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The global economic crisis: a view from the south.

THE GLOBAL ECONOMIC CRISIS is usually seen as the sequel to the collapse of the housing bubble in the United States, and the blame for it is laid at the door of policies that led to that bubble in the first place. This understanding is inadequate, however. The formation of that bubble and its collapse are episodes which are themselves embedded within a deeper structural crisis that afflicts contemporary capitalism, a structural crisis related to the phenomenon of globalization.

Many see the present episode of globalization as a continuation of the previous one that had been interrupted by the two world wars, the Great Depression and the post-war adoption of state interventionism within broadly national economic regimes. Some see it as merely carrying forward the saga of capital's drive for universal dominance that was noted by Marx and Engels in The Communist Manifesto. These perspectives miss the fact that it marks a fundamental departure from everything that has preceded it.


CAPITALISM PRIOR to the current phase of globalization had been characterized by three basic features. First, labour did not have free mobility from what is called, for lack of better terms, the global south to the global north; indeed it still does not have. The "long nineteenth century," stretching until the First World War, had seen two large waves of migration across the globe. There was a migration from Europe to regions of white settlement like Canada, the United States, Australia and New Zealand, where the migrants occupied land by dispossessing the original inhabitants. This kept up their own standard of living and hence the "reservation wage," and consequently the actual wage, back home. This was a "high-wage temperate-to-temperate region migration."

There was a second wave of migration at the behest of capital from tropical or subtropical countries like India and China to other tropical regions where the migrants were employed as coolies or indentured labourers on mines, plantations and construction projects. The countries from which these migrants came had witnessed substantial deindustrialization, in the sense of the destruction of traditional craft production by the import of manufactures from the capitalist metropolis which had thrown large numbers of people out of work and intensified the pressure on the limited land mass. This had led to extraordinarily depressed real wages. This second wave of migration therefore was a "low-wage tropical-to-tropical region migration."

Each of these waves involved approximately 50 million people but they were kept strictly separate. Tropical labour was not only not allowed to move freely to Europe; it was also restrained from moving to the temperate regions of white settlement. Even after 1945 when migration from the south to the north occurred on a larger scale than before, it still remained controlled migration, regulated in accordance with the needs of capital. There was no free labour mobility.

The second feature of pre-globalization capitalism was that capital did not move freely from the north to the south. Here, there were no juridical restrictions upon its movement; nonetheless it moved only to plantations, mining, export activities and the infrastructure required for such activities, such as railways (where typically the rates of return were guaranteed by the colonial state). There was no migration in any significant sense to manufacturing, despite the lower real wages prevailing in the south.

The third feature was that the import of manufactured goods produced in the south was taxed heavily in the north. Because of this the emerging local capitalists, even if they did manage to set up manufacturing units in the south (despite the numerous hurdles placed in their way by the colonial regimes) were precluded from entering the northern markets. They were confined to their own local markets, and even there they had to face competition from northern manufactured goods without being given any protection.

The net result of these three features was that the world economy became "segmented" into two parts, an important consequence of which was that real wages in the north were not restrained by the massive labour reserves of the south. To be sure, there was a reserve army of labour located within the north too (capitalism can never function without one), which restrained northern wages; but its size being relatively small, its restraining influence on northern wages was not so absolute as to tie these wages down to some subsistence level.

Put differently, world capitalism had two reserve armies of labour: there was a relatively small one in the north which, though it restrained wages, did not prevent their rise, through trade union action, with increases in labour productivity. Then there was a huge reserve army in the south which prevented wages there from rising above a bare subsistence level (and thereby helped to achieve price-stability in the metropolis by preventing any autonomous cost-push for raw materials), but did not restrain northern wages owing to this fact of segmentation. What this segmentation meant therefore was that while real wages in the north rose with labour productivity, real wages in the south continued to stagnate at a bare subsistence level under the pressure of its massive labour reserves. Segmentation thus entailed a spatial dichotomy between what in common parlance came to be known as the "developed" and the "underdeveloped" economies.

In addition, it contributed to bolstering internal demand within the global north. The rise in real wages along with labour productivity helped to prevent the emergence of the problem of demand deficiency.


THE CURRENT PHASE of globalization has broken down this segmentation of the world capitalist economy. Even though labour from the south is still not free to move north, capital from the north is now moving south to locate plants there for export to the world market as a whole, including to northern markets which are now open to such exports from the south. This also means that workers in the north are now exposed to the baneful consequences of the massive labour reserves of the south.

One obvious implication of this has been the decline in the strength of trade unions in the advanced countries. Globalization, by exposing workers in the north to competition from workers in the south, undermines the trade unions in the north. Quite apart from the effects of the relocation of actual plants from the north to the south, the very threat of such relocation hangs like a sword of Damocles over the workers of the north, limiting the strength of their trade unions.

The second related implication is that the real wages of the workers in the so-called advanced countries can no longer rise with labour productivity; under the pressure of the massive labour reserves of the south, they tend to remain stagnant. It is not surprising, then, that in the United States in the last three decades or so real wage rates have remained stagnant even in absolute terms.

The stagnation in real wages even as labour productivity increases in the world economy implies an increase in the share of surplus. This amounts to an increase in the income inequalities in the world. World income inequalities in fact will continue to rise in the era of globalization unless the world labour reserves get progressively exhausted. This is not happening, however, and is not even likely to happen in the foreseeable future under conditions of capitalism.

But the other implication of this rising share of surplus is a tendency towards underconsumption, which follows from the fact that workers devote a larger proportion of their incomes to consumption compared to capitalists. Such a tendency does not mean an actual occurrence of crisis and stagnation on account of it. State intervention in demand management can always ward off such a tendency. (Indeed in 1966 Baran and Sweezy argued that in the context of post-war America military expenditure played a major role in keeping up the level of aggregate demand in that economy.)

But here we come to another important aspect of the current phase of globalization. The globalization of capital, above all of finance capital, means that in a world of nation-states, every state must willy-nilly pursue such policies as are demanded by finance capital, for otherwise it faces the prospect of finance capital leaving its shores en masse and unleashing a financial crisis upon its economy. And finance capital is invariably opposed to state intervention in demand management for keeping up the level of activity in the economy.

Finance capital, contrary to what is often presumed, is not opposed to state intervention per se but demands such intervention only in its own exclusive interest. It is certainly opposed to state intervention in demand management stabilizing the economy at close to full employment. And this opposition is expressed through its insistence upon "sound finance," which holds that governments should balance their budgets, or at the most have a fiscal deficit not exceeding a certain fixed percentage of GDP. Since governments are restrained from increasing taxes in a world of globalized finance (as this would drive finance capital away), and also from increasing their borrowings (because of the pressure to adopt what is nowadays called fiscal responsibility), they cannot intervene directly to raise aggregate demand, and hence cannot offset the tendency towards underconsumption that the de-segmentation of the world economy brings in its wake.

The reason for this opposition goes to the very core of capitalism. It lies in the fact that any institutionalization of state intervention in demand management serves to delegitimize the social role of capitalists ("if we need the state to rectify the system then why do we need the capitalists at all?"). It particularly delegitimizes the capitalist financiers who constitute, in Keynes's words, "functionless investors." This opposition which was always there but could be overcome in a certain conjuncture (the post-WWII years), becomes decisive when the state remains a nation-state while finance becomes international. Keynes had been aware of such a possibility: while advocating state intervention in demand management, he said "finance above all must be national." Globalization upsets this scenario.

The only antidote to stagnation under these circumstances, when there are no colonial markets on tap, and when state intervention in demand management is undermined by the opposition of globalized, or international, finance capital, is provided by the formation of "bubbles." Indeed in the period since the decline of Keynesian demand management, while the average growth rate of the advanced capitalist world has come down, such growth as has occurred stemmed from a set of bubbles. This was true in the US in particular, with the dotcom bubble followed by the housing bubble.

Consequently, the view which attributes the current global economic crisis to the formation of bubbles and argues that regulatory measures to prevent such bubbles would produce a crisis-free capitalism misses a central point, namely, that in the absence of such bubbles contemporary capitalism would be permanently mired in stagnation and mass unemployment. Bubbles today provide the only basis for booms even though their collapse causes recessions and slumps. The predicament of contemporary capitalism therefore arises not from the fact that it has experienced bubbles together with their inevitable collapse, both of which were avoidable; it arises from the fact that it needs precisely such bubbles to obtain whatever relief it can from stagnation and mass unemployment.

The global economic crisis thus consists not in the collapse of the bubble but in the fact that capitalism is caught in this structural predicament, where it will continue henceforth to experience protracted stagnation and mass unemployment, relieved occasionally by the temporary palliative offered by a bubble.


THE FACT THAT, unlike in the past, the real wages of workers in both the so-called advanced and the underdeveloped countries remain depressed without experiencing any absolute increases, and also the fact that the capitalists from the emerging economies of the south are closely integrated with international capital, has persuaded many to argue that imperialism is no longer a relevant category. The spatial dichotomy between two segments of the globe--with the capitalists and the workers in one segment witnessing material advance, and the capitalists and the workers in the other excluded from the prospects of such advance, which characterized the earlier imperialism --no longer holds; what we have instead is an integration of capitalists of both segments into a globalized entity and the workers of both suffering from their subjection to the massive labour reserves of the south. Some argue therefore that the term imperialism is no longer meaningful. Instead of a horizontal segmentation, we have a vertical division between international finance capital, on one side, into which the corporate-financial oligarchies of different countries are integrated, and the workers of both the north and the south, stuck at different levels of subsistence, on the other.

This argument misses an important point, however. Imperialism refers not so much to a spatial dichotomy as to a certain structural relationship, which, I contend, has not changed.

Capitalism being a pre-eminently money-using economy, where wealth is held in money or in money-denominated financial assets, a degree of stability in the value of money in terms of commodities is essential for its functioning. If there is a rise in commodity prices for instance, which is expected to persist, then wealth-holders would either move to commodities directly, or, what is more likely, to an asset like gold which has a low carrying cost compared to commodities, but whose value in terms of commodities is widely believed to remain more or less constant over time. They would in other words move away from money, rendering it useless as a means of holding wealth, and hence ultimately worthless.

This need for a degree of stability in the value of money increases in the era of globalization, precisely because the weight of financial assets is far greater than ever before, a phenomenon that has given rise to the term "financialization." Keynes's famous remark in The Economic Consequences of the Peace (1919) that "Lenin is said to have declared that the best way to destroy the capitalist system is to debauch the currency ... Lenin was certainly right," becomes particularly apposite in the era of globalization.

One way of ensuring that there is no debauchment in the value of money is to have an adequate reserve army of labour which ensures that money wages do not increase autonomously. In addition, however, since capitalism requires a host of commodities that are produced largely outside of the metropolis proper, most notably oil but also a range of tropical commodities not producible within the metropolis, it becomes necessary to ensure that the money prices of these commodities too do not increase over time.

These, however, are commodities which are subject to "increasing supply price" for given money wages, either because they are exhaustible resources, or because the land on which they are produced is fixed in size. The case of oil which falls into the first category is too well-known to need elaboration. Let us therefore focus on the second set of commodities, though the argument below applies to both sets.

The size of the tropical land mass which grows a number of commodities that can neither be grown in the metropolis nor be done without, is given. Land-augmenting investment (such as irrigation) and land-augmenting technical change, are no doubt possible, but such change typically requires state investment. The prevailing regime of "sound finance" precludes this.

Meeting the growing metropolitan demand for tropical products, which arises as a result of capital accumulation, without raising their prices and hence jeopardizing the value of money, becomes a serious problem for capitalism. It resolves this problem by ensuring that the absorption of such commodities (or of other commodities from which land can be shifted to the production of such commodities) by those outside the metropolis is suitably restricted. The mechanism through which this achieved is "income deflation," i.e. squeezing the incomes of those located outside the metropolis, including even the petty producers themselves who produce these goods, so that their absorption goes down, in order to make more of these goods available to meet the growing demands of the metropolis. Imperialism is associated above all with the imposition of income deflation on the outlying regions.

In the colonial period this was done through the colonial taxation system and also the deindustrialization referred to earlier which entailed the displacement of domestic petty producers by the imported goods from the metropolis. In the contemporary period this is done through austerity measures, the reduction in government spending that would otherwise put purchasing power in the hands of the poor and the working people of the south. In short, income deflation in the current period is imposed through the plethora of neoliberal policies pursued by the state. These austerity measures are also imposed on the working people of the metropolis itself, but they are necessarily imposed on the working people of the outlying regions.

The structural relations underlying imperialism which entail the imposition of income deflation to restrict the absorption of tropical goods (or more generally of goods with an increasing supply price at given money wages) by non-metropolitan users, fully retain their importance in the era of globalization. The imposition of income deflation necessarily leads to absolute impoverishment among the working people of the outlying region in a very specific sense. If the size of the tropical land mass is given and land productivity does not change much because of the fiscal constraints on the state imposed by globalized finance, then reduced absorption of tropical goods by the local population must necessarily entail a reduction in per capita foodgrain absorption (so that land devoted to foodgrains can now be used for producing more of those crops which are demanded in the metropolis). Hence growing hunger becomes a necessary accompaniment of globalization, which is exactly what has been happening across the entire global south from sub-Saharan Africa to South Asia.

The increase in income inequality owing to the failure of real wages to increase even as labour productivity rises in the world economy is therefore only a part of the picture. There are two additional factors at play: first, there is a reduction in public provisioning of goods and services which reduces the real wage rate, inclusive of the social wage, still further; then there is a reduction in the incomes of peasants (and petty producers in general) on account of austerity measures (entailing cuts in subsidies) which increase their input costs relative to the output price.

The displaced petty producers move to towns in search of jobs which are non-existent; and this creates a further downward pressure on the real wages in the periphery, and hence by inference in the metropolis as well. And to the extent that reduced profitability of production by the peasants (they are even unable to carry on simple reproduction, resulting in mass suicides, as in India where over 20,000 peasants have taken their lives over the last 15 years), reduces foodgrain output further, so the extent of hunger and absolute poverty increases to an even greater extent.

The situation, in short, is not just one where income inequalities in the world economy increase: such increase is accompanied by growing hunger and absolute impoverishment of the world's working population at one pole, together with an enormous growth of surplus at another. The situation of absolute impoverishment becomes even more acute because of the crisis and stagnation that characterizes the era of globalization.


LET ME NOW turn to the politics of the situation. The fact that nation-states in the era of globalization are constrained willy-nilly to pursue the same set of economic policies, the ones demanded by international finance capital, also implies that different political formations within the nation-state, unless they are prepared to delink the country from the vortex of globalization, have more or less the same agenda in economic matters. Since any such delinking entails high transitional costs for the economy, hardly any political formation, and certainly no bourgeois political formation, dares to contemplate delinking. In matters directly affecting their material lives therefore the people are denied any electoral choice, even in polities characterized by formal electoral democracy. There is, in short, a closure of politics, so that no matter who is elected the same economic policies are pursued.

Since the globalized economy suffers from persistent economic crises, except for brief periods of bubble-sustained excitement (and during these too, as employment generation falls far short of the number of job-seekers, the process of absolute immiserization does not abate), the co-existence of people's everyday hardships with the lack of any hope for alleviating these hardships through electoral means, creates disillusionment with electoral democracy and a fertile ground for fascism.

This disillusionment can result, on the one hand, in hopes for a messiah to deliver people miraculously from their misery, and, on the other hand, in succumbing to the propaganda that their misery is caused by some particular group--immigrants, or a religious or ethnic minority--which is "stealing" their jobs or benefits. Since marketing such a messiah typically requires the help of the corporate-owned media, and since blaming some minority rather than neoliberal policies for the people's miserable predicament, divides the people and suits the corporate-financial oligarchy within the country that is closely integrated with international finance capital, corporate control over politics increases immensely.

A condition is thus created both for a fusion of corporate and state power and for the location of an "enemy within." Paradoxically, the crisis arising from the pursuit of neoliberatism to the benefit of the corporate-financial oligarchy is used by the very same oligarchy to increase its hold over the polity and to undermine bourgeois democratic institutions. The period of globalization in general, and of global economic crisis in particular, is characterized by a tendency towards fascism which combines corporate control over the polity with the targeting of minorities for oppression and ghettoization.

The use of the term "fascism" here may not find favour with many, since it typically evokes extreme nationalism. Within the bourgeois system, the fascist elements stood not for integration into a global order, but for a withdrawal from the global order. Therefore, this scenario of corporate power based on the ghettoization and persecution of minorities does appear to qualify as fascism.

However, the conception of fascism rooted in the 1930s is not applicable today because the corporate-financial oligarchy of any country in that period operated within a context of inter-imperialist rivalry and hence glorified the idea of the nation as a means of mobilizing domestic support for getting ahead in that rivalry. The context today is entirely different: we no longer have nation-based finance capitals vying with one another, but an international finance capital that is not nation-based. This transition is itself a result of the enormous centralization of capital that has taken place within world capitalism. But its upshot is that in today's world the interests of the corporate-financial elite of any country are closely bound up with globalization rather than retreating from it. And since the essence of fascism is the concentration of political power in the hands of the corporate-financial oligarchy, camouflaged as the promotion of the interests of the nation without the ghettoized minorities, contemporary fascism does not envisage any retreat from globalization.

Does it follow, then, that the fascist label can never apply to the numerous outfits in Europe, from the National Front in France to the BNP (and more recently UKIP) in Britain, which advocate withdrawal from the European Union?

Three points can be made in this context: first, there is a difference between the fascist movement and the fascist state. The former may go against the interests of the corporate-financial oligarchy, but when in power the fascists shed (even in a bloody manner as in Germany in the 1930s) their opposition to this oligarchy, so that the latter uses them for its own purposes. Even contemporary fascism, when in power (if it ever comes to power), is likely to shed its opposition to integration into a global bourgeois order. Second, withdrawal from the European Union is not the same as withdrawal from integration into a global order, both because the EU does not represent the global order as a whole, and also because renegotiation (which the fascists may be forced to accept) is not the same as withdrawal. No European fascist outfit at any rate has explicitly advocated capital controls which is the essence of any withdrawal from the current global order. And third, one has to distinguish between fascist movements in the developed countries and those in the less developed ones. No right-wing movement in the latter can make any headway if it takes an anti-globalization and hence anti-imperialist position. The contrast within Europe itself today between the Ukrainian and the French fascists is instructive. Flence, linking fascism with a withdrawal from the global capitalist order is inappropriate, at least in the less developed capitalist countries.

For this very reason, however, fascism, which acquires strength especially in the context of the acute crisis of livelihoods in so-called third world countries, is utterly incapable of providing any solution to this crisis, not even a fascist solution (as Hitler had done through rearmament in the unemployment-hit Germany of the 1930s). It can resort to armaments expenditure, and even unleash local wars; but within a regime of globalization which insists upon austerity, such measures too, by merely shifting resources from other uses, will provide no solution to the crisis. They are likely even to compound it.

I referred earlier to the "closure of politics"; fascism in the Third World, while mobilizing popular support on the plea that it is breaking out of this closure, actually does no such thing. It represents a phony break from the closure of politics. Its acceptance of the fact of integration of the economy into the vortex of global financial flows prevents its adopting any economic program radically different from that of non-fascist bourgeois parties and hence any program capable of making a difference to the crisis-affected condition of the people.

Fascism's perpetuation in power, if perchance it comes to power, necessitates therefore even greater pogroms against the minorities; even greater efforts to divert attention away from the concrete fact of acute material deprivation of the people, to the point even of resorting to local wars; and even greater attenuation of democratic rights.

This constitutes both a challenge for the Left, and an opportunity. It is a challenge because the conditions under which the Left has to operate become even more difficult as time goes by (even in the absence an actual fascist takeover of power); it is an opportunity because the assault on democracy which is launched under globalization in general, and fascism in particular, enables the Left to emerge as the most determined and fearless champions of people's rights. But to carry this struggle further the Left must provide a genuine break from the closure of politics by putting on its agenda the institutionalization of certain basic and universal economic rights of the people, such as the right to employment, the right to food, the right to free healthcare, the right to quality education and the right to old-age pension and disability benefits.

For this the Left must be willing and able to delink from the process of globalization, above all by putting in capital controls, which restore to the elected government of the state a degree of autonomy in action (autonomy with respect to international finance capital). The restoration of such autonomy to the elected government is an essential pre-requisite of democracy.
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Author:Patnaik, Prabhat
Publication:Canadian Dimension
Geographic Code:1CANA
Date:Sep 1, 2014
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