Research Unit for Political Economy
Over the last six months, a new Great Depression has enveloped the entire world. The ruling circles worldwide and the international media have been propagating that this Depression is the result of a mere financial crisis, caused by irresponsible lending by banks to poor people in the U.S.. Accordingly, they began by claiming that within six months to a year, the recovery would begin, thanks to government bail-outs and stimulus packages of unprecedented size.
So rapidly did the crisis advance, however, that within weeks these claims wore thin. Talk of a systemic breakdown now entered the language of the ruling establishment itself. Even as a defensive George Bush asserted at the G-20 summit that “The crisis was not a failure of the free market system”, his French and German counterparts were acid in their retorts. The German finance minister declared to the German parliament: “The world will never be as it was before the crisis. The United States will lose its superpower status in the world financial system.” “What we are seeing now”, said Raghuram Rajan, former chief economist of the IMF, “is capitalism in crisis… but I do not see an end to capitalism.”1
Inadequate explanations
Various explanations have been put forward in the media for the crisis, mostly banal. The newspapers tell us that the crisis was the result of an excess of ‘greed’. But greed is hardly a new phenomenon. Indeed, orthodox economics bases itself on the assumption that every individual is limitlessly greedy, and that the pursuit of individual greed brings about overall growth and greater well-being.
Another widely circulated and equally shallow explanation blames the US authorities for failing to bail out the giant investment bank Lehman Brothers in September 2008; Lehman’s bankruptcy, it is claimed, caused credit markets to seize up and the crisis to get out of control. Now this explanation is heard less frequently, as it turns out that virtually the entire US financial sector was actually insolvent, and required bailing-out.
Two other explanations offered are true, but incomplete. First, that the US central bank, the Federal Reserve, kept interest rates abnormally low for a long time, encouraging an explosion of debt and an unsustainable boom on that basis. Secondly, that the Federal Reserve and other financial authorities in the US, under the spell of neoliberal ideology, failed to properly regulate the financial sector, and winked at what amounted to financial pyramid schemes. These explanations give rise to two questions: Why did the extremely well-informed authorities of the world’s most sophisticated financial system promote such a bubble economy? And how were they able to do so?
Systemic crisis
The truth is that this is not merely a financial crisis but, more fundamentally, a crisis of the capitalist system itself. For all the complicated financial exercises and terms which cover the surface of this crisis, at the centre of the crisis are contradictions which are inherent to the capitalist accumulation process. The bloated growth of the financial sector is in fact capitalism’s attempt to postpone the effect of these contradictions, whereas the financial crash is the reassertion of their centrality.
At the centre of the crisis too is the contradiction between US imperialism and the people of the Third World. This is exemplified by the fact that the consumption of the US, including its gargantuan military expenditure, is being funded from the savings of China, other East Asian countries, and the Gulf oil producers. Though US imperialism is still dominant worldwide, its economic dominance has long been in decline, tending to make this parasitic extraction ever more unsustainable. (Dogged insurgencies in countries under US military occupation have played a significant role in further undermining US hegemony, preventing it from achieving its strategic-economic aims, forcing it to increase its military expenditure abroad, and deepening its dependence on foreign inflows.) The waning of the US’s economic and political power too underlies the current crisis.
However, the pattern of trade in recent years (giant US trade deficits, giant trade surpluses of certain Third World countries) and the perverse pattern of financial flows (from the poor to the rich countries) have not been brought about by the US elite on their own, but with the help of the elites of the Third World; and the latter too have flourished unprecedentedly therefrom. These patterns represent, in a sense, a compact between the elites of different worlds against their people, who are the losers in the entire scheme.
Purpose of production under capitalism is to accumulate capital
Evidently, there were powerful social forces driving the developments which resulted in the boom and the collapse, and our search for an explanation must extend to the nature of these forces. …………… Read the rest of this entry »
