On The World Economic Crisis

On the World Economic Crisis – Pandavi

With regards the specifics of the current crisis. Many factors were drawn together in it but it’s first necessary to go back a little and ask why the usual economic cycle of boom-bust took so long to mature this time, after all, the eight-year cycle became a virtual 24 year one this time. Why did the boom take so long to peter out, leading to a bust of such gigantic proportions, and what do the factors involved say about the future?

The boom was prolonged by four major factors. 1) the technological revolution in informatics and automation, both in production and circulation. 2) the deregulation of finance and the more free-flowing economy that this and informatics led to. 3) the massive extension of cheap credit to all economic sectors, including banking, production and consumption, particularly as Chinese money came washing back through the Western economies, and 4) the introduction into the world capitalist economy of hundreds of millions of Chinese, Vietnamese and other workers at minimal wages.

Put bluntly, in a free-flowing and global capitalist economy how can the US worker who gets $20 per hour compete with the Bangladeshi worker who gets 20 cents for the same hour? Something has to give. Almost everything else flows from the above facts.

For the future:

1) We cannot predict new technological revolutions, though nano-technology, genetic modification, new materials such as graphene and 3-D printing are the type of factors to look at. Nevertheless I feel it would be incorrect to overstress the dead weight of the old technologies upon the development of new ones, which was more a problem for old, protectionist economies and not so much for global capitalism as it is now organized.  In terms of the organic basis of the economy it is only technological innovation which allows the rate of profit to rise rather than fall, as Marx predicted. The rate of innovation can exceed that of falling profit and does so over extended periods and there is no economic law that limits it.

2) The deregulation of money cannot be undone or move backwards. But regulation as such has not ended. It has moved its axis and is reorganising its structures. Regulation de facto has INCREASED, not decreased. It is not an option to go back to a gold standard, for example. The fact is that there is no standard any longer. The USD has stood as a standard since WW2 but from the 1970’s onwards has not been tied to gold. The ‘standard’ as such has been the global confidence in the US economy, which was now waned considerably. Confidence has been kept by the exclusive privileges the USD enjoys a) as the major currency of foreign reserves bolstering every other currency in the world; b) all oil dealings are done exclusively through the USD, tying the world to a strong dollar and allowing US domination of many markets and c) the domination of the US in international institutions such as the IMF and World Bank.

Things are changing. a) Many foreign reserves are now held partially in dollars and partially in other currencies such as the Euro, an increasing trend. b) Venezuela, Brazil and other oil economies are questioning the dollar/oil bond, and c) China and the BRICS nations are demanding a reorganization of global financial institutions. Indeed, the IMF, by offering hundreds of billions to secure struggling currencies, ‘on its own recogniscence,’ actually created a new global currency-in-waiting.

What all this amounts to is a further socialization of the global economy, albeit still within the hands of the capitalist class.  Therefore the crisis moves up one more level. At the heart of this crisis is the contradiction between the social nature of production and its private ownership. The theory of the falling rate of profit and its consequences is secondary to that. The crisis is fundamentally social, not economic. One of the failures of Marxism, following the death of Marx, has been its economism.

3) The basic reason for the massive extension of cheap credit, including into consumption relations (so-called domestic credit), from the 1990’s onwards, was the movement into far-eastern production. Huge amounts of surplus profit were thus accumulated in societies where consumption was historically very low. The Chinese state had the monopoly hold on vast sums which could neither be spent nor invested back into production. This fortune washed back into the western economies, particularly the US, through massive bond buying and speculative lending through the financial institutions of capital.  This was the major reason regulations were relaxed, to soak up the huge surplus.  That was the credit boom.

While the US fights for a say in how China’s currency is valued, China fights for a fair hand in the world’s financial institutions commensurate with its new economic power. This is the biggest political struggle in the world today: who controls the levers controls the wealth. This is the new war-front.  Meanwhile, Chinese money has made that nation a world power and a major creditor of the US. The US depends upon Chinese finance as much as the value of that Chinese money depends upon a strong and resilient US. Within that frame, they struggle for dominance, each over the other.

It is inevitable there will be a new credit bubble so long as the tremendous inequality between East and West continues and vast surpluses accrue which cannot be re-absorbed directly by workers buying the goods they produce. Even though Chinese living conditions continue to improve and consumption in the East increases, the East-West lag is so tremendous it precludes any sudden resolution of this hemispheric injustice. The Western capitalist states, including the EU, will use every lever they have, including military, to perpetuate their privileges and, unfortunately, the working classes of those countries will, in general, support them in doing so, so long as reformist ideology prevails.

4) The world proletariat continues to grow and becomes increasingly ‘eastern.’ Free-flowing capitalism sees its future in the east. The conditions that have allowed the West to dominate over centuries, are slowly eroding. China builds its own industries and is ever less reliant on Western R&D, expertise and/or finance.  The BRICS countries are also now centers of innovation. India has sent a rocket to Mars. Brazil has overtaken the UK in terms of GDP, and has no foreign debt. In short, what was a boost to Western capitalism in particular over the last two decades, the rapid incorporation of a billion new proletarians into the global work force, has become a major threat to those sectors of the Western capitalist classes who cannot adapt to the latest shifts and will inevitably fail in face of Eastern (and southern) competition. Only the most free-flowing forces will keep their heads above water, along with those sectors whose innovations can match or surpass the combined effects of low-wage competition and the deadweight of their own failing national economies.