The Crisis of World Capitalism and the Imperatives of Peoples’ Movements

Introduction

We may find ourselves shortsighted if we would not make even make a cursory review of the historical background of the present crisis of global capitalism.

Two decades ago, when the neo-liberal or free market craze was in the upswing, some worthy writers of the imperialist apologists type declared “socialism is dead” and unabashedly proclaimed “the superiority of capitalism” and “capitalism forever”.

However, history is always unforgiving to charlatans and social cranks. World capitalism again and again, as in over past 100 years, is wracked by its inherent crisis. Especially at its monopoly or imperialist or finance capitalist stage, capitalism has continuously made the world ever smaller for the expansion of capital and competition among individual corporations in both banks and industries. The “boom-bust” cycle became shorter in duration until monopoly capitalism is chronically beset by its inherent crisis of falling rate of profit or the condition of over-production and over-accumulation of surplus capital that cannot be reproduced or re-invested in physical or material production.

Capital must therefore always find and create new areas for investment or expansion to escape and counter the falling rate of profit. In this era of imperialism and because every new industry is fast saturated with capital, finance or bank capitalists have continuously developed financial manipulation and speculation or the means by which surplus capital could grow outside the sphere of physical or material production. Finance speculation has created the “metaphysical” or “bubble” economy. But because its object and subject is the physical economy, the “bubble” busts every now and then, ravaging the real or physical economy.

Monopoly capitalists would always find the intervention of the imperialist state necessary, even if capital remains mainly private and thus the capital earnings. But competition is another basic character of capitalism and the imperialist state would always favor the monopoly capitalists, especially the monopoly finance or bank capitalists, specifically the biggest among them and those who have the proper connections.

Imperialist state intervention has been seen in two World Wars, which were the culmination of capitalist depression and through the regular defense and arms build-up, the US wars of aggression and military intervention and its creation of imperialist institutions in all aspects—economic, financial, political and military. World War I (1914-1918) was the culmination of the Long Depression (1880s-1900) that ushered in the stage of monopoly capitalism. The USA emerged as the chief victor in WWI and had the strongest hand in the re-partition of the world. But it was not a “winner-take all” affair for the US and its allies, Britain , the erstwhile superpower and France . The working class was able to seize power in Russia in 1917 and soon in all the nations that were once under the Tsarist Empire. The Union of Soviet Socialist Republics (USSR) or Soviet Union was established.

World War II (1939-1945) was the culmination of the Great Depression (1930s) that was signaled by the New York Stock Market crash of 1929. WWII catapulted the US into the position as the single imperialist superpower to have worldwide hegemony. But this position had reached its peak or its limits especially after Japan and Germany recovered and re-industrialized throughout the long years of the US Cold War with the USSR and the long US war in Vietnam . But China is now seen by the US as the greatest threat to its supremacy. On the other hand China , which arose at the time the US economy was already on the decline, is also seen now as the potential savior of the capitalist world.

The Features of the Present Crisis of World Capitalism

The present crisis is comparable to the Great Depression of 1930. It would suffice if our historical backdrop to the present crisis starts from the GD period or at least the post-WWII period. The limitations of the paper however would not permit it.

Whatever its complexities, let us just state the context and major features of the present crisis of world capitalism and its effects on third world economies like the Philippines.

1. The strategic decline of the US as an imperialist superpower is the broad context the present crisis of world capitalism.
2. The continuing crisis of over-production and over-accumulation of surplus capital, in other words, the under-consumption of both goods and capital, is the particular context of the present crisis.
3. The present crisis manifests or features itself as crisis in the financial and banking systems. Its particular feature is credit and debt crisis.
4. The gravest feature is the growing joblessness and wage cuts all across industries and services, especially banks and financial services, throughout the capitalist world.
5. The constricting labor-export market is limiting opportunities for third world countries like the Philippines.
6. The growing trend towards re-concentration of capitals back to their home or nation bases would deplete foreign investment and debt dependent economies like the Philippines .
7. The bail-out or “nationalization” of banks and other financial institutions shows the limits of the neo-liberal or free market paradigm but does not prove the resurgence of Keynesian economics.
8. Socialism is posing itself as the real alternative to capitalism.

We would proceed to describe the context and features of the global crisis.

1. The strategic decline of the US as superpower is principally determined by its internal weaknesses and contradictions in maintaining its economic and military might and of the US dollar and financial regime over global trading and financial system. On the other hand the US exercise of its world hegemony is challenged starting from the 1970s by its re-industrialized former enemies in WWII, Japan and Germany and lately by the fast rising economic and also military power, China which is in close alliance with Russia and India, which are both big economies and nuclear capable. But Germany before is not the Germany now at the lead of European Union (EU) whose Euro is the currency most strongly competing the US dollar. But other than the big capitalist powers that rival each other and the US, challenge is also posed by sovereign nation-states which are binding together to protect and defend their economies principally against the US. The UNASUR nations of South America led by Venezuela are the latest.

Briefly, the decline of the US begun after the collapse of the Bretton Woods system in 1971 and the US dollar while remaining the currency for global exchange was devalued and begun to be floated. Soon the currencies of Germany (DM) and Japan (Yen) were being accepted by some countries beside the dollar. After the oil producing countries formed the OPEC (1968) and asserted their sovereignty over their resources and used oil as weapon to counter US threat of trade embargo, the global oil cartel, not the OPEC, raised the price of oil by almost 400% in 1974.

The leap in profits from oil and the increased cost of fuel especially for industries exploded into a crisis called stagflation (recession with high inflation) in 1979-1981. This crisis manifested first in the US and spread to Europe and but limitedly affected Japan . Hundreds of thousands of workers were thrown out of jobs due to closure of many plants and the general reduction in production. Much of the industrial areas, especially in Michigan, were reduced to “rust belts”.

The stagflation ushered in the new capitalist paradigm—the neo-liberal or free market economics. Packaged as globalization, its main objective is the removal of all restrictions, tariff and non-tariff barriers, state intervention in the economy, workers’ right to unionize, labor standards, etc. for the free global movement of capital especially, finance capital.

In the 1980s, the US incurred growing annual trade deficit with Japan despite the US- enforced re-valuation of the Yen in 1985 (Plaza Accord). From a net creditor, the US fell to a net-debtor by 1985. Meanwhile the efforts towards the building of the German led European Union (EU), which begun from the European Common Market in the early 1960s, gained much headway. China embarked on its modernization program starting in 1981.

Despite the thawed Cold War, the US embarked on the costly National Defense Program cinematically dubbed as “Star-Wars Strategy” and the so called Reaganomics which was mainly an attack against workers’ wages and the right to strike.

In 1987, another New York Stock Market plunge dragged the whole financial world. A great factor was the 1986 debt-payment crisis. Many countries that availed of structural adjustment loans (SAL) extended by the IMF-WB defaulted in debt-payments. But the Philippines was an exception, the “people power” installed Cory Aquino regime made its infamous declaration, “we will honor our debts”. The US came to the rescue not of the deeply indebted countries but of the banks that have financed the IMF-WB SALs. The US scheme was the Brady Plan which was none other than the restructuring of debts.

The 1990s was ushered in by the Japan and Saudi- Arabia financed first US war against Iraq , the “desert storm” of 1991. The pretext was Saddam’s threat to invade Kuwait . It was in fact an assertion of Iraq ’s sovereignty over its oil which was being pumped-out across the border in Kuwait . On the other hand, the US objective was to secure the oil for its giant oil corporations. Under the Clinton government (1992-2000) the US tried to “retool” its industries that have lagged behind Japan ’s and Germany ’s. But the military and defense spending was always greater. It was the height of neo-liberal globalization, industrial capital was always in search of low-wage areas. The banks preferred more the lucrative finance speculation business, especially on the newly created financial product called derivatives.

The other great part of finance capital went, as loans and investments, to the so called “new tiger economies” and “newly industrialized countries” in Asia . Finance capital did not find the economies of tumultuous Russia and other former USSR countries and of Eastern Europe as ready for the free movement of capital. But most of the capital that flowed in and out of the Asian “tigers” and NICs were in real estate speculation, land and asset securitization and as standby loans for the liberalization of the financial and banking systems of the countries concerned. The Philippines 2000 Plan or the NIChood ambition of the Ramos regime was nothing industrial but the total liberalization of the Philippine economy, starting and ending with the liberalization of the banking and financial systems and massive land-use conversions (LUC) in 1993-1994, as condition for new IMF-WB loans. With then Sen. Gloria Macapagal-Arroyo as lead proponent, the Philippine senate ratified the GATT-WTO in December 1994. Thus the Philippines became member of the now derelict WTO.

Then the Asian Financial Crisis erupted in 1997-1998. The contagion spread to over half of the world including the US and of course, Japan. It was caused by glut in speculations. All Asian currencies were devalued several times thereby increasing the cost of countries’ debts and of course the private loans extended by banks to corporations and individuals. On the other hand, the banks were crippled by mass of non-performing assets (loan collaterals, mostly land) and non-performing loans. Again the US through the IMF-WB rushed a rescue or bail-out package valued at close to $200 billion extended as loans to countries to enable them to pay their debts to mostly private US investment banks. Japan was in deep financial doldrums and economic recession. The biggest Japanese banks were saddled with $800 billion of firstly, inter-bank and secondly, industrial corporate loans.

As consequence of the Asian Financial Crisis, losses in transactions in the US financial market from 1998-2000 were estimated at $7 trillion. Meanwhile American household and individual debts (mostly on home mortgages and car loans) were mounting.[1] Before the US recession that technically begun in March 2001, the average debt of American families and individuals was $8,000 totaling at close to $10T. This and the real threat of foreclosures and reality of increasing joblessness set the common American attitude to save and reduce consumption. The reduction on consumption was threatening the US financial and economic might because 2/3 of US GDP is generated by consumption of the American people.

The Bush government resorted to tax cuts that favored most the richest American families. However the tax cuts reduced the US government’s revenues and increased its budget deficit. This plus the increasing cost of the prolonging US wars in Iraq and Afghanistan and the annual trade deficits first with China and second with Japan are translating to $500B-700B annual deficit in US BoP. To finance this, the US Federal Reserve resorts to massive foreign and public borrowings, which are being shouldered by the American people. On the other hand the banks resorted to debt refinancing by artificially raising the values of mortgaged homes and lots. But this did not perk up the average consumption of Americans. Instead the banks made a killing in the business of securitization of mortgages or the now famous speculation on sub-prime loans represented by the very heavy but greatly unregulated inter-bank trading on collateralized debt obligations (CDOs). The unaccountable sub-prime bubble finally exploded in 2007 to what is now the deepened crisis of world finance capitalism.

2. The real measure of the crisis is in the increasing joblessness and home foreclosures in the centers of capitalism and throughout the world. What is further distressing is the trillions in dollars of bail-out packages being put up by the predator and parasitic states of US, EU and practically all countries, whose economies have been integrated under the global financial empire, to rescue precisely the rulers of this empire, the biggest banks. But where would these predators get the funds? The fact that what are being “nationalized” are the bad loans and debts of banks, it means the bail-out funds would be drawn out from the people.

3. Socialist revolutions are not near possibility but the present crisis of world capitalism which is further exploding into immeasurable proportions is a very favorable situation to counter-pose socialism against capitalism. In the imperialist stage has exposed the moribund, decadent, parasitic and, let us add, predatory characters of capitalism.

4. Tactically for countries like the Philippines , the trajectory of peoples’ movements is to de-link from the global financial empire. Debt repudiation is a very justified and reasonable call and demand now. The debt payments should be shifted to provide immediate relief for the people and job creation within the framework of genuine national industrialization and the nationalization of assets acquired by banks and therefore the nationalization of banks and the streamlining of the banking and financial systems.