April 13, 2003

ATM beggars are reminders of global economic fragility

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Have you ever noticed the begging patterns of Ireland’s – particularly Dublin’s – various beggars?

In recent years, ATM machines have become a favourite haunt.The beggar places himself strategically at the top of the queue, tartan rug and biscuit tin at the ready. “Any odds, have yez any odds?” The bank’s customers either count their crisp fifties surreptitiously and scurry off, or delve deep to find some change.This same transaction is repeated all day at most ATMs in the city centre.

For many, this evidences Ireland’s increasing wealth gap. This may be true, but another interpretation may arise by looking at how decisions taken in isolation can affect others.

Do you think when a bank installed an ATM that it thought it would influence the patterns of Dublin’s beggars? Of course not. Do you think that it would become apparent to the beggars that some ATMs were more fruitful than others, leading to turf wars?

Our social, economic and political ecosystem is highly sensitive. What one person does can affect the next man profoundly. In society, all initiatives function like a virus in a creche - their impact spreads rapidly.

So much of what you do has an impact on someone else. For example, at the moment there may be a homeless man being savagely beaten because he is at the wrong ATMat the wrong time as part of an on-going turf war.

The management of AIB, Bank of Ireland or Ulster Bank, which put the ATM there in the first place, will have no idea about the ripple effect they have caused. Nor should they.

In many cases, the strategic positioning of newATMs might be crucial for middle management promotion. So the careers of middle managers in the nation’s retail banking citadels are inextricably linked to liquidity in the market for heroin on the streets via the begging opportunity that ATM machines afford.

The parable of the junkie and the ATM machine shows how intricately related the ecosystem is and how the most bizarre links occur between apparently unrelated events.

Armed with this example we can look at the international ecosystem and assess how one decision taken at the Pentagon today about Iraq might lead to something that nobody can predict.

Last week, there were rumours that America might declare Iraq’s debts “odious”. An odious debt is one that does not have to be paid back by the borrower. In the case of Iraq, the Americans are making the point that the Saddam regime’s debts are illegitimate because the regime was illegitimate. However, the real reason is to get back at the French and the Russians who are Iraq’s main non-Arab creditors.

If the Americans are successful, they will stick the French and Russians for about 28 per cent of the total outstanding $116 billion. But this debt is held in the portfolios of French and Russian banks which are owned, not by the French and Russian governments with whom the Pentagon is angry, but by shareholders around the world.Who are these shareholders?

They are you and I and we might not even know it. Pension funds have exposure to all sorts of banking assets and other related stocks.

This apparently innocuous US move upsets the fragile financial global ecosystem upon which millions of transactions depend every day. For example, if the US can simply repudiate debts willy-nilly, what security does any contract have? What about the much-vaunted position of property rights in the US constitution?

The entire third world financial system has been predicated on an intricate understanding between poor countries and rich lenders that now hold the sovereign bonds of countries such as Brazil, South Africa and Indonesia.The investors will keep the financial taps open, as long as the regimes recognise a certain amount of responsibility for old debts.

This understanding is the cornerstone of the IMF and World Bank’s financial governance of much of the world’s population. If the Iraqi regime is declared illegitimate, what’s to stop the heavily indebted Argentinians (who go to the polls in a few weeks after two years of economic chaos) from declaring the old debts void?

Given the sensitivity of financial flows, it is conceivable that the “odious debt” initiative in Iraq might have a severe impact on the ability of an Argentinian businessman to get a crucial loan.

The Americans might be undermining the very laissez faire system they are trying to protect. If the postwar reconstruction of Iraq proves to be a closed shop open to American firms only, a similar message will be sent around the world. It will reduce the great liberal trading tradition that the US has fostered to an aÁ la carte system where political patronage determines wealth. I suspect wisdom will prevail in Washington, but if it does not, the very least we will have to worry about is financial anarchy in the developing world.

Take Friday’s summit between Russia, Germany and France, which underscores the gulf between the Anglo/American world and Europe. Quite what the French hope to achieve is beyond me, but one thing is certain: any counterweight to US hegemony will have a catastrophic impact for Ireland, particularly if it comes from the heart of Europe.

We should hope that the US does not exacerbate this situation and has the good sense to regard the St Petersburg get-together as a confused reaction from a crestfallen and once powerful troika.

The reason we should be so concerned about small ripples creating tidal waves is because Ireland’s position is so dependent on strong political relations between the US and Europe.

As the most American of all Europeans, we live on the geopolitical equivalent of the San Andreas fault and any movement of the great tectonic plates that are the EUandAmerican economies will have an amplified impact on us. Ireland is like the jockey riding two horses. As long as both horses are moving in tandem, the jockey’s position is fine, but when the horses separate, the jockey’s position becomes untenable. It is in our interest that two-way trade and investment between the US and the EU continues apace.

But why wouldn’t it? This spat between the US and France/Germany and Russia will blow over,won’t it?

Small things can create dramatic consequences. The global economic system has collapsed before.The year 1914 constituted the high point for free trade, mass migration and the movement of capital around the world.The liberal system from which we all profit didn’t re-emerge at all until 1950 and only fully did so much later. The historical precedents are not exact – they rarely are – but they don’t have to be.

If relations continue to deteriorate between the EU and the US, what are the odds on a trade war? If the financial markets continue to fall, what are the chances of a rejection of the free movement of capital? If immigration continues to unnerve Europeans, when will the likes of a Haider or Le Pen become mainstream?

As the beggar and the ATM machine show us, the system is delicately constructed. Every little action has a ripple effect throughout the economic political and social feeding chain, domestically and internationally. Let’s hope we all tread carefully over the coming months.


  1. eoin c

    we are very dependent on the yanks and also the EU. Whatsd needed is autarky so that if the international financial system does collapse (due a 1929 style crash caused by mass dollar selling), at least we will be self sufficient in food and basic items like home fuel. We should also build up a huge fuel reserve so that in the event of wider conflagration between the US/Israel and Iran, our economy and transportation system will be kept well oiled for a few years. A huge gold reserve will protect us from a Euro or dollar crash (both possible as they are both fiat currencies based on nothing but confidence in the US/Euro economies). Unfortunately our current live-for-the-day paddy mentality doesnt seem to want to think about future problems but with the US superpower dying in its middle East adventures, we face the risk of them starting even more disastrous wars against Iran and possibly even China, even if its just proxy wars in places like Sudan or Taiwan.

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