, but let us not give up on equality, February 4, 2015, The Guardian).
The failed economic policies have decimated the middle class, undermined democracy and given rise to populism, culminating in events like January 6th and May 9th. Eisenhower and Roosevelt imposed income taxes of more than 91 percent and 90 percent, respectively, to fund the American Dream, which was dismantled by Reagan’s tax cuts in the 1980s. In 2018, the overall tax rate for the top four hundred families in the US was 23 percent (combining state and federal taxes), whereas it was 70 percent in 1950. The West has demonstrated that economic policies cannot succeed without high income taxes and balanced debt.
Varoufakis’s book interviews reveal how Pakistan can revive its economy and strengthen its foreign policy. This involves regaining control over machinery, buildings, infrastructure, food, water, energy and the economy. Pakistan should invest in cottage industries, small and medium enterprises and large-scale manufacturing to add value in all sectors, reduce imports and meet domestic needs. Implement online land reforms based on the US Homestead law to reduce BISP from PKR 450 billion to PKR 50 billion and move seven crore Pakistanis to Balochistan, which has 47 percent of the landmass, for economic revival, security, social mobility and a robust democracy. Expand networks of polytechnics, vocational training institutions at the grassroots on a war footing. Adopt digital currency, develop local big tech and regain control of banking, providing free digital accounts to all citizens. Restore the 1933 Glass-Steagall Act to separate commercial banking from investment banking, aiming for debt balance, a savings-based economy and funding mega national projects, pensions and employment.
—The writer is senior political analyst based in Islamabad.
Email: [email protected]
views expressed are writer’s own.
