ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Contemporary Global Capitalism: Multi-pronged Crises

The grand failure of many a financial institution in the US is one of three such crises that have affected the world today; the others related to oil prices and food shortages. These in sum have broken the back of neoliberal triumphalism, and have resulted in a spatial shift in global capitalism. No wonder, it is time to address alternatives to this greed driven, unregulated and excess-motivated system. Such an alternative must be based on the principles of ecological sustainability, social justice and democratic participation.

PERSPECTIVEoctober 11, 2008 EPW Economic & Political Weekly36Contemporary Global Capitalism: Multi-pronged CrisesPritam SinghI am thankful to Imrich Antal, Meena Dhanda, Katarina Horuathoua, Laxmi Murthy, Ben Rogaly and Tanya Singh for comments on the first draft of the article. An earlier version of this paper was presented at a conference on Socio-Ecological Models of the Future organised jointly by Moscow-based Praxis and the Ukraine-based International Socio-Ecological Union at Peschanoe, Crimea, on July 18-20, 2008. I am thankful for the feedback received from the conference participants, especially Richard Greeman. The usual disclaimer applies.Pritam Singh ( is with the Oxford Brookes University Business School, Oxford.The grand failure of many a financial institution in theUS is one of three such crises that have affected the world today; the others related to oil prices and food shortages. These in sum have broken the back of neoliberal triumphalism, and have resulted in a spatial shift in global capitalism. No wonder, it is time to address alternatives to this greed driven, unregulated and excess-motivated system. Such an alternative must be based on the principles of ecological sustainability, social justice and democratic participation.With the wave of financial crises sweeping across the United States and west Europe the project of “free” market capitalism stands now in tatters. The fallout from the liqui-dation of Lehman Brothers has thrown the global financial system into a turmoil not seen since the Great Depression of the 1930s. The current global capitalist econ-omy is beset by not one but a variety of cri-ses. The three interlocking crises most dominant in severity are: a credit crunch leading to financial meltdown, fluctua-tions in oil price with a trend toward upward movement, and food shortages. As an offshoot of the crises in the credit, energy and agricultural markets, an acute crisis has also developed in the housing, aviation, and automobile markets. The convergence of crises in credit, energy and agriculture markets is linked, to some degree, with the spatial shift in global capitalism. The hitherto unquestioned economic dominance of older capitalist nations in the world economy is now being increasingly challenged by the rise of new economic powers. The so-called BRIC (Bra-zil, Russia, India and China) nations, in particular, symbolise these new economic powers. According to one estimate, if the current growth rates persist, by 2050 China and India will be the dominant global suppliers of manufactured goods and services respectively, while Brazil and Russia will become the principal suppliers of raw materials [Daniels et al 2009: 218]. To emphasise this global shift in the world economy, it is argued sometimes that the 18th century was a French century, the 19th century was a British century, the 20th century was an American century and the 21st century would be an Asian (or perhaps Chinese)century. This changing balance of economic power in global capitalism is a mani-festation of what can be described as “the law of uneven and combined develop-ment”. According to this idea, the world capitalist economy is one integral whole. Its various national and regional compo-nents are influenced and shaped in differ-ent ways by the specific mode of function-ing of this economy. The national differ-ences in technology, marketing, product range, agriculture-industry linkages, financial institutions, natural and human resources, political and legal structures, sociocultural hierarchies, military institu-tions and the bargaining power of com-peting classes – all of these combine in complex ways to determine the competi-tive power of nations in the global econ-omy. Changes in the matrix of these forces inevitably lead to a decline in the eco-nomic, political and military power of some nations and to the rise of others.Neoliberal Triumphalism DeflatedThe collapse of the Soviet Union led to the strengthening of the economic, techno-logical and, more importantly, military hegemony of the USA in the global politi-cal economy in the 1990s. This resulted in the triumph of the so-called Washington Consensus, led by the International Monetary Fund and the World Bank, as well as to the infamous boast by the politi-cal theorist Francis Fukuyama (1992) about the “end of history”. This trium-phalism now stands severely torn apart.At a military level, American hegemony has been undermined by the continuing crises in Iraq and Afghanistan. Due to their interventions in these countries, the American military, as with the militaries of its allies, is showing signs of having overstretched itself. Were this not the case, it is possible that theUS government would not have opted for what is essen-tially a non-interventionist approach to the radical political transitions that have been taking place in Latin America and, more specifically, in Nepal.At an economic level, neoliberal trium-phalism has suffered a serious setback due to the crisis in the largely unregulated financial markets. The sub-prime mort-gage crisis that started in America was a direct outcome of the fierce competition in
PERSPECTIVEEconomic & Political Weekly EPW october 11, 200837the unregulated financial markets where banking and other financial institutions resorted to unsustainable levels of lending for the sake of short-term gains.1 The class and racial inequality embedded in Ameri-can capitalism is closely linked with the rise in sub-prime mortgages. The financ-ing of big multinational corporate busi-nesses has been moving in the direction of less reliance on banks and more on com-plex financial instruments such as bonds and derivatives. This forced the banks to a greater reliance on home mortgage lend-ing to expand their businesses. Faced with the unbridled competition in the saturated mortgage market, the banks started resorting to aggressive lending to finan-cially less secure, poor and, most often, black and migrant households.2 These households could not meet their repay-ment obligations once the initial two year fixed low interest rate period was over and they were faced with the subsequent high variable interest rate. Re-possessions (called foreclosures inUSA) followed, leading to tightening of credit availability. Speculative capital has also played its role in aggravating the financial crisis, but the degree of its contribution to this crisis is a debatable subject. Politicians prefer to resort to the populist measure of blaming the speculators for causing the financial chaos and, thus, evade accepting the fun-damental flaws in the functioning of financial capitalism. The recent temporary ban on short selling both in the US and the UK is partly a populist measure and partly a panicky response to the danger of finan-cial crisis spiralling out of control.Credit CrunchThe sub-prime mortgage crisis that mani-fested itself in the credit crunch crisis in America had its fallouts in Europe too, due to the close integration of financial insti-tutions in Europe and America. The credit crunch, in turn, is leading to a rise in bor-rowing costs by businesses. This is adversely affecting general economic activity and manifesting itself through slowing down of the economic growth rate in theUS and Europe. In an unprece-dented move, the central banks in the US and Europe are being forced to come together to devise regulatory structures to deal with the credit crisis and its offshoots. Interest rates have been slashed in the US, UK and some other European countries, and central banks have come under powerful pressure to pump extra liquidity into the credit markets. The deliberate supply of extra money is becoming increasingly necessary to ease the massive shortage in credit availability. TheUS Federal Reserve gave central banks in the UK, the euro-zone, Japan, Canada and Switzerland $ 180 billion to lend on to local banks that were in need of emer-gency cash [Anon 2008]. Taking into account the previous cash injection, that took the total size of the Fed’s agreements with other central banks to $247billion [Saltmarsh 2008]. A number of key financial institutions in theUS andUK that were under threat of liquidation had to be literally nationalised. These include the mortgage companies Fannie Mae and Freddie Mac in the US and the Northern Rock bank inUK. Fannie Mae and Freddie Mac provide over half of allUS mortgages and their takeover by the US federal government is the biggest bank-ing bailout in American history. A stag-gering sum of $ 5 trillion of mortgage debt has been transferred from private owner-ship to state control. Such a high level of state intervention is a stark admission of the failure of the ideology of deregulation of markets, which has been the corner stone of the neoliberal economic doctrine. This level of high state intervention can-not be sustained without the state improv-ing its revenue position to fund its inter-ventions. This would necessitate increas-ing taxes, especially on high income groups – a measure that is anathema to the free marketers.Inflation and Oil Price RiseIn spite of the economic slowdown, the crisis is being further compounded by a rise in inflation, a result of the crisis in the agricultural and energy markets. Oil is a non-renewable resource, and its total glo-bal stock at a given level of technology is fixed. The political and military crisis in west Asia, which has two-thirds of the world’s known oil reserves, is further con-tributing to a situation of reduced supply of oil in the present and uncertain supply in the future. The search for non-oil energy resources is becoming a pressing imperative for the energy-intensive character of advanced capitalism. John McCain, the Republican candidate in this year’s presidential elections in America, has been harping on about the oil vulner-ability of America in the light of the country’s continuing military crisis in west Asia. He has promised an energy policy, “that will eliminate our dependency on oil from the Middle East” and has openly acknowledged a link between America’s oil strategy and military strategy by stating that his promised energy policy will be aimed at preventing “us from hav-ing to send our young men and women into conflict again in the Middle East”. America’s dependence on oil has been increasing and the price of oil, though fluctuating, has shown an upward trend inthe global market. At the time of the first worldwide oil crisis, in 1973, 33 per cent of America’s oil needs were met by imports; now, the country’s import dependence has nearly reached 60 per cent. According to some estimates, this will rise to 70 per cent by 2020 [Rachman 2008]. The price of oil has risen from $ 26 a barrel shortly before the Iraq invasion in2003 to $ 100 a barrel now, after having touched a high of $ 148 in July 2008. And, according to the analysis and estimates by Goldman Sachs, one of the largest Wall Street investment banks trading oil, it can rise to $200 a barrel in the next two years.Apart from the supply-demand dynamic playing a role in determining oil prices, the fluctuations in the dollar’s exchange rate also impact upon the price of oil. Since oil is traded in the international market in dollars, a decline in the exchange rate of the dollar leads to a risein oil prices – in order to recoup thefall in the value of the dollar. The falling dollar also encourages financial investors to look upon oil and other com-modities as assets. This gives impetus to speculation in oil – thus further pushing up oil prices.3The price of oil has come down from the peak it had reached in July. This is partly due to the fallout from the credit crunch. The decline in business and consumer confidence as a result of the financial turmoil related with the credit crunch has tended to lower the demand and hence
PERSPECTIVEEconomic & Political Weekly EPW october 11, 200839resistance was experienced in the latter, these funds were welcomed in London [Weinberg 2008]. The Indian capitalist group Tata’s takeover of British Land Rover and Jaguar group is symbolic of the changing balance in global capitalist economy.4 Dependency in Reverse?It is important, however, not to exaggerate the meaning of these developments. It would be wrong to portray these develop-ments as a sign of the emergence of “reverse colonialism” or “reverse depen-dency”.5 Indian and Chinese multi-nationals that acquire western multina-tionals continue to have a negligible role in the economic, business and political decision-making of western capitalist countries. That is one reason there has been hardly any opposition to their acqui-sition ventures, except in Germany and France. It is also important to remember that, in spite of impressive aggregate growth rates in China and India, both of these countries continue to have massive numbers of very poor people due to the uneven nature of the development path these countries have pursued. This mass poverty limits the potential for growth of their internal markets and also defines the nature of their competitive power in the world economy. Chinese growth is highly dependent on export of manufactured goods produced with low levels of techno-logy. Indeed, it is precisely because of the low labour costs that China has been able to compete successfully in the inter-national market.The high growth rate of GDP in India has been driven by developments in the serv-ices sector. But while this growth is impres-sive in its contribution to overall growth, like China it remains dependent upon rela-tively low labour costs in order to compete with US and European multinationals. Meanwhile, the labour productivity in China and India remains far below that in these two areas. At this point, the techno-logical superiority of advanced capitalism over emerging capitalism is too entrenched to start making statements about the emer-gence of China and India as superpower rivals of America and Europe. What is important, however, in deci-phering the changing balance of global capitalism is the emergence of a multipli-city of new economic alliances and rival-ries. Of particular interest is the nascent imperialist competition between China and India in Africa. Chinese and Indian multinationals, backed by their respective governments and supported by inter-national finance capital, are making massive forays into Africa. Recently, Bharati Airtel, India’s leading mobile operator made a multi-billion dollar bid for Johannesburg-listedMNT. Had that bid succeeded, it would have made Bharati Airtel one of the largest telecom compa-nies in an emerging market. Although this bid did not succeed, what is interesting to note is that it was being financially sup-ported by Goldman Sachs and Standard Chartered [Johnson 2008].6 Even more imperialistic in character is China’s recent decision to buy large swathes of land in Africa and South America to grow food for its home consumption [Anderlini 2008; FT Editorial 2008].Ecological Limits to Capitalist ExpansionIn spite of relatively low per capita income levels in China and India, the sheer size of these economies makes them significant economic players on the global field, even if one is still justified in discounting the discourse of describing these economies as superpower rivals of the advanced capi-talist economies. The most significant implication of the high growth rates in China and India is the likely impact on ecological limits to the growth of global capitalism. Since the marginal propensity to consume of a low income level con-sumer is high, even a marginal increase in income levels in China and India with their massive population sizes, has huge implications in terms of the increase in the aggregate consumption of natural resources and the waste likely to be gener-ated from that consumption. Given the population sizes in China and India, it would not be ecologically possible to sus-tain a level of capitalist growth that is anywhere close to the level of growth that the advanced capitalist economies have experienced in the past.During the long period of capital accumulation in the history of advanced capitalist economies, there was neither the material reality of the scarcity of national resources nor the theoretical comprehension of the ecological implica-tions of economic growth in any way similar towhat is being experienced today. Even the critics of capitalism, such as Karl Marx, visualised the communist alternative to capitalism as an era of abundance. That imagined abundance is not possible ecologically, though the end to dehumanising poverty is certainly not only desirable but within the realm of possibility.7One consumer item that most symbol-ises modern prosperity is the car. At present there are about 10 cars in China for every 1,000 people. In America, there are 480 cars per 1,000 people [Rachman 2008]. If China were to aim to achieve the present American level of car ownership, it is simply not possible to visualise that our planet would be able to sustain itself, if for no other reason than the resultant pollution. A report by the Worldwatch Institute (2006) highlights that if China and India, to say nothing about Russia and Brazil, were to consume resources and produce pollution at the current US per capita level, it would require two planet Earths just to sustain their two economies. The solution, therefore, is not for emerg-ing economies to try to copy the lifestyles of advanced capitalism, but rather for advanced capitalist countries to reduce their own levels of consumption and waste generation. According to the Sustainable Development Commission (2008) esti-mates in the UK, in two years time, about one fourth of all English adults would become clinically obese.8 This high degree of obesity is closely related not only to the quality of food but also to the quantity of food consumed by the citizens. Overcon-sumption and obesity in the west is not unrelated to under-nutrition and malnu-trition in the poor countries. An ecologi-cally sound global policy demands a cri-tique of consumerism in the west, as well as a reduction of poverty (and a move away from aping western lifestyles) in the developing countries.The relative decline in the economic powers of old advanced capitalist econo-mies, and the emergence of new economic powers such as China and India, certainly arouses strong passions of nationalist













0 /





/ 0/



*, ),6*,3

To read the full text Login

To know more about our subscription offers Click Here.


(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top