Contribution
to the International Communist Seminar
‘Economic Crises and Possibility of a Major World Crisis’
Brussels, 2-4
May 2002
www.icsbrussels.org , ics[at]icsbrussels.org
India
Communist Party of India (Marxist-Leninist)-Janashakti
The Current Factors of an Economic Crisis at World Level
When we discuss the subject "The current factors of an economic crisis at
world level", there is an assumption that there have been crisises for a long
time or for some time.
After the Great Depression, in 1933, J. M. Keynes, by no means a Marxist, wrote
that "the decadent international individualistic capitalism in the hands of
which we found ourselves after the war, is not a success. It is not intelligent,
it is not beautiful, it is not just, it is not virtuous - and it does not deliver
the goods. In short we dislike it and we are begining to despise it". He wrote
in the "General Theory" that "the outstanding faults of the economic society
in which we live are it's failure to provide for full employment and it's arbitrary
and it's inequitable distribution of wealth and income."
His focus of attack was on rentiers and in order to meet their challenge, he
wanted governmental intervention to keep up continuous investment. His full
employment theory went into the extent of supporting even waste full investment
to keep up the level of demand for labour. "Two pyramids, two masses for the
dead, are twice as good as one; but not so two railways from London to New York."
Keynes further said : "In so far as millionaires find their satisfaction in
building mighty mansions to contain their bodies when alive and pyramids to
shelter them after death, or repenting of their sins, erect cathedrals and endow
monastries of foreign missions, the day when abudance of capital will interfere
with abundance of output may be postponed. To dig holes in the ground, paid
for out of savings, will increase, not only employment, but the real natural
dividend of useful goods and services."
Keynes who condemned capitalism and put forward a remedy for inequitable distribution
of wealth and income through capital accumulation in order to reduce the rate
of profit resulted in strengthening the oppressive and exploitative nation states.
Thus the ostensible condemnation of capitalism was to save capitalism.
The first half of the twentieth century witnessed the contradictions within
the capitalist system mainly in the form of two world war and the Great Depression.
Keynes theory to strengthen the state was a response to this crisis and save
capitalism. But the crisis continues.
In "unraveling the Internal Contradictions of the law" (Capital Vol III) Marx
noted the link between crises and the tendency of the rate of profit to fall.
Fall in the rate of profit promotes over production, speculation, crises, surplus
capital along with surplus population. Further he says that the barrier of the
capitalist mode of production becomes apparent in the fact that the development
of the productive power of labour creates in the falling rate of profit a law
which turns into an antagonism of this mode of production at a certain point
and requires for it's defeat periodical crisis. What has to be derived from
what Marx said is that a fall in the rate of profit is attributable to a rising
organic composition of capital. The capitalist crisis is an interruption of
the circulation process induced by a decline in the rate of profit below it's
usual level.
Paul Sweezy says (The Theory of Capitalist development) that "The theory of
crises propounded in Volume I, and occassionally reverted to in Vol II and III,
is intended to deal with only one side of the whole problem. For it assumes
throughout that, until the crisis actually breaks out, all commodities can be
sold at their full values. In the language of current theory, it assumes that
the crisis is not the result but rather the cause of a shortage of effective
demand. The trouble, therefore, is not in any sense a scarcity of markets but
an unsatisfactory (from a capitalist standpoint) distribution of income between
recipients of wages and recipients of surplus value."
When rate of profit declines incentive for capitalist production decreases,
capital is withdrawn and circulation contracts and a crisis followed by over-production
sets in. Marx said in Theories of Surplus Value (Vol II) : "It is never to be
forgotten that in the case of capitalist production it is not directly a question
of use value, but of exchange value, and more particularly of the expansion
of surplus value. This is the driving motive of capitalist production, and it
is a fine conception which in order to reason away the contradictions of capitalist
production, abstracts from it's very basis and makes it into a system of production
which is concerned with the immediate consumption of the producers."
Paul Sweezy sums up this argument as follows : "The specific form of capitalist
crisis is an interruption of the circulation process induced by a decline in
the rate of profit below it's usual level. It is interesting and also instructive
to note that modern business-cycle theory has arrived at a conclusion which,
though apparently unrelated, is nevertheless in substance very similar to Marxian
position. Modern theorists start on a lower level of abstraction than Marx,
for them the capitalist class is divided into two sections, entrepreneurs who
organise and direct the process of production, and money capitalists who supply
the funds, in the form of interest-bearing loans, which the entrepreneurs require
for their operations. Entrepreneurs may also own capital, but in so far as they
do they are regarded as loaning at interest on themselves. Under these assumptions
the entrepreneur will find it worthwhile to invest capital so long as the rate
of profit which he receives is greater than the rate of interest which he is
obliged to pay. Just as soon as the rate of profit falls below the rate of interest,
however, the entrepreneur has no more motive to invest, circulation is interrupted,
and a crisis ensues.
The need to rebuild economies after the ravages of second world war led to an
unprecedented rate of growths in world industrial output. Between 1950 and 1970
output grew on an average of six percent a year and even in the decade 1970-80
the average increase was 2.4 percent. These increases are only in manufacturing.
The growth in services such as banking, insurance, advertising, tourism etc
was even greater, as such activities came to occupy ever increasing share in
the GNP of most of the advanced capitalist countries. According to Paul Kennedy,
the author of "Rise and Fall of the Great Powers", the global economies grew
more since 1945 than in all world history prior to world war II, in fact, world
real GNP quadrupled-from two trillion to about eight trillion dollars from 1950
to 1980.
During this period world capitalist economy suffered several recessions. Whenever
it began recovering from a recession, the capitalists thought they had succeeded
in overcoming the problem of falling production forever. But what actually happened
was the reappearence of the crisis in production in a more powerful and more
profound form. The solution sought for this situation was to apply Keynes' theory
of state intervention characterised by lowering of central bank's lending rates
and budget deficits. In a nutshell massive and forceful intervention by the
state in every branch of the economy. All these economic devices relied mainly
on the growing development of credit and debt.
The 1970 recession recovered mainly through heavy credit to the Third World
Countries. Later, the recovery achieved after the 1981-82 recession showed that
the Third World found it impossible to meet the repayment of the debt which
amounted to hundreds of billions of dollars. Thus they became incapable of absorbing
the surplus production of the capitalist imperialist countries.
In order to meet this situation, the US began to absorb the surplus production
which could not be sold in the Third World, which naturally resulted in enormous
trade deficits. By 1987 the trade deficit reached a staggering 171 billion dollars.
Since 1971, when USA recorded it's first trade deficit, it has consistantly
bought more than it has sold.
The trade decifit problem lies in the longterm erosion of USA's manufacturing
industries. Much of the economy is in services. Some service activities like
public transport, landscape, gardenings, catering etc cannot be exported. Some
services cannot be stored even for a day like the air services cancelled or
postponed during eleventh September last year. Even where earnings from services
like, consultancy, legal service, bankings etc are considerable, the total earned
from such services cannot meet the required payment for goods and services imported
each year.
Though the growth registered in the USA in the nineties of the last century
was little higher than that of the eighties, currently there is a slowing down.
Not only the US is facing a crisis of this nature, even the countries presented
as success stories such as Germany and Japan have entered into the mire of recession.
In Germany the GDP dropped by about one percent and the industrial production
fell by about six to seven percent. In Japan, some like steel and motor vehicle
production fell by about ten percent. UK has been experiencing the longest recession
since the 1930s. Sweden is experiencing the longest and strongest economic crisis
for the past forty years. After the political "boom" caused by the reunification,
Germany went into recession at the end of 1991. Japan, hit by the reduction
in US and international imports, saw an uninterrupted decline in growth.
Eurozone economy is on the brink of recession. The indicator compiled by a consortium
of leading European research institutes suggests that year-on-year economic
growth will fall to 0.4 percent in the first quarter of 2002. The consortium
says that the immediate overall picture for the euro area is weak, and in particular
confidence at present is low. Therefore a drop into recession cannot altogether
be excluded. Yet, speaking on German television on November 12, 2001, Hans Eichel,
Germany's finance minister said Europe was better placed than the US or Japan
to weather the storm. Promising the government would not try to spend it's way
out of the downturn, he said bigger budget deficits were not the answer. "They
tried that in Japan, with disastrous results. They have a deficit three times
as big as Germany's and yet they are deep in recession" he said. Economists
say the lower revenues mean Germany's budget deficit could rise to 2.6 percent
of the GDP, close to the 3 percent limits that binds euro-zone governments.
US consumers and businesses filed for bankruptcy in record number in 2001. With
the economy mired in recession and households and businesses loaded with debt,
the total number of bankrupticies filed during 2002 surpassed the previous high
of 1.4 million bankrupticies recorded in 1988.
The US steel industry has been a victim of a larger trend in manufacturing with
more and more shifting to low-cost areas like China. The share of manufacturing,
which accounted for 50 percent of USA GDP in the early 50s, has now shrunk to
bare 16-18 percent today. Steel making in the US is costly and there is less
technology in the possesion of Rand D labs. Therefore, manufacturers in China
and elsewhere have an edge in pricing. To meet this situation, President Bush,
champion of free trade, invoked section 201 of the US Trade Act, 1974, to save
30 billion dollar worth US steel industry, by imposing tariff on 10 items, ranging
from 8 to 30 percent. This tariff on steel would lead to higher prices and loss
of between 40000 to 75000 jobs across the economy.
The present initiatives towards restructering the global steel industry by the
US through discussion at OECD is aimed at finding an acceptable solution to
the problems of over-capacity despite reservations of other members. The US
claims that the crisis in US steel industry has been caused by global over-capacity
and a resulting drive to export the surplus to the US at low prices. This drive
has been assisted by support given to the steel industries in various countries
by their respective governments.
Whatever the contradiction between USA and some members of OECD, the fact remains
that there is about 150 million tonnes of global over-capacity. The main countries
in which there is over capacity include Russia, Ukraine, some of the republics
of CIS and Brazil. With the shrinking economy of the former Soviet Union, there
has been an expectation that their steel capacity would also shrink. This has
not happened. In addition, due to continuous problems with foreign exchange,
the rouble and hrivna remain undervalued against the US dollar with the result
that steel from these countries is being sold at very low dollar prices. These
countries are, accordingly, in a position to destabilise markets in other countries.
Brazil's production is far higher than what can be consumed within the country.
It's economic woes are a reason for it to push it's steel aggressively. The
action taken by the US followed by Europe will probably result in restructuring
capacities in these countries. From the Indian point of view, the US action
in restructring imports is a major blow to Indian export.
Ford Motor Co. reported a net loss of 5.07 billion dollars for the fourth quarter
of 2001, as it braces for a restructering including tens of thousands of job
cuts and closing of some plants. As part of turnaround plan, Ford announced
that it was cutting ten percent of it's workforce or 35000 jobs worldwide, slashing
production capacity by about sixteen percent. All of Detroit's Big Three automakers
have been hurt by the US recession, over capacity and growing competition from
European auto makers.
The number of African countries belonging to the group of least-developed countries
rose from 16 to 28, GDP declined by one-fifth and wages declined by 50 percent.
In Latin American countries wages fell by 15 to 20 percent. The rate of employment
in all Asian, African and Latin American countries fell.
"The UN Human Development Programme reported that the gap between the rich and
power nations doubled from 1960 through 1989. These results are attributable
in large part to the dual policies persued by the rich rulers : 'free market'
principles are imposed on the poor via the structural adjustment programme dictated
by the IMF and World Bank acting as bill collecting agencies for the Creditor
Countries. Susan George aptly comments, meanwhile the powerful countries protect
their own firms from the ravages of the market, at considerable cost to the
Third World.'' (Noam Chomsky : World Order, Old and New, 1994)
While billions of third world people are mired in poverty and millions in the
west suffer wage and other benefit attrition and increased unemployment - market
cannot be expected to expand.
This does not mean that market as a system has been weakened, on the contrary
it has been strengthened during the past 15 to 20 years. The collapse of Soviet
block, disappearence of the so-called non-aligned movement of the third world
countries, structural adjustment programme of the IMF and WB and lately the
WTO and the entry of China into WTO etc. has taken the market from triumph to
triumph.
"In it's further ideological expression, the triumph of the market is seen as
the victory of "freedom" (and the end of history). In this version, freedom
is, first and foremost economic freedom which is not conditioned on there being
equality of opportunity and resources or competition-it requires only right
of those with capital to use it freely. This suggests that labour organisations
might be seen as incompatible with freedom", and that democracy itself with
it's potential for mobilisation by ordinary citizens to regulate and tax business,
might also threaten 'freedom'. This may help explain why bankers, the IMF and
the Chicago School of economists welcomed Pinochet's abrogation of democracy
in Chile in 1973, which crushed labour unions and terminated government interventions
that 'repressed' capital markets." (Triumph of the Market : Edward S. Herman,
1995)
The weak possibilities for the expansion of the market, therefore, is because
of the crisis of capitalism itself. The question why market should be seen in
isolation-away from capitalism. People were engaging in some sort of exchange
from the very dawn of history. But market became capitalist when it became cumpulsory
a force and started disciplining what are the "market forces" often referred
to, if not capitalism itself or rather instruments of capitalism. To see the
market independently of capitalism is to see "capitalism without capitalists",
a phrase used by Frederich Engels to describe the second international.
While discussing on Technological Revolution and increase in productivity,
it is necessary to see what is technological revolution. Harry Braverman in
his "Labour and Monopoly Capital" gives a new insight into the definition of
technological revolution. ''By the last quarter of the nineteenth century, what
Landes called the exhaution of the technological possibilities of the 'Industrial
Revolution' had set in. The new scientific-technical revolution which replenished
the stock of technological possibilities had a conscious and purposive character
largely absent from the old. In place of sponteneous innovations indirectly
evoked by the social process of production came the planned progress of the
technology and product design. This was accomplished by means of the transformation
of science itself into a commodity bought and sold like the other implements
and labours of production. From an external economy scientific knowledge has
become a balance-sheet item. Like all commodities, it's supply is called forth
by demand with the result that the development of materials, power sources,
and processes has become less fortuitous and more responsive to the immediate
needs of capital. The scientific-technical revolution, for this reason, cannot
be understood in terms of specific innovations-as in the case of Industrial
Revolution, which may be adequately characterised by a handful of key innovations-but
must be understood rather in it's totality as a mode of production into which
science and exhaustive engineering investigations have been integrated as part
of ordinary functioning. The key innovation is not to be found in chemistry,
electronics, automatic machinery, aeronotics, atomic physics or any of the products
of these science-technologies, but rather in the transformation of science itself
into capital."
There has been a lot of talk and actions about "transfer of technology" or "technology
transfer" particularly from the developed countries to under developed countries.
The question here is : what is this transfer? One does not talk about transfer
of iron, copper or cotton etc. Either one buys or sell. Myrdal called this "diplomacy
by terminology". By entering into a contractual "transfer", technology enters
into the commercial area and thus removed from the laboratory. This terminology
"transfer" indicates the existences of a limited comprehension of the market
for technology. Besides, technology in this process of commercialisation is
embodied in intermediate products, machinery and equipment, peoples' skills,
in short the whole system of production and even distribution and marketing.
Thus, technology represents a part integrated in a larger whole. As a result,
the market for technology is not independent, but a part of market for the whole.
The latest information technology is on a wild race. Jacques Arlandis in his
"The Tread and Cyber World" says : "The Internet is a virtual continent, the
seventh continent where you may soon be able to install everything that exists
in real continents, but without the constraints of meteriality : libraries,
then shops, soon production plants, newspapers, cinema studios, hospitals, judges,
policemen, hotels, astrologers, places of leisure and entertainment. Within
this continent, empty of real inhabitants, a huge business will develop between
virtual agents of a pure and perfect market economy."
Those who thundered that "the Law of Diminishing Returns" has been replaced
by "Law of Increasing Returns" had a rude shock after the "Frantic Friday" of
April, 2000. They are still gropping with the shock.
The venture capitalists are becoming vanishing capitalists. When the economy
took a turn for the worse last year, so did the fate of billions of dollars
in venture investments by many corporations. Microsoft Corporation shaved 5.7
billion dollars off it's books in 2001 as the value of it's investments in telecommunications
and internet companies declined. For Wells Fargo Co venture capital investment
losses totaled 1.2 billion dollars. Intell Corporations losses last year on
venture capital investments were 632 million dollars.
New Economy based on Information Technology is not another economy and vulnerability
is not a new factor. The information revolution is new, but it is the latest
of a series of such waves that have risen and fallen since the Industrial Revolution.
Those who do not read history exclaim that they are in the throes of the greatest
change since the last millenium or the one before that. They would be hard put
to demonstrate that the modern information processing is more revolutionary
than the steam engine, the rail road, telegraph, the electrical power, the automobile,
the airplane etc. Each of these waves rose to a crest, then fell to an economic
crash, not because of the technology as such but because of the volunerability
of the stock-market.
Apart from new technology, other reasons for the economic boom are the strong
profits and low-cost financing, mainly through the stock-market which resulted
in record level of corporate investment in all kinds of machinery and thus increased
production. Nearly 25 percent of the economic growth since 1996 is a result
of the stock market and real estate booms, says Alan Greenspam, Chairman of
the Federal Reserve of the US. So, technology is not the problem, the problem
is who controls it, how it is used and for what purpose and for whom it is meant.
Alvin Toffler was in India (Mumbai) in January this year. He was the first to
write about in communications revolution and corporate restructuring. Permanently
embedding the term "Future Shock" in global business management lexicon, even
his subsequent books like "The Third Wave", "War and anti-war" and "Power shift"
contributed new terms to the language like "third wave" and demassification.
"According to Toffler, the first wave of change in history was the agricultural
revolution 10000 years back that replaced the crude hunting and foraging by
the great peasant societies The Second Wave was triggered some 300 years ago
by the industrial revolution, while the much talked about Third Wave is the
substitution of mental power in place of muscle power in the economy.
He was addressing 120 CEO and captains of all industries. He stood for Third
Wave and many among the audience also stood by the third wave. But the entire
meeting looked like a frantic one. Toffler himself was a little cautious. Though
he said that they have to reinvent economies just the way economics was invented
in the eighteenth century; he warned : "when you have any kind of change, be
it technological or social, it does not involve just one kind of change but
thousands of changes that are interlinked with each other.... Conflict is inherent
in change, conflict is not always negative, but it can also be very dangerous".
Let it be said in a lighter vein for the sake of those who say that knowledge
has become a commodity that Toffler charged 50,000 dollars for his 50 minute
speech in Mumbai. Thousand dollars per minute.
The latest information technology reveals the contradiction between the forces
and relations of production and by posing to visualise within capitalism a new
social order that cannot be realised without transcending capitalism.
Hen Hirschkop, a research fellow in the University of Manchester wrote in an
article "Democracy and the New Technologies" (2001) an epitaph on information
technology : "The last few years have been very discouraging for socialists
and even moderate social democrats. In the wake of so many reverses and so much
disappointments, the idea that capitalism would push a technological bridge
too far, and so undo itself, is tempting. Who can resist the poetic justice
of corporate power selling it's grave digger to the masses in inexpensive, high-tech
form? But the attraction of poetic justice has always been that unlike the real
kind, one can sit and observe it's progress. When the very structure of a society
depends upon a lack of democracy, however, democracy will depend upon a fight,
and upon social forces with the interests, will, and intelligence to struggle
for it. Technology will doubtless have a role in this struggle, but it offers
no shortcuts : one cannot buy democracy off a shelf, or download it from a website.
It demands courage, fortitude, and political organisation, and, as far as we
can see, Microsoft has yet to design software that can deliver these."
When USA was faced to absorb the surplus production which could not be sold
in the third world because of their incapacity to absorb the surplus production
of the imperialist countries including USA due to their outstanding debts, USA
had to face enormous trade deficits. Remedy sought to over come this deficit
was frantic property and stock market speculations to attract capital from all
over the world. This led to the artificial swelling of company balance sheets
and thus created the illusion of intensive economic activity.
The shifts from flows of goods and services to capital movements, exchange rates
and credit flows, has resulted in the international or rather transnational
money flows. World trade in goods is still larger than it has been before and
so is the 'invisible trade'-the trade in services. Together it amounts to around
3 to 4 trillion dollars a year. But the London Euro dollar market, in which
the world's financial institutions borrow from and lend to one another, turns
over 300 billion dollars a day or 75 trillion dollars a year-about 25 times
of world trade. In addition, there are the foreign exchange transactions in
the world's money centres, in which one one currency is traded against another.
They run around 150 billion dollars a day or 35 trillion dollars a year. But
many of these Euro dollars, Yen and Swiss francs are just being moved from one
pocket to another and may be counted more than once.
The decline of real economic activity owing to the domination of finance capital
is affecting all countries leading to world economic crisis. Industrial share
prices in UK and Japan increased by 300 percent, in France by more than 200
percent and in USA and Germany by about 150 to 200 percent. But the speculative
rise was not supported by a relative growth in industrial production. Internal
economic problems of the imperialist countries, concentration of world trade
among a few capital exporting countries, arbitrary terms of trade, debt servicing
payments by the Third World countries and the lack of purchasing power of the
people of Third World countries are the consequences of the finance capital
operations.
Four years ago, as the so-called Asian Tigers struggled with an economic crisis,
many observers blamed "Crony Capitalism". Now, after the Enron crisis, Paul
Krugman, Princeton university economist, said in New York Times that the latest
revelations in the Enron affair will raise the lid on crony capitalism, American
style. "Cronyism is hardly novel in America; the Clinton administration took
us to the edge on a trade war on behalf of Chiquita bananas, a major campaign
contributor." He says further by quoting from the business magazine "Red Herring"
which has published the "biggest expose to date of the Carlyle Group, an investment
company whose story sounds like the plot of bad TV series. Carlyle specialises
in buying-and-out defence contracts then reselling them when their fortunes
miraculously improve after they receive new government business. Among the company's
employess is former president George Bush. Among the group's investors until
last October was Bin Laden farmly of Saudi Arabia" The Enron saga reveals the
ugly side of modern capitalism.
Lessons from Enron are relevant not merely to USA, they concern many and raise
fundamental questions about what capital markets are really meant for. The failure
(or deleberate?) of so-called analysts from Wall Street firms ended up costing
investors (now broker) dearly; the stock fell from 85 dollars to just 30 cents.
The employess of Enron who put their salary and pension funds in shares and
options in Enron have to satisfy themselves with this pittance of 30 cents.
In their greed for quick money they fell victims to the demands of speculative
financial pressures.
President Bush's economic advisor, Larry Lindsey, has called the collapse of
Enron, a tribute to 'American capitalism'. The treasury secretary Paul O'Neil,
gives the credit to "the genious of capitalism". What do they mean by this?
Companies which cannot manage itself collapse. Again it can rise some time in
the future like a phoenix. Or other companies come up.
This reminds one of what Voltaire wrote some two and a half centuries ago in
his "Letters on England" : ''Come into the London Stock Exchange, a place more
respectable than many a court. You will see assembled representatives of every
nation for the benefit of mankind. Here the Jew, the Mohamedan, and the Christian
deal with one another as if they were of the same religion, and reserve the
name "infidel" for those who go bankrupt. Here the Presbyterian put his trust
in the Anabaptist and the Anglican accepts the quaker's promissory note. Upon
leaving these peaceful and free assemblies, one goes to the synagogue, the other
for a drink; yet another goes to have himself baptised in a large tub in the
name of the Father, by the Son, to the Holy Ghost; another has his son's foreskin
cut off, and over the infant he has muttered some Hebrew words that he does
not understand at all. So others go to their church to await divine inspiration
with their hats on their heads. And all are content."
Kenneth Lay, Chairman of Enron earned more than 100 million dollars by selling
Enron shares. Lou Pai, former Chairman of an Enron subsidiary got more than
350 million dollars. Rebqua Mark, director, received about 80 million dollar.
There are many others who got million of dollars. All are respectable and content.
They hailed American capitalism and reserved the name "infidels" to millions
of small share holders and the employees of Enron corporation.
Stock Exchange is not a new institution. Buying shares anticipating an increase
in the price of the shares and even selling it for a profit are not new. What
is the new phenomena of the late nineteen seventies, eighties and the ninetees
and after is buying sufficiently large number of this luquid capital in order
to buy the controlling interests in big corporations. At times, it is not for
just control in the management but to loot the company by using the nearly acquired
controlling authority. The financial explotion has also introduced in the market
certain new varieties like stock futures and option. Futures are agreements
of contracts to buy or sell specified quantity of the underlying asset at a
price agreed upon by the buyer and sellor, on or before a specified time. Both
the buyer and the seller are obliged to buy/sell the underlying asset. In case
of option the buyer enjoys the right and not the obligation, to buy or sell
the underlying asset. The employees of Enron lost their salary and pension funds
in these two latest brands. Gambling made them bamkrupt.
In a single day on 9th October, 1987, investors in New York's Wall Street lost
500 billion dollars. This had affected major exchanges like London, Paris, Hong
Kong, Frankfurt, Tokyo etc. Industrial share prices, during this period, increased
by around 300 percent in Britain, around 150 percent in USA and Germany, 220
percent in France and 300 percent in Japan. But this speculative rise was not
supported by a relative growth in industrial production. The US stock market
crash on Friday, the 14th April 2000, which is known as "Frantic Friday", according
to experts, is the biggest one day market loss since money was created.
The belief in the salutory effects of stock markets and the financial commitment
of investors world-wide seems to have reached a point of no return. Investors
simply cling to optimism, driving up prices and all the time praying that their
profits are proof that there are astute market players. But this hope does not
negate the irrefutable fact that days of reckoning are inevitable, despite determined
efforts to ward off. On "Frantic Friday", investors witnessed the devastation
caused by a small crack in the veneer of hope. Seeing it, they became frightened
enough to scurry again behind the bulwark of optimism. What is this optimism,
if not mere speculation?
While concluding the speculative character of the finance capital, it would
not be proper to avoid noting an aspect of this subject raised by an eminent
Marxist economist Paul Sweezy a decade back in Monthly Review, December 1991,
titled "Monopoly Capital after Twenty five years".
''Why did "Monopoly Capital" (refering to his book along with Paul Baran, 1996)
fail to anticipate the changes in the structure and functioning of the system
that have taken place in the last twenty-five years? Basically, I think the
answer is that it's conceptualisation of the capital accumulation process is
one-sided and incomplete. In the established tradition of both mainstream and
Marxian economics, we treated capital accumulation as being essentially a matter
of adding to the stock of existing capital goods. But in reality this is only
one aspect of the process. Accumulation is also a matter of adding to the stock
of financial assets. The two aspects are ofcourse interrelated, but the nature
of this inter-relation is problematic to say the least. The traditional way
of handling the problem has been in effect to assume it away : for example buying
stocks and bonds (two of the simpler forms of financial assets) is assumed to
be merely an indirect way of buying real capital goods. This is hardly even
true, and it can be totally misleading."
He is frank enough to say that he has no clue to it's solution and suggests
that a better understanding of the monopoly capitalist society of today will
be possible only on the basis of more adequate theory of capital accumulation
with special emphasis on the interaction of it's real and financial aspects,
than we now possess.
The Third World is in a debt-trap or debt crisis and the terminology itself
was not in use prior to nineteen eightees. In short, what is this trap? Imperialist
countries and their banks went on giving loan to the third world countries and
the third world countries went on borrowing. Even to repay the loan instalment
and the interest they borrowed, and this borrowing went into the extent of defaulting.
There was panic in the western banking system and was on the verge of collapse
in the early 1980s, when Mexico and one or two other Latin American countries
were unable to repay. Failure of the Latin American countries to act together
against the creditor provided some time to the bankers to reschedule their loan
with the support of the government and international agencies and gradually
to write off their lost assets. The crisis remained, the relief was - at that
point it did not become potentially fatal. So the crisis continues.
Argentina, a major country in Latin America, in January this year, has defaulted
on it's external debt. Argentina, about two years ago, was being heralded as
a model of macro-economic stability.
The most important cause for Argentina's economic trouble was the government's
decision to maintain it's fixed exchange rate-one peso for one dollar, adopted
in 1991. But during the past few years the dollar has been overvalued, which
made the peso overvalue as well. An overvalued currency makes exports more expensive
and imports artificially cheap. The US which holds a strong dollar has brought
a record 400 billion dollar trade deficit. But it gets catastrophically worse
for a country that has committed itself to a fixed exchange rate when investors
start feeling that the peso is going to fall, they demand ever higher interest
rates. These exorbitant interest rates are crippling to the economy. This is
the main reason why Argentina has not been able to recover from four years of
recession.
To maintain an overvalued currency, a country needs large reserve of dollars,
the government has to guarantee that everyone who wants to exchange a peso for
a dollar can get one. The IMF's role here was crucial. It arranged large loans,
including 40 billion dollars a year ago to support the peso. But, imagine, the
US borrowing 1.4 trillion dollars - 70 percent of the federal budget just to
prop up an overvalued dollar. It did not take long for Argentina to pile up
a foreign debt that was impossible to pay back.
What happened in Argentina is not a new phenomena. It was serious as early as
in 1982 when Mexico had threatened default in repayment of debt. By 1987 the
debt to export ratio was 300 to 550 percent.
Debt crisis cannot be explained by simply saying that loan taken could not be
paid back due to one or other reason. This crisis arose due to the introduction
of a policy for new world order through IMF and World Bank, the economic gendarms
of imperialism. The main theme of this policy was a "market friendly approach
to development." The policy prescriptions to the third world under "Structural
Adjustment Programme" were as follows : There should be no governmental role
in production of goods and they should not interfere in the market. Governments
should deregulate the economy so that market could determine prices and chanalise
the process of investments. The sole task of the governmets should be to build
and maintain infrastructure for the market forces. They should remove all barriers
to trade and open their economies to international trade and investment.
What has been attempted through IMF, WB, WTO etc is to reconstruct the imperialist
economy by bringing the third world countries further into the orbit of international
trade in order to overcome their crisis by transferring it onto the third world.
These agencies force the borrowers to submit to various offensive conditions
such as supplying informations about their economies, submitting their plans
to WB and IMF for supervision of the use of loans etc. As already seen one of
the consequences is the debt-trap.
In most of the third world countries, the SAP has been devastating with a decline
in the quantity and quality of the public services like health, education, housing,
water and it's increasing costs. In sub-saharan Africa, these cost-effective
initiatives have reduced the wages of teachers to as low as 15 dollars a month.
The weak currencies of the Third World are frequently forced to devaluate. This
devaluation of currency reduced the real wages of the workers. At the same time,
it does not improve their competitive position, on the contrary reduces the
value realised for the exports. Further, the fall in demand is used to push
down the prices of raw materials. The international monopolies maintain the
prices of manufactures at a high level. But in the case of raw materials including
agricultural commodities, where the production is not organised on monopolistic
line, the fall in prices in considerable. Thus, more of the burden of the economic
crisis is being passed onto the Third World, particularly in the agricultural
sector.
Debt problem is not an exclusive one of Third World countries. The leader of
the First World, United States of America, is not only free from debt, but the
largest debtor country in the world.
If the American economy was able to cover it's "visible" trade deficit through
earnings in "invincibles" such as services, investment income, and tourism,
as Britain did before 1914, the position would be less serious; but American
invincible earnings are insufficient to close the gap. As a result, the United
States now pays it's way by borrowing from foreigners roughly 100 billion dollars
each year. Once the world's largest creditor, the United States has by some
measures become the world's largest debtor nation within less than a decade
(H. STOUT, "US Foreign Debt Widened last year", Wall Street Journal, July 2,
1990. Quoted by Paul Kennedy in "Preparing For The Twenty-First Century, 1993)
According to the "Global Development Finance" report of the World Bank, FDI
flow to the third world countries has been concentrated in a handful of countries
through the 90s. The share of top ten recipients-China, Brazil, Mexico, Argentina,
Poland, Chile, Malaysia, Korea, Thailand and Venezuela-has never fallen below
64 percent. The report finds large exports, good policies, strong economic programmes,
privatisation and a sound merger and acquisition regime responsible for this
concentration of FDI.