In the hope of moving things along or stirring them up, here's something I
took from Socialist Outlook.
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As currencies, companies and markets collapse
It's a crisis alright - but is it global?
We are told that we live in a fully globalised economy. In a sense we do,
but what exactly does it mean? Has the world not been globalised for a long
time? How much is new?
If there has been a change, what role does this play in the current world
economic and financial crisis? What about the role of nation states within
this global economy?
Do the increasing size and power of multi-national corporations make the
nation state almost irrelevant?
Here ALAN THORNETT suggests some answers to these questions.
A world facing possible economic and financial meltdown
Only a year ago rosy expectations were held by many. Today few would dispute
that capitalism is heading for world recession. Just read the capitalist
papers.
Stock markets around the world have collapsed in wild fluctuations after
three and half years of unrealistically inflated levels. The East and South
East Asian Tiger economies (and aspiring ones) collapsed last year into
financial and political turmoil, following devaluation of Thailand's
currency.
The implications are enormous. This region had been the most dynamic part of
the world capitalist economy by far. Political repercussions so far have
included the demise of Suharto in Indonesia at the hands of a mass popular
movement - and as we go to press food riots have broken out again.
The trade unions in South Korea have mounted huge battles in defence of
jobs. Car workers have been occupying the country's biggest car plant and
fighting off riot police with iron bars.
Russia is collapsing into chaos. Its currency has collapsed, its government
has collapsed, its banking system is collapsing. It has defaulted on its
debts to the western banks - possibly the most serious default in the
history of the banking system. The Yeltsin plan for the restoration of
capitalism is in tatters, and nobody knows what will replace it.
The Russian crisis poses the possibility of competitive devaluations, or
debt defaults, or both across the region, especially the Czech Republic,
Hungary, Poland, Ukraine and the Balkan states. Inside Russia itself, the
possibility of serious civil unrest is posed - described as "Indonesia with
knobs on".
But it does not end there. China is fighting to avoid devaluation as its
currency is drawn into the turmoil - which could take the situation to a new
international level.
Latin America, with its currencies also massively overvalued and stock
markets plunging, faces widely predicted "meltdown" via its own series of
competitive devaluations.
Venezuela seems particularly vulnerable. Like Russia, Venezuela is rocked by
the drop in oil prices triggered by the drop in oil consumption in SE Asia.
The Latin American crisis is expected to engulf Brazil, the region's biggest
economy - its stock market plunged last week after panic dumping of anything
which looked like a risky asset.
The economies of the USA and Britain (and the EU), whilst partly sheltered
with comparatively strong growth, are nevertheless slowing down and have
seen huge losses on their stock exchanges.
The Dow Jones lost 284 points in one day last week, and $33 billion was
wiped off leading UK shares. They will be lucky to escape the storm as it
spreads across the international economy.
Increasingly it is accepted that the global economy could be facing its
sharpest downturn since the 1930s. It is an explosive situation. It is the
most globalised crisis the world has seen.
Anthony Browne argued in The Observer on August 22:
"Economists are drawing parallels with the depression of the 30s and the
aftermath of the oil crisis of the 70s. 'This is the world's first genuinely
global crisis' says Alison Cottrell, chief international economist at Paine
Webber. 'In the 30s, where was Asia? At other times, the problems have just
been bouncing between the US and Europe. But this is genuinely global. In
absolute terms it is worse than the 30s because far more people are
involved. We have been ignoring it because Europe and America aren't really
affected yet'.
"The figures are huge, and the span truly global: in Indonesia alone,
economic progress has been put back a generation and unemployment is heading
towards 20 million, more than in all of Europe. In Japan 130 million people
face the end of the economic miracleŠ China is fighting off pressures to
devalue, as its billion people face the prospect of deflation. Millions more
in Russia face a total collapse, whilst tens of millions in South Africa
have seen post-Apartheid optimism turn sour."
A Latin American crisis, with all its likely consequences, should be added
to this scenario.
The roots of the "Asian" crisis
The Southeast Asian crisis broke in mid- 1997 - the most significant event
in world politics since the collapse of the Soviet Union in 1990. The term
"Asian crisis" is not really accurate. This is a crisis of the global
capitalist system, which started in this region and is spreading world-wide.
It came as a shock to those who had assumed that Asian Pacific capitalism
would continue as the engine of the world economy well into the 21st
century. It is more than just a financial crisis: it has structural and
economic roots.
The origin of the rise of the Tiger economies is clear. They benefited from
massive direct investment following the 1985 Plaza Accord. Under this the
USA forced the Japanese government to sharply raise the value of the yen
against the dollar to alleviate the huge US trade deficit with Japan. The
value of the yen rose against the US dollar by over 40% as a result.
This did not do much for the US trade deficit, but, by making production in
Japan far more expensive, it did do wonders for East and South East Asia,
whose currencies were tied to the dollar. $15 billion of Japanese direct
investment had flowed into the region by the end of the decade.
In the early 1990s further massive inflows of investment from western banks
followed, as the advantages of dictatorial regimes and high levels of
exploitation, as well as currency advantage, became clear.
The result was massive overcapacity in the manufacturing and building
sectors. An enormous building boom created the infamous property speculation
"bubble", which was soon ready to burst.
Last year the value of the yen was again at the centre of developments -
this time because of its devaluation. The crisis of the Japanese economy
itself now forced down the value of the yen, and capital flowed out of the
Tiger economies even faster than it had flowed in. There was also pressure
from China and the devaluation of its currency a year earlier.
The result was massive speculative attacks on the East and SE Asian
currencies, forcing a major round of competitive devaluations on an enormous
scale: Indonesia 89%, South Korea 75%, Malaysia 73%, Thailand 71%,
Philippines 57% and Hong Kong 47%.
Stock markets collapsed by similar percentages. According to the Institute
of International Finance, the net private capital flows in and out of
Indonesia, Malaysia, South Korea, Thailand and the Philippines swung from
$92.8 billion inward investment in 1996 to $12 billion outflow in 1997 - at
the onset of the crisis!
The result was a series of bank collapses and debt defaults across the
region.
The onset of crisis saw the rapid intervention of the IMF into the region.
It had two objectives. First, to ensure that debt repayments continued to
western banks via austerity programmes (which in practice made the debt
crisis worse). And, secondly, to pursue the US neoliberal agenda of
deregulation, flexibility, and free-market reform so that newly competitive
US capital could achieve a greater penetration in the region.
In the IMF's view, the Tiger economies have always been far too
protectionist. "Structural adjustment" was the order of the day. Rates of
exploitation had to be raised and deregulation introduced into economies
like South Korea and Japan itself, where the "job for life" concept still
existed to a great extent.
These neoliberal reforms sought to recreate the international economy in the
image of the US , so that the free market-minimal state road would have an
unparalleled competitive advantage.
The global framework of the crisis
There are global dynamics behind this crisis which shape its progress.
The first is the long recessionary wave which has dominated the world
economy since the mid 1970s, despite fluctuations within it.
The second is the existence of economic and political power blocks on a
world scale - the EU, the USA/NAFTA and Japan and the Asia Pacific region -
which are in competition with each other, and which increasingly polarise
international economic relations.
Within this framework there has been conflict between the Japanese model of
state regulation and intervention - so successful for Japan since World War
2 and one of the features of the rise of the East and South East Asian
economies - and the American free-market, deregulated, neoliberal model
which has now essentially won out.
Asia is under assault from it, and the EU is already implementing it. US
policy today is to complete the neoliberalisation of the world through its
principal agencies, the International Monetary Fund (IMF) and the World Bank
(WB).
This would concentrate wealth into fewer and fewer hands and lead to a
further loss of democratic control, greater levels of exploitation, more
unemployment and job insecurity and social marginalisation.
The gap between rich and poor will increase as will the disparity between
North and South, as exemplified by the debt crisis. The people of the
Eastern block face third world conditions.
This has given the United States in an advantage in the current crisis, but
not immunity. In fact this American "success" is at the root of the current
crisis through driving the Japanese economy (the second largest in the
world) into stagnation and now slump.
So when did "globalisation" take place?
Of course there have been many "globalisations" of the world economy over
the past five or six hundred years. The internationalisation of world
economic activity goes back a long time.
In the Middle Ages there was extensive trading between states and city
states and across continents.
In Europe during the fourteenth century British-produced wool and cloth was
exported to Holland, Belgium and elsewhere. Italian trading and banking
houses occupied a key position in the internationalisation of business
activity at that time. By the end of the fourteenth century it is estimated
that there were as many as 150 Italian banks already operating
multinationally.
The conquistadors conquered and colonised South America, and Britain
expanded its empire around the globe.
During the seventeenth and eighteenth centuries colonial trading companies
such as the Dutch and British East India Companies traded globally. Fifteen
million people were transported from Africa to America as slaves. The
industrial revolution developed the precursor to the modern-day
multi-national corporations.
Initially North and South America presented the most favourable investment
opportunities, but were soon followed by Africa and Australia.
Multinationals were well established by the First World War. International
business activity grew vigorously in the 1920s as multi-national
Corporations matured. The international gold standard existed between 1879
and 1914 - a globalisation of the international monetary system in some ways
more complete than today.
The world reshaped after World War Two, with the emergence of a much
stronger USA, and the Bretton Woods agreement on currencies.
Since then, factors such as the collapse of the USSR and the rapid advance
of new technology have become a part of the current phase of globalisation.
Do we now live in a "globalised" world?
"Globalisation", in its radical sense, has become a fashionable catch-phrase
and is often used without any real content. There are a wide range of views
on what it means.
So to say we live in a globalised world does not take us very far.
It is widely argued, for example, that in today's global economy national
economic management, and politics at the national level, are increasingly
irrelevant. The world economy is dominated, the argument goes, by
uncontrollable market forces, and huge transnational corporations, that owe
allegiance to no nation state but simply locate wherever the global market
dictates.
'Reclaim the Streets' for example tend to rage against the world market, the
international neoliberal offensive rather than national governments. They
tend to see multi-national corporations - along with the international
agencies of capital, the IMF, the WB, and the Multilateral Agreement on
Investment - as principally responsible for the problems of the world.
In this view, the role of national governments is relegated, as is the role
of imperialism, which as such hardly comes into the analysis. It adds up to
a one sided view of the world.
These ideas were prevalent in the discussions around the counter summits
opposing the EU in Amsterdam and Cardiff. They have become a cover for
another set of ideas, advanced in Amsterdam and Cardiff by people like Colin
Hines.
These people advise capitalist states to withdraw from the global economy,
in which they are apparently powerless, and set up small scale domestic
capitalism. This would be devoid of multinational corporations and protected
from the outside world by tariffs .
Hines calls it the new protectionism. It is as bankrupt as the old
protectionism of Harold Wilson and James Callaghan.
But the world has changed!
There have been major changes in the world economy in the last 25 years. It
is more global.
The current world crisis shows this clearly enough. The crisis embraces more
of the world economy, far quicker.
The collapse of the USSR and Yeltsin's rush for capitalism, along with that
in China, means those economies, whilst not yet capitalist, have been far
more integrated into this crisis. They have a different relationship to the
world capitalist economy than at any time since the Russian and Chinese
revolutions.
Far larger sums of money move around the world at even greater speed, and
this is increasing all the time. New technology is an important element in
the current globalisation, introducing the cyber dollar and the ability to
move vast sums of money instantaneously.
Multi-national corporations (MNCs) have increased dramatically in size and
influence. It is easier to relocate production facilities than in the past -
although such relocations have always taken place.
The closure of Siemens Tyneside microchip plant a year after it opened is a
case in point - a direct result of the current Asian crisis. The cost of
producing chips in SE Asia, given the collapse of both the currencies and
wage rates (and massive rises in unemployment), has fallen dramatically.
The power of the MNCs has increased in relation to the nation state. In the
last few weeks we have had the biggest merger in history of BT and Amoco
with joint capital of $60 billion (with a loss of 20,000 jobs). MNCs now
scour the planet for the cheapest locations, production facilities, labour
costs and most favourable political conditions.
There has been a huge deregulation of markets, particularly the removal of
restrictions on the movement of capital. The Post- war Bretton Woods
arrangements, linking the dollar to the price of gold and designed to
moderate the rapid escalation of crisis, were ended in 1971.
Since then there have been floating exchange rates (exemplified by the
break-up of the ERM). Massive pressure has been put on third world countries
to deregulate capital movements.
The international agencies of capital
There are three principal international agencies of (western) capital: the
IMF, the World Bank (WB), which were both set up at Bretton Woods in 1947,
and the World Trade Organisation (WTO). The latter was set up in 1994 as a
result of the 1986 "Uruguay Round" of negotiations under the General
Agreement on Tariffs and Trade (GATT).
The arrival of the WTO, and the results of the Uruguay Round, have had a
fundamental effect on the organisation of world trade. At the end of the
eight year Uruguay process it represented 128 countries including most of
the East European block countries.
Along with GATT the WTO has become a powerful device for restructuring the
world market to the benefit of the leading powers, particularly the USA.
Their purpose is to restructure the world along the lines of the American
model, and to bring into that model non-aligned countries including former
eastern block countries as they struggle create market economies. They seek
to re-establish a world market which was disrupted by the Russian and
Chinese revolutions.
All this represents a big development over the comparatively weak
organisations set up at the time of Bretton Woods, and extends the global
control particularly of the United States.
Conclusion
There have been big changes, even greater than in previous periods. But is
this a qualitative change or change within the same overall framework?
Globalisation in its radical sense would imply a new economic structure, and
not just greater international trade and investment within an existing set
of economic relations.
Multi-national corporations are getting bigger, but genuinely transnational
companies are relatively rare. Most companies are nationally based and trade
multinationally on the strength of a major national location of production
and sales.
Those who argue there has been a radical globalisation have failed to
specify what structural changes have taken place to make this particular
globalisation qualitatively different to any other.
Increasing dominance of the US model, the fall of the Berlin wall, the
greater impact of China on the world market or the more rapid flows of
capital are not by themselves evidence of a completely new phenomenon.
The new developments of globalisation have not made the nation state
irrelevant. Far from it. But they have changed the international framework
in which the nation state operates.
Socialists would ignore that at their peril. The need is to internationalise
the struggle, but not by counterposing it to the struggle at national level.
We have to be involved in both.
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Paul Hubert
26 Ashfield Avenue
Shipley
West Yorkshire
BD18 3AL
tel: 01274 401026
e-mail: [log in to unmask]
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