FOR MOST of the 1990s the capitalists believed that in globalisation and the neo-liberal economic model, they had discovered a new elixir of life for their system. Exaggerated claims were made that new technologies had created a ’productivity miracle’, while Wall Street’s pet economists wrote profoundly about the ’new paradigm’, (the vacuous name given to the then fashionable idea that capitalism had learned, at last, to overcome most of its contradictions).

Building the socialist alternative around the world

Globalisation and the world economy

A system in crisis

Today much of that boastfulness has evaporated. The world economy has entered a new period. Japan, the world’s second capitalist economy has been stagnant for ten years. The US and European economies are dangling on the edge of recession or experiencing very slow growth. A double-dip recession remains very possible.

Crisis ridden

SINCE 2000, falling stock markets, deflationary pressures in Japan, Germany and the US, economic meltdown in Argentina and unprecedented levels of state, commercial and consumer debt have created a chastened mood among more serious capitalist thinkers. War against Iraq will deepen instability in the Middle East and beyond.

The world economy faces a lengthy period of stagnation. Globalisation has not provided a way out for capitalism, but has instead created the conditions for an even deeper worldwide crisis.

None of the main features present in the world economy today would be unfamiliar to Karl Marx. He long ago explained how capitalism is incapable of developing the productive forces in a consistent manner or of increasing living standards for the vast majority of the world’s population.

Neo-liberal policies (welfare cuts, privatisation, deregulated labour markets, ending controls on capital movements, etc) have massively widened this gulf, with the per capita income ratio of rich to poor countries now standing at a staggering 74:1.

Worsening levels of poverty, wars and acts of terrorism have created unprecedented global instability. Millions recoil against the cruelties of capitalism and this has led to the development of a mass anti-globalisation movement which over recent years has begun to take on an increasingly anti-capitalist complexion.

The collapse of the post-war economic model in the 1970s gave rise to new trends in the world economy. Empirically, the US capitalist class sought to mould the new conditions to their interests.

Globalisation became the term used to commonly describe the trend towards the accelerated integration of the world economy. New technology made it possible to integrate world financial markets more closely. New production techniques based on micro-electronics made it possible for multinational corporations to relocate production across the globe.

The 1990s also saw the deepening and expanding of capitalist countries into regional trading blocs. Capitalists join multinational clubs like the European Union (EU) and North American Free Trade Agreement because they feel they will benefit by doing so.

When benefits become outweighed by disadvantages then institutions can come under pressure or even unwind. The EU Convergence and Stability Pact with its ’one size fits all’ approach to public spending and interest rates is currently out of kilter with the needs of the German and French capitalists particularly.

The 1990s boom in the US now stands exposed as a gigantic bubble. Hidden from view by the dazzling performance of Wall Street was the hollowing out of the US manufacturing sector. While share prices rose from 1995 to 2000 by 200%, corporate profits – as measured by government statisticians rather than dodgy auditors – rose by just 40%.

Billions of dollars were wasted chasing the illusory dotcom boom, while the telecomms crash is ten times bigger and may well qualify as the largest speculative bubble in history. Decisions were made on the basis of shareholder pressure and value, while colossal mergers totaling $1 trillion took place in 1999 alone. The boom produced the world’s largest bankruptcy (Enron) and the world’s greatest accounting fraud (Worldcom).

Casualties

WITH SHARE prices falling relentlessly since 2000, millions of small investors have been battered and the succession of massive corporate bankruptcies and criminal scandals have exposed and tarnished the notion of Anglo-Saxon, neo-liberal market perfection.

The pain is not over yet. The housing bubble in the US is still growing and the dollar remains overvalued. America has been a debtor nation since 1988. Meanwhile total public and private debt is now three times greater than GDP (national income). This is double the figure for the post-war years.

The boom was financed by borrowing against the high value of the dollar. In the straitened economic circumstances that prevail today, with world trade actually falling by 1% in 2001, it is not likely that the rest of the world can keep lending to the US at the former rate.

The badly damaged Japanese economy owns 28% of all dollars in circulation. If Tokyo is forced into reclaiming its funds, the consequent sharp fall could trigger an accelerated flight of capital from the US, making the current trade and current payments deficit completely unsustainable. The result would be the most painful adjustment since the Great Crash of 1929.

The Chairman of the US Federal Reserve, Alan Greenspan, exudes complacency when he claims the worst is over and the world economy will recover in 2003. But behind the soundbites is the admission that business investment and profits are still falling.

Limitations

CAPITALISM HAS a fundamental tendency towards concentration and monopolisation. By the mid-1990s, just 400 multinational corporations owned two-thirds of the world’s fixed company assets and controlled 70% of world trade.

However, these corporations do not form the core of an emerging ’transnational capitalist class.’ The nation state still prevails as the root of the competing capitalist classes.

In the changed conditions that now exist, the old economic certainties have been shaken. Rivalries between capitalist powers can become more acute and sharpened expressions of national interest will be increasingly threatened.

Partial controls on credit and capital movement, import controls, even nationalisations can be enacted by governments facing a combination of popular unrest and economic crisis. Neo-Keynsian public expenditure policies will be undertaken, as in Japan, to defend ’national interest’ and market share. National states, including the US can be forced to rein in the activities of the multinationals.

Globalisation, though an objective factor in the development of capitalism, is not a smooth or uninterrupted process.

Economic activity never takes place in a political vacuum. The role of the working class can push governments into temporarily sacrificing neo-liberal economic orthodoxy as a preferable alternative to revolutionary upheaval.

But we have to be clear. Against the idea of a solution within the confines of capitalist nation states, we need to fight for a socialist planned economy on a world scale.

Liked this article? We need your support to improve our work. Please become a Patron! and support our work