Finances are usually explained in water metaphors: money “flows”, benefits from growth “trickle down” to the poor, capital “leaks” out of countries to tax havens…

From a first glance at this construction, most people will see a waterfall, in the same way that most residents of rich countries think that an enormous flow of their tax contributions is directed to poor countries, in the form of aid, loans, trade benefits and frequently talked about debt cancellations. But the water cascading down doesn’t quite reach the poor… Instead it is diverted and –against all logic– it flows up instead of down.

In 2006, Social Watch used this illustration, inspired by the famous “Waterfall” etching by MC Escher, as a metaphor for the global financial architecture. This structure prominently features the Bretton Woods institutions (the World Bank and the International Monetary Fund - IMF), despite the fact that they had clearly failed to achieve the objectives they were created for: to ensure financial stability, full employment and development. We argued then that a mechanism that mobilizes capital from where it is scarce (the low and middle income countries) to where it is abundant is “impossible, both in the sense of impractical and in the sense of intolerable” and that the international financial architecture “badly needs to be redesigned.”

Two years later, the international financial system collapsed, credit sources dried up and recession spread like a pandemic from the richest economies to the poorest.

The need for substantial reform is now widely acknowledged, but a common understanding of what went wrong still needs to be achieved, before a blueprint for a new financial architecture can be agreed upon.

On the other hand, there is a growing consensus on the immediate need to compensate for decreasing private sector activity and failing markets with stimulus “packages.” More than USD 10 trillion has been spent worldwide on subsidies or tax cuts benefiting corporations, banks and affluent individuals, but those have largely not resulted in renewing credit or in stimulating countercyclical spending. The banks are reluctant to lend to businesses with uncertain futures, and likewise, consumers are preferring to save instead of spend. But people living in poverty, whether in developing countries or in rich countries, will spend every single penny that they receive. Since the poor do not have the option of postponing consumption, the best stimulus plan to address the global economic crisis is to invest in them. This is not merely a basic principle of justice; it also makes good economic sense.