A return to barbarism

Thursday, 02 August 2012 20:21
The US, which has 5% of the world population, consumes more than 25% of global oil. In the past ten years, at least two military conflicts were oil related
Do you remember the “End of History” enigma! Francis Fukuyama argued that the worldwide spread of liberal democracies and free market capitalism and its lifestyle may signal the end point of humanity s socio-cultural evolution and has become the final form of human government. I wonder what he might argue now following a five years deep crisis of the same triumphant liberal model. Not only the crisis has deepened,but there seems to be no end in sight. In contrast, I would like to argue in this short piece that we have actually returned to barbarism. Nothing seems to be in its proper place. While it is important to be aware of its class dimension, but I would further argue that the crisis is so deep that no class is safe and if we fail to find an effective solution, no one can escape the direct consequences or the ricochet. There are five interrelated dimension to the crisis:
1- Financial crisis:
It is true that periodic crisis is in the nature of capitalism and this latest crisis, which had almost brought down the whole global monetary and financial systems, is no exception.But it is more destructive and deep. It is more destructive as it came at the back of more than 30 years of Utopian Neoliberal economic policies combined with widespread financial innovations and creation of unworkable financial instruments and excessive de-regulations. Captains of finance want us believe that the crisis is under control, but the intensification of crisis in the Eurozone has shattered that illusion. Greece, Spain, Italy, Portugal and more recently, Hungary and Belgium and Cyprus are just some of the examples that the crisis is not over. In the EU, France and 8 other members have recently had their credit rating reviewed and in the USA, while Wall Street has returned to money making as usual the size of derivative markets has exceeded $600 trillion. Let us recall that the total monetary value of global GDP is about $65 trillion, implying that if only 10% of these derivatives were to become too “toxic”, there would be very serious implication for the world economy. The other issue of significance is that in 2009, 5 major American banks were holding 80% of these derivatives, but now, only 4 banks --- J.P Morgan Chase, Citigroup, Bank of America, and Goldman Sachs group--- hold 96% of these massive derivatives[i] and with the slightest unfavourable situation emerging, it is most likely that these banks would become insolvent. Equally important, if anything like this happens, can the American government prepare any bail out plan to rescue them. I do not think so, and, hence, the question remains what is the prospect for the global financial system.
Financial innovations have contributed to the creation of the world largest casino. While there is not enough investment for the creation of value and surplus value in the real sector, betting is taking place on almost anything, including the likelihood of assassinations and terrorist attacks[ii]! Setting this aside, speculators have taken control of the global market for oil or food items of different description.
2- Energy Crisis:
In the last 100 years, economic growth in the world was to a large degree dependent on cheap energy source, namely oil. It was this cheap energy that allowed the growth of food supply, being essential for a growing population. But the cheap energy is over forever. Not only is the cost going up,but its supply is not certain. This combination will bring into focus another important issue: How would the global economy be affected by increasing costs of energy? The US, which has 5% of the world population, consumes more than 25% of global oil. In the past ten years, at least two military conflicts were oil related. Nowadays there seems to be little doubt that the main reason for the invasion of Iraq was oil and similarly, not long ago the UK and France had suddenly discovered that Libyan dictator, Muammar Gaddafi was really a nasty person who had to be toppled by “humanitarian” military intervention and he was. Once again, there is little doubt that if there was no oil in Libya, it is unlikely that we would have witnessed a humanitarian intervention.
3- Population crisis:
The global population has gone beyond 7 billion, but its size is not the only problem that we face. In the industrialised countries, people are living much longer and the financial implications are putting further pressure on financial imbalances while in the developing part of the world, demographic composition is getting younger and younger, i.e. a larger proportion of the population is under the age of 30, implying greater need for jobs, and homes and education and health facilities. It is estimated that by 2050 the number of people over the retirement age would increase significantly in the world, and that could only mean a rise in poverty among the elder generation. In the developing countries the number of people who have little access to education and are effectively unemployed would rise too. The only way to finance the pension deficits in the industrialised economies is to raise the tax rate but in recession-affected economies this policy does not seem wise as it will intensify recession and unemployment. If taxes could not increase, it is not clear how this shortfall in pension fund could be financed. According to Dambisa Moyo, pension schemes in industrialised economies are the largest Ponzi financial schemes that these governments devised. In the USA, the shortfall is $2.1 trillion, or 15% of GDP and in the UK, it stands at an astonishing level of $1.3 trillion which is 64% of UK GDP[iii]. In short, those who still work in these economies may have to pay more taxes, to finance the current pension and save more, to finance their own pension. In short, consumption is likely to fall and intensify the current recession.
4- Political Crisis:
In addition to the intervention of powerful people and organisations to control politics and political machine, the global situation has developed in a way evenaffecting countries that have fair and free elections; the state machine is under the control of the 1% of superrich, i.e. those who have enough financial resources to be able to participate in the elections process, which is becoming more and more expensive everywhere. In a way, the electorates have increasingly less and less options and that may to some extent explain why the official politics in these societies are losing their attractiveness to an average man or woman on the street. In the latest elections in the USA, the participation rate was only 42% meaning that the majority of the electorates did not even bother to vote.
5- Moral Crisis:
What I mean by a moral crisis is the fact that in economic or political affairs, respect for a well-defined moral set of rules is declining globally. In politics, factionalism and party’s interests are paramount and in economics and business, nothing but profit maximisation rules. Environment, child labour and other social issues are not taken seriously. Look at the on-going financial crisis, setting the structural factorsaside; there is no doubt that the activists in the financial markets played a significant role in bringing about this crisis by focusing on their short term profits. But following the collapse, Western governments had to borrow enormous amount of money to bail out these institutions. Now that this policy appears to have failed, most governments embarked upon widespread and deep austerity programmes, i.e. trying to socialise the cost of misconduct by the champions of the private sector on the whole population. When the system was “working”, the profit was privatised, but now, its costs are being spread among those who had little share when the system was functioning. The average men or women are paying these extra costs in the form of greater unemployment, less wages and salaries, less pension and longer years of work. It goes without saying that these austerity programmes can only make the situation worse. These programmes have deepened recession everywhere and with a deeper recession, state’s revenue is likely to fall while its expenditure would rise, i.e. more must be borrowed to balance the book or go for deeper cuts and deeper recession. It seems that many of these economies are trapped in what I would call a vicious circle of austerity. There are some who argue that in the age of globalisation, domestic aggregate demand is not as significant as it used to be. If a country is active and successful in the global market, it could compensate for the insufficient domestic demand. In the post war years, there are a few examples indicating that this model was successfully utilised by Japan, South Korea and in more recent times, by China. If a small number of countries try to have an export-led growth, this will be feasible, but that could not offer any relief to our global economy. If an export–led growth model is to be successful, there must exist others who are willing to utilise an import-led model, i.e. to absorb the surplus production of those economies whose domestic aggregate demand may be seen to be inefficient. This model has a lot less chance to be successful now for a variety of reasons:
- In view of globalisation of austerity, aggregate demand is declining in the world economy.
- Given the crisis in the USA, and in the EU, it is not clear which economies would be keen to utilise an import-led growth model.
6- What is to be done?
It is my contention that without encouraging growth in the global economy, the current crisis will persist and would only deepen. Higher growth, however, is inconsistent with a globalised austerity model and deep cuts in many economies. To put it differently, within the current economic paradigm, this crisis has no solution and we must try to be innovative in finding new ways of tackling these issues. It is further asserted that as a result of de-regulations and changes taking place in the last 30 years, the required and necessary institutional framework is not in place for a triumphant return of Keynesian demand management.Free capital mobility has tied the hands of the states to raise sufficient taxes in order to finance their programmes. There is a global competition to attract foreign investment and tax competition among the states has reduced nation states’ ability to manage demand effectively. Hence a new approach is needed. Let me make a few suggestions:
- We should give the utopian neo liberal economic policy and the dominance of “invisible hands” a decent burial that they deserve.
- Instead of an economic system in the last 30 years in which human being was the servant of the system, we should reverse the role and our system should be modelled in a way that it will serve the needs and aspiration of mankind.
- It is true that economic agents are rational, but it should be recognised that this rationality is bounded. To ensure that this bounded rationality is properly managed; effective regulations should be in place. It is claimed in some circles that transparency is a panacea, if information is provided, we would have no problem. The financial crisis of 2008 has shown that if information had any role to play, there was too much of it and economic and financial agents were not able to utilise them to assess risks.
- In the last 30 years at least, the dominant motto was when individuals “maximised” their “utilities” or “profits”, society’s interests would be maximised too. Is it not what the bankers and other participants in the financial markets tried to do, leading to the crisis of 2008? There must be a proper balance between our individual needs and our collective social responsibilities and rules and regulations should be devised to ensure that we have an effective and efficient combination of the two.
Notes:

________________________________________
Keith Fitz Gerald: Four US banks hold a staggering 95.9% of US derivatives: The $600 Trillion Time Bomb that’s set to explode, in http://www.globalresearch.ca/PrintArticle.php?articleId=27106
[ii] John Bellamy Foster & Fred Magdoff: The Great Financial Crisis, MR press, 2009, p.57
[iii]DambisaMoyo: How the West was lost, Penguin books, 2011, pp 78-79
After nearly 30 years of teaching, the author has retired in 2010 from his post at the University of Staffordshire. Currently he is teaching at Regent s College in London Email: [email protected]

Rate the article
Bad	1	2	3	4	5	6	7	8	9	10	Very good
Result : 40%							Participated in the vote : 3