The Crisis of Capitalism and Post-capitalist Horizons

Pedro Páez

A century ago, Rosa Luxemburg stated that the historical dilemma humankind faced at that time was either socialism or barbarism. The current global crisis underscores emphatically the need to create the objective and subjective conditions to guarantee a solution that enriches and projects the best of human experience from the last centuries. It is a responsibility incumbent upon the progressive forces to immediately create a resolute programme which will permit political consolidation, while at the same time blocking the emerging neo-fascist agenda and opening the way for major transformations.

The profound changes of economic processes and social powers which have led to the enthronement of financialisation during the latest stage of capitalism have provided a series of particular challenges for the political actions of the progressive forces within the scope of the current crisis. A certain euphoria among critics of the system notwithstanding, it is important to acknowledge the strong presence of reactionary tendencies all over the world in a network of ideological, political and financial allegiance led by those who, for the time being, are the major beneficiaries of the crisis: a small Anglo-Saxon oligarchy tied to speculative, military and energy interests. Ironically the same social actors who are largely responsible for the current crisis have gradually learned from history how to use the destructive expansion of the profound processes currently in motion for their advantage.

Even if a scrutiny of the internal mechanisms of capitalism regularities which have led to the present crisis reveals that only systematic transformations of great depth can provide a solution to the depressive trends, it is necessary to assess that the tremendous centralisation of capital and power over the past decades, which has been aggravated over the past months, characterises rather distinct profitability priorities. Facing the crisis, war is the simplest, cheapest and most profitable solution for those mafias. Therefore we must not only analyse the crisis of capitalism, but also the capitalism of crisis.

A recovery of production and labour dynamics will require more than structural changes of institutions and economic policies (modes of regulation), or changes in the dynamics of income distribution and the alignment of investment (regime of accumulation). Rather, it will be necessary to advance productive logics and social priorities that go beyond the law of profit (mode of production) and require the transformation of production and consumption paradigms (mode of life). No deterministic mechanism can lead to that kind of solutions. Historical progress will only be possible if we, as progressive powers, immediately initiate at the global level a swift, adequate and flexible coordination process towards a realistic and technically accomplishable programme of change, which can bring together the broadest-ranging array of forces committed to peace and progress.

Objective and subjective conditions

In this enduring situation, the issue of the historical subject is gaining increasing importance. The violent development of the crisis requires real action on the part of every human being. The dehumanisation of circumstances seems to be increasingly omnipresent. The crisis exacerbates the mercantile fetish of seeing the economic world as alien and immune to human volition. This attitude underscores the need for the effective creation of capacities to act within the scope of the crisis, in particular with regard to what is owed to the nations of the southern hemisphere, which during the last decades have fallen victim to a systematic process of institutional cutbacks and macroeconomic debilitation.

The present financial struggle could reach dramatic proportions, transgressing the scope of rationality established over the course of centuries. The decisions made by ever more powerful, yet minuscule elites affect the lives of millions, including matters of life and death.

The tremendous concentration and centralisation of capital during the last thirty years is dwarfed by what has been going on during these months of open crisis. In the United States for instance, only 47% of the banks registered in 1982 still existed in 2004 – within an increasingly depressed and intricate framework based on triangulations and pyramidings, which reflected a very narrow propriety and control structure. For instance, the seven banks which were historically dominant within the Anglo-Saxon system by means of transnational manipulations, financial alarmism, wars and the shaping of the present international credit structure, have consolidated into merely three. These very high finance factions have created the so-called “shadow banking system”, consisting of non-bank financial institutions that have hypertrophied speculation and shattered the banking system. According to the Comptroller of the Currency for the Unites States, five banks, including those mentioned, control 97% of the derivatives market, the national value of which last year represented bonds equivalent to twenty times the global GDP.

These conflicting parties benefit from the frailties the system has accumulated, their control of national bodies in several countries, and their privileged knowledge, allow them, like demolition experts, to push schemes of annihilation against their former friends. This carefully guided (if not provoked) sell-out has been going on for months now, its acquisitions eventually turning into enormous financial operations facilitated by blank checks and apparently unlimited national bailout plans.

The fact that many millions of people helplessly face the deterioration of their living conditions opens a clear perspective for resistance and rebellion. The millions of workers, who have been “punished for life” without cause, and have lost their jobs, have their counterparts in the millions more, who – especially in the South – are losing even the already meagre daily livelihood of their families. Just to illustrate a rather complex phenomenon: the ILO estimated that more than 30 million people lost their formal jobs in 2008, and that in 2009, the number of jobs lost would surpass 50 million. According to the FAO, the number of people threatened by famine rose from 850 million in 2007 to 960 million at the end of 2008 and we would close this year at more than a billion people!

And all this even though the formidable capacity for production that humankind has generated is a known – and notorious – fact, and there is an ever-increasing number of people who know about the growing amount of scientific and technological advances that cannot be productively expanded, because they do not satisfy the need for profitability demanded by the financial sources controlling the process.

The resulting frustration, both at the individual and the collective level, could lead to a negativity which might eventually favour a sustained reactionary policy designed to preserve decadent capitalism, not only within the framework which Paul Krugman already in the 1980s called “The Age of Diminished Expectations”, but in a situation of real economic standstill and social decline.

This sense of injustice and indignation collides with the fear – whether real or ideologically induced – that little or nothing can be done to change things. Those steering the course of events nourish such fears so as to dissuade people from the idea of collective action, and to guide them instead towards individualism of the “every man for himself” type and eventually towards impotence and conformity with the triumphant power.

This crisis involves the whole planet, and almost all humankind, in an unprecedented manner. Like never before there is a confluence of conflictive long-term processes occurring parallel to a series of recurrent and auto-affirmative nexuses, which could prove to be mutually beneficial in an explosive way. This is not merely a financial crisis, but also a crisis of production, a food crisis, an energy crisis, an environmental crisis, and, very soon, a crisis of legitimacy.

The production process of goods and services is per se a process of productive significance. The sudden rupture of productive continuity also implies a rupture of the chain of significance. The senselessness of punishment in terms of unemployment, hunger, exclusion, and uncertainty without “having done anything wrong” is becoming ever more widespread in a large number of geographical and social areas, promoting a rupture of rationality and of value systems. In the face of a latent legitimacy crisis, only the capability of the progressive powers to assume moral guidance can open the way to a historic alternative bloc, in order to create a new culture of social coexistence.

Imperialism and macroeconomics: capitalism in crisis and the victimization of workers

Macroeconomic management has been crucial in this massive and accelerated process of the dispossession of decision-making powers. The literature on imperialism has paid little attention to the role of macroeconomics as an instrument for dominating entire nations. True to a tradition that emphasises the extra-economical factors of modern imperialism, from a reference more established in the historical experience of the old colonial empires – be it the first generation from the sixteenth to the eighteenth centuries, or the second generation in the nineteenth century – the main focus is on the forced destruction of certain modes of production and the imposition of monopolies and the prohibition of remote trading. In more economically focused studies however, such as those by Hobson, Hilferding, Bukharin, Luxemburg, Kautsky, and Lenin, as well as later in Marxist and neo-Marxist currents of different pattern and nationality, the focus is on the role of enterprises and private niches. The debate on unequal exchange holds a plentiful cache of theoretical instruments to understand the issue, but still leaves many gaps to be filled.

The construct of a specific epistemological field within the economic sciences is mirrored by the ontological development of the possible “management” of the law of value within capitalism. The structure that some authors call “state monopoly capitalism”, and the historical period that started to mature around the efforts of the world powers involved in World War I, are at the root of the various phenomena which in course of time became known as “macroeconomics”.

The transformation of the old colonial empires, and the global redefinition of neo-colonial power after World War II placed a double burden on Latin America, which was under the hegemony of the dollar: first, the creation of a tacit “dollar bloc”, the domination mechanisms of which were aggravated by the unilateral rupture of the Bretton Woods Agreement; then, the inconvertibility of the dollar and the imposition of neo-liberal policies which impacted with brutal force in the manipulated external debt crisis (the “Latin American debt crisis”) of the early 1980s. The process of macroeconomic infringement in Latin America is directly linked to the competitive slowdown of its industrial capital, including a systematic dismantling of the economic sovereignty, the so-called “policy space”, the actual scope of options for action available to national governments and economies.

The eroding functions of the national currency, the frailty of the external sector facing the volatility of the non-regulated movement of capital, the race to the bottom in taxation, wages, environmental standards etc., trade agreements and absurd free-trade-ism are making it almost impossible to make policy in our countries, indeed, to make decisions.

Now this regime of capital accumulation based on deregulation, the re-primarisation of the periphery, financialisation and regressive income redistribution has imploded. Though directly linked to this regime, the hegemony of the dollar in the global power structures is appropriately slackening, while at the same time remaining the vital instrument for the obstinate defence of an out-of-date model which countervenes the entire range of democratic gains of the past centuries.

For this aging world power, the speculation/war-profiteer agenda is becoming the easiest and most profitable solution for capitalism in crisis. The massive destruction of value and capital, which requires productive redundancy due to over-accumulation of sectoral capacities, defines loser and winner geographies. The tensions among nation-states to over productive capacities could become a fertile ground for conflict, which could rapidly enter a hardly reversible spiral. The powerful interests of war entrepreneurs allow such dynamics to prosper. The asymmetric macroeconomic response capacities will necessarily be exacerbated by the logic of the anxiety and survival instincts of certain capital factions, between whom tensions are generated, due not in the least such issues as exchange rates and trade wars.

The New Financial Architecture and the creation of alternatives

But the same process of increasing power centralisation has generated a dynamic of potential power accumulation towards a more democratic horizon: the great systemic actors, who are feeling “uncomfortable” or even threatened by the turn of events, are becoming ever more important.

These recent and increasing cracks in the structure of domination are merging with ”fractures” in the historical structure of the current world powers, to form a whole which the progressive forces must handle lucidly, so as to resolutely affect the business trend during the weeks to come. The ferocity and velocity with which the crisis is expanding is causing unusual shifts in the global balance of power.

The Latin American initiative pulled together by United Nations General Assembly President to discuss alternatives to the financial crisis at the global financial summit on 1 to 3 June 2009 has opened an unprecedented and truly multilateral negotiating framework – a great achievement, even as a mere prospect, given the efforts to neutralise the summit, or lower its profile by pressuring some heads of state into not attending. The mere fact that the G192 instead of the G8 (and not even the G20) will provide the framework of the discussion deeply calls the possibility of unipolar imposition into question.

Social movements, political powers, progressive governments, and intellectuals must know how to make use of the historical opportunity that has arisen, including the high-level discords regarding a global decision to publicise abuses and “to right the wrong” caused by those long, but so far timidly protested “exorbitant privileges”.

Clear proof of those new, albeit probably only temporary possibilities which have been opened up by the progressive offensive in recent months, is provided –in a different ways – by: the very call for the summit itself; the inclusion of quite distinct voices in the G20; the Central Bank of China’s open challenge to the current foreign exchange reserves system; the Russian positioning and the feasibility of other demands by the same medium-sized powers, and which have been expressed, too, in the preparatory documents of the Summit by the expert commission presided over by Joseph Stiglitz, as in the latest G20 communiqué.

Given the specific context of the recent repositionings, the following three issues could be suggested as elements to be discussed for inclusion in an immediate democratic agenda:

1) If after more than thirty years of North American veto, the G20 finally accepts the necessity to issue $250 billion in special drawing rights, it should immediately be accepted, but without strengthening the old financial architecture represented by the IMF and the supremacy of the dollar.

First, it is necessary to renew the agreement annually, not implement it permanently within the framework of new North-South relations. The present norm defines that 60% of the issue go to the United States and Europe. If those countries would donate that share, they would partly compensate for their failure to fulfil the agreements reached in Monterrey, to earmark 0.7 % of their GDPs for foreign aid – and thus save the tax expenditure needed to meet that commitment.

But that is not enough: it is indispensable to make sure that these new funds do not help reinforce the old IMF practices of bilateral blackmail to impose adjustment policies on countries in distress. The annual issue of Special Drawing Rights (SDR) must be channelled multilaterally, for instance, through the FAO, to fight the risk of famine and deprivation; or to the UNEP, to counteract the environmental crisis; or to the UNDP, to confront the most dramatic and urgent aspects of poverty. And these resources must be channelled through regional financial agencies, to strengthen regional monetary bloc agreements and the construction of a new multi-polar monetary and financial order.

This last aspect could acquire serious strategic dimensions as each global region could develop, according to its specific political and economic conditions, a new regional financial architecture including at least one mainstay of the new type of development bank (which in Latin America could be represented by the Bank of the South and the Bank of ALBA, the Bolivarian Alliance for the Peoples of Our America); netlike support by a new central bank (from the future Fondo del Sur/Fund of the South, for example), and the corresponding SDR based upon regional compensation systems allowing a well-balanced readjustment of commercial flow, leaving behind dollar dependency and free trade agreements (for instance with the Sucre).

2) It is a fact that substantial contributions in favour of the IMF have been decided upon, not only by the governments of the North, but also by those of the South – including governments run by progressive forces. This serious turn of events is part of an increasingly successful effort to rescue the core of the old international financial architecture from its ideological and operative decline.

After 2003 the IMF portfolio dropped by 90%, but in November 2008 alone this organisation was in the position to offer more loans than in the preceding five years combined, and the queue of countries desperate for its support is growing daily. It is a matter of urgency to block this agenda and to transform the political desire of some countries for an injection of funds to mitigate the current international liquidity crisis into an instrument that allows the South to develop effective counter-cyclical policies

The progressive forces could, in a very short time, bring together a broad spectrum of actors who could determine that all those new resources be committed to structure a new facility within the IMF, with no other conditionality than the prohibition that loans be used to purchase arms and other governance infrastructure. That IMF twin, the World Bank, has already provided a precedent with the conformation of the Global Environment Facility. Moreover, the signal of a more democratic directorate and purpose would certainly attract major contributions from countries with great liquid assets, such as China, or would allow the social forces in certain Europeans countries for instance to call for the financial support for this rather progressive option.

3) The crisis in the financial markets is quite rapidly deteriorating the macroeconomic conditions in the periphery and semi-periphery. The growing gaps in investment costs confronting the centre and the rest of the world are based upon a structure of a “country risk”, which reinforces the objective restrictions of an asymmetric macroeconomic response. It is imperative to lift the burden of the fiscal and external debt from the periphery – and the conditions for doing so immediately exist. The countries of the South are not responsible for the crisis, and there is no reason why they should be punished with a “country risk”: the United Nations could issue bonds with no risk premium, which could compete with the fiscal bonds of the United States, Japan and the European countries, at a rate of 1 or 2%, and channel them into a line of credit. Hence the countries wishing to restructure their debt could rebuy it on this secondary market in an inverse auction, after an obligatory and general auditing process of their external debt.

Achieving this new institutional framework during the months to come would provide effective conditions to start breaking the decision-making monopoly which so brutally benefits those in charge. Such a framework could constitute the basis for a much more democratic new global monetary and financial order – and one that would be much more representative of all the relevant systemic actors worldwide. Moreover, this minimal programme would immediately facilitate a global compromise that would avoid exchange and trade wars. These would not only be a feast for speculators – carry trading makes up almost half of financial speculation, and represents an amount equal to six times the global GDP – but would also make the recovery of production and the labour market extremely difficult at all levels.

A different logic of production and consumption which would permit us to overcome both the human and natural predatory model of structuralist economics in favour of one based upon regional bloc schemes with sovereignty in the fields of food, energy, health care etc. would emerge as viable.

By way of conclusion

We have reached a historic crossroads. The course of events depends on the ability to create a societal subject of change, whose post-capitalist perspectives will ensure that humankind will not go down in a long period of barbarism. But now it is more crucial than ever to adequately combine strategic perspectives with tactics that will allow the left to lead, in the here and now, a process of political convergence that can contribute to the structuring of a new historical bloc. To assume and maintain the initiative in a growing process of accumulation of power will become crucial in an situation – economic and otherwise – like the present one, in which the desperate situation of the established power is moving towards the consolidation of a neo-fascist agenda in line with the narrow interests of an ever more reduced war-profiteering oligarchy.

Today such an initiative requires a global process of collective construction, which could coordinate political action at various levels and in various bodies. One of the priorities, a necessary but not sufficient condition to regain the decision-making power dispossessed by the centralisation of wealth, is without question reconstruction restructuring which would restore monetary-financial sovereignty at the supra-national level in various regions of the earth, according to the specific conditions of the twenty-first century. It would thus not only be possible to instantly avoid a major victimisation of the periphery due to the asymmetric macroeconomic capacity to implement contra-cyclical policies, but also to plant the seed for a multi-polar and more democratic structure of a new world order. It would provide the conditions to develop a new economic logic of profitability and accumulation as such, including the expansion of, for instance, food or energy sovereignty, opposed to the devastating plans of the transnational corporations.

Immediate constituents of this progressive agenda would be the left’s appropriation of the systematic issue of special drawing rights so as to prevent neo-liberalism from reviving the blackmail of its adjustment policies, and rather strengthen multilateralism and use the new IMF resources for a radical internal reform of the Fund, and the integral reorganisation of the periphery’s external debt.

Pedro Páez (Ecuadro) is Member of the Stiglitz Commission, President of the presidential technical commission of Ecuador for the design of the new financial architecture, and former Minister of Economic Affairs.


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