The United States and European countries, which dominated every nook and corner of the world by constructing their own system of social justice, are now in a state of shock. The uncertainty about future has made experts convene meetings by the hour in European and US capitals. They spent billions of dollars of hapless taxpayers to bail out giant corporations.
They blame the inevitable failure of capitalism on excessive borrowing and consumption. They find fault with the “have-nots” and have started drafting policies to exploit them more. Imperialism is a system that serves the powers that be. It has no connections with democracy.
The present scenario has once again has proven economist’s observation that the capitalist system based on exploitation of the people will not sustain itself. World’s superpowers, which colonized other countries using military power for creating new markets, restructured their politico-economy after the first world war.
Unlike the feudalistic social structures of the past, capitalism has witnessed several falls within a short span of its birth.
The economic crisis of the early seventies created the neo-liberal models which are crumbling today. The new order of liberalism and globalisation was created to withstand the economic crisis of the seventies. Italy’s former finance minister Giulio Tremonti who saw in globalisation a big hope, later (within a span of few months) wrote a book on the dangers of globalisation.
As socialist countries emerged as a challenge to western capitalism in the seventies, capitalists started moving their investments to Third World countries in order to make more profits and to weaken the labour force in the US and the Europe.
The price paid by Western labourers for globalisation and neo-liberalism is unemployment. This rampant unemployment helped capitalism create a reserve army of labour in their own countries. The excessive profits capitalism earned by exploiting third world’s workforce went a long way in funding the social security guarantee schemes to please the unemployed.
The structural crisis of economy which began in the seventies lasted till early eighties. Reduction in industrial productivity, lesser growth rate, unemployment, macro instability of boom and recessions forced would-be US president Ronald Reagan and would-be British Prime Minister Margaret Thatcher to frame globalisation as a policy, according to George Soros. Further he elaborates that today’s economic crisis has several unsolvable features within an entirely different capitalist structure.
In the last twenty years, globalisation has become so widespread that one feared of every nook and corner of the world would become the backyard of American imperialism. When globalisation, the highest form or manifestation of imperialism, is shaken, it is natural for economists and common folks to raise a question if the imperialist structure and its dependent countries could sustain themselves.
Every time capitalism collapsed, a new order such as the neo-liberalism of the 1970s was created to sustain it. However the present situation is completely different. Many capitalist economists have admitted that an all-new restructuring appears to be impossible. Many predict that the dominance of the US and the Europe would last only for a few more years.
Karl Marx’s Vision
When Karl Marx predicted this crisis 160 years ago, he was depicted as a terrorist and a mischief-monger. Karl Marx’s thoughts on economics referred to popularly as ‘Trajectories a la Marx’, explains scientifically why capitalism cannot sustain itself. Marx and Engels, establishing this by dialectical method, say that a communist society would be born from the ashes of a capitalist society. Karl Marx, who introduced to the world scientific socialism, is now remembered not just by capitalist magazines but also by religious leaders. “Karl Marx is proved right. Capitalist economics is suffering blows from all sides,” says the editorial of The Guardian in Britain.
“The criticism of capitalism by Karl Marx, the father of modern Marxism, is partly true,” says the religious leader from Canterbury. Keeping the capital and property under individual ownership is one aspect of capitalism; agency of capital is the other side of the same coin. Macro economic features help this structure sustain itself.
Capital will be accumulated in one place, either with individuals or with giant corporations. The owners of capital want to save it up. Credit Mechanism is born here. It is carried out through banks and money distribution. The nature of money distribution, being an endless one, becomes a threat to the capital accumulated through profits according to Gerard Dumenil and Dominique Levy in their essay Neo Liberalsim: It’s nature and contradictions. The present economic crisis has its roots here.
As Karl Marx rightly pointed out, one of the basic requirements of capitalism is buying labour force. Periodic replenishment of army of labour is central to determine the price of labour from time to time. Creating unemployment for a section of workforce and thereby stopping the pay hike of the rest of the workforce is a strategy to keep up the profits. These two aspects of capitalist mechanism has led to the 2008 economic crisis and the fall of capitalism. The economic crisis of the seventies and its resultant globalization helped free movement of capital. Giant corporations moved to third world countries such as India to increase their profits. Western giant corporations flourished. Capital kept accumulating.
The basics of today’s crisis
Capitalism drafted new plans after its crisis of the 1970s. They found new ways to circumvent the protests of the organized labour force and the struggles of the trade unions for pay rise. A new order is created to overcome the threat of Marxism and the united struggle of the oppressed sections.
Capitalist economic structure, which has profits as its basis, escaped from the well-organised workforce of the West and moved to poorer countries in search of cheap labour. This is what Karl Marx termed as the agenda of creation of unemployed labour force. This jobless army of labour helped control the pay hike of existing workforce in Britain. For instance, the oil tanker drivers of Britain did not enjoy any pay hike after 1992. If the present workforce is sacked, there is an army of labour waiting outside to fill up the vacant posts. This modus operandi has naturally created a change. This has driven capitalism to plunge into the present crisis. The crisis began when the capital and production were moved to third world countries.
With industrial manufacturing sector literally off-shored to third world countries in the last ten years, small productions, banking capital became the source of capital in imperialist or English-speaking countries. After the digital electronics boom of the 1990s, IT became widespread. 80 per cent of the population in Britain and US handle computers and are familiar with them. But the manufacturing of computers by giant corporations such as HP, Dell take place in countries like India and China. While the production was carried out elsewhere, it was the money from sales which helped accumulation of capital in the West. The owners of the capital, which was accumulated by exploiting cheap labour, found in their governments protectors. The governments created credit mechanism to please their people and help the movement of the capital.
Credit Mechanism through the banks
Credit mechanism is the business dynamism of providing the capital invested in stock markets and savings as loans to people and making profits from it in the form of interests. Housing loans are the highest form of this mechanism. As the interest rates of housing loans were slashed, the number of people opting for housing loans went up. The demand for houses increased. In US and Britain, the prices of homes went up by 60 per cent in 10 years. This helped increase the capital of corporations in the housing sector and that of the banks offering home loans. As a result, the dynamism of the capital went up and helped save capitalist economic structure. Thus capitalist credit mechanism helped rotation of the capital and capitalism. The profits associated with the capital invested in third world countries increased. Though there was a guarantee for the pay hike of the European workforce, it was deducted in the form of interest for loans and taxes.
According to economist Michael Robert, home loans were the prime mover of European capitalism as there was hardly any investment in the manufacturing sector. With most of the industrial manufacturing sector moving to the third world, the credit mechanism-dependent structure is crumbling down. Capitalism which kept itself going by reinvesting its profits, earned in the third world, is now struggling to find an alternative.
The consumerist society without the capacity for manufacturing in Britain has left each family with a debt burden of 59,350 sterling pounds. The debt has increased by 10.6 billion sterling pounds in the last 12 months. During 2007, the average per capita income was 1338 pounds and the average daily expenses were a little higher than this.
The ever-increasing cost of living in the West and the inability of the people to pay up their debts created a crisis for the banks. With the prices of homes increasing at 90 per cent rate, people stopped buying houses and the prices of homes hit an all-time low. The giant corporations and business tycoons started withdrawing their shares from the banks and the banks started to fall.
In the US, banks started take a beating since 2006. Yet the crisis accentuated only in 2008. Savings banks took the first blow followed by the commercial banks.
What do we do now?
Capitalism is attempting to create an illusion that the present crisis is just a credit crisis. It has been taking efforts and doing the campaign to avoid any pessimism arising among the public in the system of capitalism.
The dynamics of imperialist capitalism has come to a screeching halt. With the production capacities of manufacturing forces coming to a standstill and no alternative economic models in place, the capitalist structure presents temporary models to buy time. US government paid 700 billion dollars of taxpayers’ money to bail out banks. Britain’s Gordon Brown government acquired 50 billion shares to overcome the crisis temporarily. They are still searching for other coping mechanisms.
Imperialist countries talk about controlled capitalism and cooperation between banks; they don’t even whisper about the huge capital accumulated by giant corporations. They cannot exploit poorer countries like before by devising new schemes. The boom of Chinese capitalism and the modernization of manufacturing sector in the third world have become new external factors while dealing with the crisis. US-led economic monopoly is coming to an end. It will try to regain control again. What alternatives do the Leftists have? The mere boasting that Karl Marx predicted movement of capitalism from the West to the East and the fall of capitalism will not suffice.
Britain: The housing tsunami: Michael Robert. 2008
The politics of financial service revolution: Michael Morgan. 1991
The Globalisation Decade: A critical Reader : AAKAR BOOKS. 2006
Financial Time UK
The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means : George Soros.2008
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