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Contemporary Global Capitalism: Multi-pronged crises

by Pritam Singh, 1 November 2008

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Economic and Political Weekly, October 11, 2008

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.

(I 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.)

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 liquidation 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 economy is beset by not one but a variety of crises. The three interlocking crises most dominant in severity are: a credit crunch leading to financial meltdown, fluctuations 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 (Brazil, 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 g lobal 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 manifestation of what can be described as "the law of uneven and combined development". According to this idea, the world capitalist economy is one integral whole. Its various national and regional components are influenced and shaped in different ways by the specific mode of functioning of this economy. The national differences in technology, marketing, product range, agriculture-industry linkages, financial institutions, natural and human resources, political and legal structures, sociocultural hierarchies, military institutions and the bargaining power of competing classes - all of these combine in complex ways to determine the competitive power of nations in the global economy. Changes in the matrix of these forces inevitably lead to a decline in the economic, political and military power of some nations and to the rise of others.

Neoliberal triumphalism Deflated

The collapse of the Soviet Union led to the strengthening of the economic, technological and, more importantly, military hegemony of the USA in the global political economy in the 1990s. This resulted in the triumph of the so-called Washington Consensus, led by the International M onetary Fund and the World Bank, as well as to the infamous boast by the political theorist Francis Fukuyama (1992) about the "end of history". This triumphalism 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 the US government would not have opted for what is essentially 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 triumphalism has suffered a serious setback due to the crisis in the largely unregulated financial markets. The sub-prime mortgage crisis that started in America was a direct outcome of the fierce competition in the 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 American capitalism is closely linked with the rise in sub-prime mortgages. The financing of big multinational corporate businesses has been moving in the direction of less reliance on banks and more on complex financial instruments such as bonds and derivatives. This forced the banks to a greater reliance on home mortgage lending to expand their businesses. Faced with the unbridled competition in the saturated mortgage market, the banks started resorting to aggressive lending to financially less secure, poor and, most often, black and migrant households.2 These households could not meet their repayment 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 in USA) 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 fundamental 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 financial crisis spiralling out of control.

credit crunch

The sub-prime mortgage crisis that manifested itself in the credit crunch crisis in America had its fallouts in Europe too, due to the close integration of financial institutions in Europe and America. The credit crunch, in turn, is leading to a rise in borrowing costs by businesses. This is adversely affecting general economic activity and manifesting itself through slowing down of the economic growth rate in the US and Europe. In an unprecedented 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. The US 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 emergency 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 $ 247 billion [Saltmarsh 2008].

A number of key financial institutions in the US and UK 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 in UK. Fannie Mae and Freddie Mac provide over half of all US mortgages and their takeover by the US federal government is the biggest banking bailout in American history. A staggering 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 improving its revenue position to fund its interventions. This would necessitate increasing taxes, especially on high income groups - a measure that is anathema to the free marketers.

Inflation and Oil Price rise

In 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 global 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 contributing 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 vulnerability 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 having 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 in the 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 in 2003 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 rise in oil prices - in order to recoup the fall in the value of the dollar. The falling dollar also encourages financial investors to look upon oil and other commodities as assets. This gives impetus to speculation in oil - thus further pushing up oil prices.3

The 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 the price of oil. However, the overall trend is towards a rise in oil price.

Search for Biofuels

Rising oil dependence, the uncertainty about the oil supply from west Asia, and the rising price of oil are the driving imperatives behind the new, intense competition for biofuel alternatives to oil, in America and elsewhere. The US - whose foreign and domestic policy in the past has been decisively influenced, if not controlled, by powerful oil corporations, and where the opposition of oil companies to research in non-oil resources has ham- pered the efforts to develop renewable energy sources - seems to be now in the forefront in search for biofuels. Even the big oil companies have changed their stance and are now investing in developing biofuels.
The search for biofuels has direct implications for the volume of global production, supply and availability of food.

Large areas of land that were hitherto used for food production have been diverted to growth of biofuel crops such as corn in America and sugarcane in Brazil. The US is the world’s largest exporter of cereal and has more than one-third share in the world exports of wheat and other foodgrains. In America, corn is currently the major source of biofuels, and this shift has inevitably resulted in diversion from food production. Globally, bio-ethanol production has doubled between 1999 and 2003 and is projected to double again by 2010 [de Fraiture et al 2008: 69]. The global food shortage is significantly, though not wholly, the result of decline in food output as a result of the decline in land area used for food cultivation. This is the supply side dimension of the global food shortage.

The increased demand for food as a result of the prosperity of some sections of the population in BRIC economies represents a part of the demand dimension of the global food shortage. The changing pattern of demand for food is also a contributory factor to the emergence of food shortages. The past few decades of continuing prosperity in advanced capitalism and the emerging prosperity of a section of the population in the Asian and Latin American capitalist economies have led to an increase in demand for meat products. According to the Food and Agriculture Organisation estimates, most of this increase in the next seven years will occur in the developing economies, where consumption is expected to grow by 2.7 per cent per year compared to 0.6 percent per year in rich countries. The increasing demand for meat leads to d iversion of large tracts of land to raise animals. To argue for vegetarianism or at least for reduction in meat consumption now is not merely an ethical and ecological call; it is increasingly becoming an economic imperative.

The mismatch between the supply of and demand for food is only one factor in the rise in food prices. These prices are also being pushed up by the rise in oil price, which manifests itself in rising pro- duction and transportation costs of food. Another contributory factor is the role of speculative capital. This capital, through futures markets and forward trading in foodgrains, can manipulate a rise in price that is disproportionately more than what would be warranted by the current forces of demand and supply. By its very nature, such capital feeds itself on food shortages and the misery caused by such scarcities. Responding to speculators’ role in creat- ing food shortages, Lenin in a famous speech to the Petrograd Soviet in 1918 had said, "We can’t expect to get anywhere unless we resort to terrorism: speculators must be shot on the spot". The Socialist Party in Belgium has recently taken a less stringent position than Lenin’s when responding to an initiative by the KBC bank (Belgium) in launching a fund with returns linked to food commodity prices; the party has called for a ban on such funds [Jackson 2008].

Because food expenditure is not a major item of household expenditure for large sections of the population in advanced economies, the rise in food prices is not yet leading to a rise in demand for higher wages. However, in the developing world, food expenditure is a major component of household expenditure, so the rise in food prices is likely to push up the demand for higher wages - and it is already leading to a series of social and political conflicts, for example in Bangladesh, Egypt, Mexico, Tanzania, Senegal and Haiti [McGeough 2008: 7]. Even in the advanced capitalist economies, trade unions are reporting unease in their membership over the rise in food prices along with the rise in oil prices. There are recent signs of increasing militancy in trade union claims over wage settlements, especially in the UK and Germany. The advanced capitalist economies have had a long, lucky run over the last few decades, largely due to low commodity prices. The rise in commodity prices now is putting a serious question mark over the sustainability of growth in the advanced capitalist economies.

The spatial shift in capitalism

The spatial shift in global capitalism, in the shape of emergence of new economic powers in Asia (China and India), Latin America (Brazil) and the ex-Soviet bloc (Russia and Ukraine), is manifesting itself not only in the rise in demand for more food and energy sources but also in the geopolitical ambitions of the nation states in these regions. Business groups based in these nation states, both in the public and the private sector, are dramatically expanding and consolidating their transnational ventures. In 1990, the emerging economies accounted for just 5 per cent of the flow and 8 per cent of the stock of global foreign direct investment (FDI). By 2006, FDI (including mergers and acquisitions) from developing countries accounted for 14 per cent of the world’s total, giving these countries a 13 per cent share of the stock of global FDI [Anon 2008a].

Although the phenomenon of Third World multinationals is not entirely new, the scale of operations of some recent Chinese and Indian business ventures abroad is especially salient. China’s sovereign wealth funds, i e, the funds owned by the Chinese government have been investing massively in the UK and the US. Though resistance 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 developments as a sign of the emergence of "reverse colonialism" or "reverse dependency".5 Indian and Chinese multinationals that acquire western multinationals 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 acquisition 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 international market.

The high growth rate of GDP in India has been driven by developments in the services sector. But while this growth is impressive in its contribution to overall growth, like China it remains dependent upon relatively 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 emergence of China and India as superpower rivals of America and Europe.

What is important, however, in deciphering the changing balance of global capitalism is the emergence of a multiplicity of new economic alliances and rivalries. 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 international finance capital, are making massive forays into Africa. Recently, Bharati Airtel, India’s leading mobile o perator made a multi-billion dollar bid for Johannesburg-listed MNT. Had that bid succeeded, it would have made Bharati Airtel one of the largest telecom companies 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 expansion

In 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 capitalist 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 consumer 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 generated from that consumption. Given the population sizes in China and India, it would not be ecologically possible to sustain 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 implications of economic growth in any way similar to what 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.7

One consumer item that most symbolises 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 emerging 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) estimates 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. Overconsumption and obesity in the west is not unrelated to under-nutrition and malnutrition in the poor countries. An ecologically sound global policy demands a critique 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 economies, and the emergence of new economic powers such as China and India, certainly arouses strong passions of nationalist pride in these nation states. One can even invoke the discourse of global justice to go so far as to celebrate the possible decline of the old, rich countries and the rise in living standards in countries that were once poor. However, neither nationalist pride nor global justice arguments can and should hide from us the fact and realisation that the alternative to ecologically unsustainable advanced capitalisms cannot be another ecologically unsustainable capitalism in the newly developing nations.

The alternative to modern capitalism - whether in the old, rich countries or in the emerging economies - is to imagine and build economic and political systems that are based on the principles of ecological sustainability, social justice and democratic participation. Cuba’s success in organic farming, and many transport, housing and recycling initiatives by the Green councillors in some UK cities, are some examples of sustainable, just and democratic experiments that need to be further developed and elaborated. That is an intellectual and political challenge the critics of capitalism need to grasp at this very moment of great historical possibilities, dangers and hopes.


1 For a detailed historical account of the sub-prime mortgage crisis see Blackburn (2008).
- 2 I have benefitted from a discussion with Andy Kilmister on this point.
- 3 Meghnad Desai (2008) has very forcefully highlighted the role of speculative capital in pushing up oil prices.
- 4 For more details on the spatial shift in the global economy see Singh (2008).
- 5 For a good rebuttal of the reverse dependency arguments see Sklair (2002: 32-34).
- 6 Subsequently, Reliance Communications almost made a successful bid but it floundered due to legal hurdles associated with the business feuds between the Ambani brothers.
- 7 For an excellent collection of papers that examine different theoretical and political perspectives on advanced and developing capitalism, see the special issue of Socialist Register edited by Leo Panitch and Colin Leys (2006) with Barbara Harriss-White, Elmar Altvater and Greg Albo.
- 8 See


Anderlini, Jamil (2008): ’China Eyes Overseas Land in Food Push’, Financial Times (FT), online May 8. Anon (2008): ’Policymakers Act to Quell Storm’, Financial Times (FT), September 19, London, p 1.
- Anon (2008a): ’Emerging Market Multinationals’, web site accessed on September 19, 2008.
- Blackburn, Robin (2008): ’The Subprime Crisis’, New Left Review, March-April.
- Daniels, J D, L H Radebaugh, D P Sullivan (2009): International Business, Pearson, New Jersey.
- De Fraiture, C, M Giordano and Y Liao (2008): ’Biofuels and Implications for Agricultural Water Use: Blue Impacts of Green Energy’, Water Policy, 10 Supplement 1.
- Desai, Meghnad (2008): ’Act Now to Prick the Oil Price Bubble’, FT, June 5.
- FT Editorial (2008): ’Food Investment, Not Imperialism: Foreigners Can Buy Land as Long as Sover- eignty Remains’, FT, May 13, p 12.
- Fukuyama, F (1992): The End of History and the Last Man, Hamish Hamilton, London.
- Jackson, Tony (2008): ’Speculators Accumulate as Risks Rise for the World’s Poor’, FT, May 12, p 24.
- Johnson, Jo (2008): ’Bharti Airtel Launches $37bn Bid for MTN’, FT, May 6, p 21.
- McGeough, Gary (2008): ’Facing Up to the Food Crisis’, Change, Issue 62, Oxfam, Oxford.
- Panitch, Leo and Leys, Colin (2006): Socialist Register
2007:Coming to Terms with Nature, Merlin Press, London, Monthly Review Press and Halifax: Fernwood Publishing, New York.
- Rachman, Gideon (2008): ’The Oily Truth about Foreign Policy’, FT, May 13, p 13.
- Saltmarsh, M (2008): ’Central Banks Act to Defuse Financial Crisis’, International Herald Tribune, September 18.
- Singh, Pritam (2008): ’Shifting Balance’, Himal, June.
- Sklair, Leslie (2002): Globalisation, Capitalism and Its Alternatives, Oxford University Press, Oxford.
- Weinberg, Peter (2008): ’Sovereign Funds Offer a Wealth of Benefits to the West’, FT, May 23, p 13.
- Worldwatch Institute (2006): State of the World 2006: China and India Hold World in Balance, www.