Opinion - News Analysis   

Economic crisis of global capitalism: beyond regulation

The perception that the current global economic crisis is primarily a financial crisis resulting from excessive exuberance and inadequate regulation of the financial sector is at best superficial, if not downright misleading. To begin with, one needs to recall that the advanced capitalist economies began to slow down from the end of the 1970s, after a historically unprecedented compound growth rate of the global capitalist economy of around 5 per cent per annum between the mid-1940s and the mid-1970s. Average rates of GDP growth in the G7 countries have generally been between 2 per cent and 3 per cent per annum since 1980, and often much less.

This slowing down of GDP growth is associated with the rise to dominance of financial interests or ‘finance capital.’ The dominance of finance capital and its increasing mobility across country borders make it extremely difficult for governments to follow Keynesian policies of demand stimulation through enhanced public expenditure and running of budgetary deficits. In the period immediately following the end of the Second World War, the changed global balance of forces — with the rise of a socialist camp, the weakening of the old imperial powers, and the wave of massive decolonisation that swept the world — and the painful experience of the Great Depression of the 1930s forced the major capitalist powers to accept Keynesian demand management policies as necessary for political survival.

Ironically, these very changes also expanded global demand as poor countries strove to industrialise and the process of European and Japanese reconstruction proceeded apace. However, the process of what Sir John Hicks called ‘the long boom’ came to an end in the late-1970s as the monopoly power of the transnational corporations and the power of organised workers in the advanced capitalist world made Keynesian demand management incapable of sustaining growth without sparking off rapid and rising rates of inflation. The crisis of Keynesianism and the rise of monetarism accompanied the rise to dominance of finance capital, and this was no coincidence.

The waves of deregulation — including especially in the financial sector — cannot be understood except in the context of the dominance of finance capital. But to merely decry such deregulation as being responsible for the current global crisis is to miss the point that it was precisely such deregulation, with attendant opportunities for enormous speculative profit in the deregulated and globalised financial markets, that provided the capitalist economies with the growth stimulus that was earlier derived from Keynesian demand management.

Nevertheless, it is also true that despite the stimulus offered by deregulation, the rates of economic growth in the advanced capitalist slowed down considerably, and unemployment remained consistently high through the ‘boom’ years of the 1990s and the current decade. This is really the crux of the problem. Capitalism is essentially a demand-constrained economy. Its basic logic of pursuit of profit leads to rapid growth of society’s ability to produce, but competition among capitalists and the conflict between capitalists and workers, which cause rapid mechanisation and unemployment, limit the growth in the consuming power of society. With the state not playing the role of ensuring high levels of demand and therefore of output and employment, growth in recent decades has been stimulated by speculative bubbles that raise levels of demand for some time, only to burst and drive the economy into a recession or worse.

Even in the case of the current crisis, where the emphasis has been on the financial sector, it is worth noting that officially the U.S. economy entered a recession in the last quarter of 2007, before the collapse of the major investment banks of Wall Street in September 2008. Thus the present global economic crisis is as much a real economy crisis as it is financial. Any effort to end the crisis must recognise the need for substantial demand stimulus by the state. This implies giving up the obsession with the so-called fiscal deficit — which does not have any theoretical legitimacy in an economy characterised by unemployment of resources — and boldly stimulating the economy in a manner that would provide a wide social basis for recovery. What this implies is that the stimulus must not consist of ‘bail-outs’ of the big players but must be directed at the vast multitude of small and marginal farmers, tiny, small and medium industrialists, and workers facing the huge unemployment crisis.

The longer term implication of the current global crisis is that it puts an end to the triumphalism that until recently characterised neoliberal defenders of market fundamentalism. The notion that nothing much needs to change except for somewhat more stringent regulation of the financial sector is being promoted by the rich countries. Further, in the name of global regulation further erosion of national sovereignty and the autonomy of policy making in the developing world is on the anvil. It is important that this reading of the crisis be rejected, and the need for national controls on global finance as well as rolling back the onslaught of international economic institutions such as the IMF, the World Bank and the WTO on national policy-making space be recognised.

A good starting point for thinking constructively about the global economic crisis and how to deal with it is to discuss and implement the recommendations of the U.N.-appointed Stiglitz Committee on the Global Financial Crisis — an opportunity that was missed at the recent G 20 conclave, with India lining up faithfully behind the G7 for the most part.

(Dr. Venkatesh Athreya, Adviser, Gender and Food Security, M.S. Swaminathan Research Foundation, was formerly Professor and Head of Department of Economics, Bharatidasan University, Tiruchirapally.)

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

Improving market sentiment
Tripartism in the time of crisis
Is it the end of the road for Gordon Brown?
The role and duty of a State Governor
Economic crisis of global capitalism: beyond regulation
Reality of bioterrorism: it’s not at all easy to do
How far can Washington go?
Corrections and clarifications
Well done
End of election 2009
Missing names
49-O
War in Sri Lanka

Copyright © 2009, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu