The Political Economy of the Global Crisis
All that is solid melts into air, all that is holy is profaned, and man is at last compelled to face with sober senses, his real conditions of life, and his relations with his kind. -- Marx and Engels, The Communist Manifesto,1848
Despite the best attempts of various Western governments and the ‘embedded’ media, details of the full extent of the economic crisis have slowly emerged. It is because their efforts to arrest the free fall have –- more or less -– failed. In the US, where owning one’s own home is a necessary constituent of the ‘American Dream’ and any deviation from that norm a sign of failure in life, people borrow heavily to buy homes with the expectation that rising values will make their investment profitable. But declining property values since early 2006 have seen thousands default on payments and forced to evict. Millions of jobs have been lost, more and more state governments are running gigantic budget deficits -– even as people are lining up at soup kitchens and to collect food coupons that are increasingly scarce –- and cities have had to cut down on services like regular trash removal, recreational facilities, and efficient emergency services. Not the US that free market ideologues will have us imagine, is it?
In attempting to understand the present conjuncture, we must first of all reject the tendency to view it as a moment of an endless and natural cycle of being. This crisis is thoroughly capitalist; it is modern in nature, and contemporary in form. Three hundred years back –- as in many places around the world even today – times of crisis meant something entirely different. They were brought about by things like floods, droughts, and earthquakes, when the means of production were physically destroyed. Can we say that of the crisis today? Hardly: all the means of production, the factories, the infrastructure, and workers are intact. Then why are they not being brought together to produce things? Why is it that although no tsunami has destroyed their workplaces, over 3 million workers have lost their jobs in the US in the last twelve months, and estimates point to the loss of between 30 and 50 million jobs in China and India? Many countries in Africa, which were witnessing the return of economic activity after decades of decline, are once again plunged into uncertainty. Why?
I believe that there is a direct connection between the various ailing sectors of the economy and the affected places around the world. They are linked by a global system of production, distribution, and consumption that is organized around a single motive -– profits, which in turn must be continually reinvested for even greater profits. This is the reason for the existence of investment banks and bankers, whose entire job is to seek out sectors and spaces with the highest rates of return. There is inevitably a rush to sectors that are highly profitable, further facilitated by the deregulation of finance, and we end up with bubbles. Tragically, however, when these bubbles are punctured, which is equally inevitable, it is the people who did not have a hand in their creation that stand to lose the most. Crisis in our world, therefore, means the crisis of profitability, when these same investment bankers run out of opportunities to generate ever greater returns for capitalists. So even though it confronts us as a time of scarcity –- of money, resources, etc. -– it is really a crisis of too much capital, capital in search of profitable avenues.
For many conservative pundits the American people are to blame for the crisis, having pathologically ‘lived beyond their means’; for more centrist analysts it is ‘greed on Wall Street’, and for many leftists, it is neoliberalism, that is, the rule of unfettered capitalism and deregulation that has ruled policymaking across the globe since the 1970s. None of these analyses is wrong per se: not only is Americans’ level of consumption much higher than their wages; it is also environmentally unsustainable, and the ‘haves’ have amassed unimaginable riches at the expense of the rest of the population. But the malaise is deeper; it lies at the very heart of the capitalist system. As stated above, it is the capitalist tendency to overproduce or overaccumulate that creates conditions for crisis; the neoliberal turn and financialization merely helped multiply the problem manifold and precipitate the crisis.
Since the mid-1990s, the global economy has been increasingly financialized – that is, an ever greater proportion of profits have been realized not from the production and sale of tangible commodities but from intangible financial commodities like credit, insurance, securities, futures, and derivatives. Some of these instruments answer real needs of the capitalist economy: businesses need credit to pay their employees, purchase raw materials, for expansion etc; and they need to be insured against all sorts of natural and business disasters. But in these past two decades, financing has been transformed from its routine role into legalized betting. Not only do banks now lend to earn interest, but they sell the prospects of future interest payments to other financial institutions, which in turn insure their (twice removed) investment. Though this cycle is seemingly endless and the extent of capital involved –- abstract though it might be –- truly mind-boggling, the fact is that for this system to continue beyond the short run, a steady supply of interest from the final consumer/borrower is essential. With a general decline of the economy debtors could no longer make interest payments, bringing down the entire pack of cards.
At the same time, and despite the crucial role of this financialization in accelerating and precipitating the crisis, it is not the sole or even the most fundamental force. In order to investigate capitalism, as Marx instructed us way back in 1867, we must leave the noisy environs of the market and enter the workplace. So we must to investigate the current crisis. Imagine a business producing a commodity, let us say, consumer electronics. Its production decisions –- how much to produce etc. –- are based, as with all capitalist businesses, not on the amount/quality/type of electronics that the society needs, but on what kind and how many it can sell for a profit. As long as profits are realized, it will go on producing. Not only that, but other firms with an eye on profit will also turn to produce these same commodities that turn in profits. The result is a glut of commodities that continually need to be sold for profits to be realized, and it is here that advertising comes in. Further, a precondition for any company to successfully exist in a highly competitive market is to reduce costs as much as possible; to this end there is progressive mechanization to cut labor costs, as well as a constant search for cheaper labor markets, which explains the shifting geography of world manufacturing from the West to the East and to China in particular. Herein lies the contradiction: even as this company is able to produce more and more TVs at a faster rate than ever, the ability of people to buy the TVs cannot keep up.
Now generalize from one company to a sector and to the entire global capitalist economy, with hundreds of thousands of commodities and businesses, and you can begin to realize the scale of systemic overproduction. To be sure, this contradiction can be patched in at least two ways: by creating new markets for the commodities, and/or by foregoing immediate payments from consumers for a guarantee of payments (with interest) in the future, that is, arming them with credit cards and loans to purchase ever-novel commodities, so that their spending can catch up with all the stuff being poured into the market. Put another way, ‘living beyond one’s means’ is not only not irresponsible but, paradoxically, is the best possible behavior for the modern capitalist system -– it sustains the system despite its inherent contradiction. It is here too that President Bush’s call to Americans to ‘go shop’ while they were still recovering from the shock of 9/11 makes perfect sense.
But productivity has been increased to such an extent – among other things, because of the revolutions in communications and transportation– that consumers have finally failed to keep up with the bloated world of things for sale. Despite all sorts of announcements about the burgeoning middle-class consumption in China and India, it is clear that the US consumer remains the motor of the world economy, and an average US household owes about $18,000 of consumer credit (not including home mortgages).1 But there is only so much debt that Americans can pile up and only so much stuff they can consume given that their real wages have stagnated since the 1970s despite tremendous increases (until very recently) in productivity and profit.2 So where have all the gains from productivity rise, increased profits in the 1990s, and the financial revolution gone? Here’s a hint: in 2005 the richest 1% of Americans owned 21.8% of the total wealth, up from 8.9% in 1976.3 Cultural postmodernity aside, this was the whole point of neoliberalism: to systematically dismantle the gains workers and ordinary Americans had made since the 1930s, ranging from unions to higher wages and social services to financial aid for college students. Everything went under the scanner so that those at the top could increase their share of the pie. Today the chickens, as the saying goes, have come home to roost.
The American state, after months of inaction and denial, leapt into action in September, announcing a bailout plan for the financial sector. The plan was to buy off 'toxic credit', or that credit which was not being paid back, so that banks would start lending again. But while the government pumped hundreds of billions of public money into private companies, even buying stakes in them, securing credit has not become easier. Banks expect even worse times ahead, and so are unwilling to lend. Moreover, businesses are reluctant to invest in the current-gloomy-environment, and are not borrowing. All this while, the taxpayers’ money is merely going the way it has gone more and more since the 1970s: in the CEOs’ and managers' pockets. After letting Lehman Brothers go bankrupt, former treasury secretary Henry Paulson and the administration bailed out other giants like Citibank and AIG for $300 billion and $120 billion respectively –- amounts that progressively inflate -– arguing that these companies were ‘too big to fail’. Of course, no one asked why, through mergers and acquisitions, they were allowed to get so big, or noted that some of the public bailout money is actually being used to pay for fresh acquisitions, so that these firms would become bigger than ever. And as if to mock the doubters, the media has reported that Merrill Lynch gave away over $3 billion in bonuses to managers and AIG executives went on a $500,000 retreat to celebrate their victorious public-scare campaign (WMD redux) that won them the bailout money.
Such displays of in-your-face opulence, of course, are not new; what is new is the growing popular outrage against such acts. Conservatives and liberals alike are disgusted because of the public money involved. The point to be made here though is that the capitalists’ profits and profligacy have always been paid for by the public, and no political current can make these connections better than socialists, which points to a wider audience for such ideas today than at any other time in recent history.
Throughout the last two decades, while profits were being made and those at the top were doing better than ever, there was no talk of ‘sharing’ the spoils. Instead, those at the bottom were villainized (and racialized) –- think here about the fictitious but thoroughly successful discourse about the ‘welfare queen’ who supposedly lived luxuriously cheating the welfare system. Now that the economy has tanked and CEOs are shooting targets in the dark figuring out where their next profit dollar is going to come from, pundits and politicians alike have started calling for shared sacrifice -– ‘it doesn’t matter who is responsible for this mess, all of us must work together to get over this unprecedented emergency’. President Barack Obama has continually attempted to channel the overwhelming sense of trust and goodwill he enjoys across political spectrum to push for precisely this course of action. And just like that, millions of Americans who paid for the prosperity of the rich are being asked to pay once more. Sadly, without any alternative political movement that can articulate and represent ordinary Americans’ interest, they will end up sacrificing for the continued opulence of the few. Meanwhile, as nightly news recently reported, those manning the occupations of Iraq and Afghanistan who hoped to find a civilian job after the trauma of participating in daily dehumanization -– of the ‘enemy’ and their own –- now have to reenlist to make ends meet: the army is now one of a rapidly shrinking pool of employers not under compulsion to cut back.
And what does it all mean for those of us who live outside of the US, and who find themselves in the middle of the mess -– much like American workers –- despite not having caused it? In the years between the last depression and this one, the global economy has become much more integrated and encompasses a greater population around the world than ever. As the crisis was unfolding, analysts in India initially posited that it would be actually beneficial to China and India: the last business that produces in or runs its software or customer services from the US will be forced to move to the Asian giants to cut costs. But even these optimists didn’t figure out that cost-cutting could only delay the crisis: there is no outsourcing when there isn’t anything left to outsource.
Record-high oil prices of over $150 per barrel last summer are now [February] down to about $40, a fact that is being celebrated by American news-channels as ‘good news in bad times’, but that really is indicative of just how bad this crisis of overaccumulation and the resultant deflation is. Certainly, those countries that witnessed economic growth in the era of globalization are directly affected by the slowdown: less demand for goods in the US and elsewhere means less production (apart from unrealized profits on all the stuff that hasn’t been sold and is filling up warehouses), jobcuts, and devaluation of property and machinery that thousands have invested in places like China and India. And because the commodity chains literally span the globe, the production slowdown in these and other Asian countries will impact economies everywhere. In the last few years, Africa had witnessed growth based upon China’s demand for a variety of resources like oil, copper, cobalt etc. Foreign companies returned, for instance, to Zambia’s all-important copper mining sector to profit from the Chinese market, providing employment and business to many Zambians and fuelling fresh dreams of an escape from structural-adjustment-induced impoverishment. Politically confident demands for greater control of and benefits from national resources were being articulated, and in Zambia, the hitherto unflinchingly neoliberal government was forced by the growing opposition to increase corporate taxes, renegotiate lopsided development agreements, and reinstate the national planning mechanism. On its part and under pressure, the World Bank recently conceded that its single-minded focus on privatization through the 1990s was ‘mistaken’, but that it could not have foreseen a rise in world commodity prices. One does not know whether to characterize this rather frank admission as comedy or farce, but it did mark a significant moment of departure: it was an admission of the weakening grip of neoliberal orthodoxy. This incipient opposition must now reflect upon the implications of the crisis.
This series of affairs, in turn, reinforces the precariousness of places such as the Zambian Copperbelt, whose people not only suffer the impact of US and Western economic decisions, but also lack the real even if shaky social securities that are available to citizens of Western states. Africans are once again being asked to dig deep within and tap into the links of kinship and community that though tested are wearing thin. This most recent and truncated flirtation with growth, of course, is not the first for Africans. After a few years of economic expansion coupled with the hopefulness that followed hard-won political independence, the vagaries of global capitalism abruptly cut short the glimpse of development in the 1970s. Now more than ever, it is apparent to those being pruned from jobs today in Africa -– and asked to sacrifice by political leaders as corrupt as the CEOs on Wall Street –- that capitalism is not the answer. Africans and others realize that their fates are connected. So must be their politics, and so should the struggle for a better society that is based around needs and not profits.
1. Khan, Kim, ‘How does your debt compare’, MSN Money, http://moneycentral.msn.com/content/SavingandDebt/P70581.asp, accessed December 1, 2008.
2. See ‘The New Face of Capitalism: Slow Growth, Excess Capital, and a Mountain of Debt’, http://www.monthlyreview.org/0402editr.htm, accessed December 1, 2008.
3. See http://www.inequality.org/ for data on the rising income inequality in the US.