Capitalist Crisis and emerging Neo-liberal Challenges: tasks for social actions INSAF National Political Convention (26-27 April, 2010: Bangalore)
Background note
The three most distinctive features that illustrate the voyage of capitalism through history are its intrinsic crisis; its structural inability to seek solutions to ensuing crisis at any given juncture and its perpetual want of patronage and protection from ‘State”.
The fundamental crisis of capitalism had been the ‘crisis of market’ which largely was dealt by either capturing (without any moral remorse) new markets (countries) or resorting to convert new items and/or areas into profit making ventures in connivance with its patron ‘The State’.
The annals of colonial era are testimony to the brutal attempts of capturing new markets and wars (I & II) amongst the powerful nations for distribution and redistribution of these markets. The fierce competition for the control of share of global market continued in post colonial era in variety of forms including the ‘cold war’.
The evidence to the second route of coping with crisis can be found in negotiations and renegotiations between market and the State with regards to obligations of building infrastructure and public services.
By and large in the initial phases of capitalist development (in any specific country) the State was obligated to spend public money on development of infrastructure and thus not only create conducive conditions for capitalism to grow but also stimulate current market through contracts and supplies. The State was also looked upon to spend public money on public services and utilities i.e. education, health, municipal functions etc. and manage the same.
With consolidation of capitalism, the markets were first able to successfully negotiate with the State to leave areas i.e. electricity, transport, communication, road construction etc. for profit making. After gaining experience from post second World war reconstruction of Europe, privatization of infrastructure is been promoted throughout the world using instruments of international financial institutions like World Bank and IMF.
The proposals made at the Uruguay round of GATT negotiations in 1983 that led to formation of World Trade Organisation (WTO) in 1995 were also in the line of converting new avenues i.e. agriculture goods and services into legitimate profit making areas and treated at par with manufactured goods. Providing equal playing field to all kind of corporations and business houses and protecting their Intellectual Property Rights were the additions in the package deal.
Apart from these two routes of overcoming crisis, another critical instrument which had been craftily used was seeking policy changes in monetary and banking sectors. For example good old ‘gold standard’ used for valuation of currencies was dumped way back in 1944 during Bretton Woods conference that created the World Bank (WB) and International Monetary Fund (IMF) on the promise by USA to small group nations. In a way, the US dollar ($) acquired the status of ‘standard’ for valuation of currencies. In congruence with its true characteristics, USA broke the promise in 1971 and thus rendered the valuation of currencies devoid of any standards.
Thereafter the currencies were left to be valued by their ‘demand’ in the global financial markets. Imperatively ensuring that the currency in which high value commodities (arms, aviation and auto) and the commodities with perpetually increasing captive demands (Oil) will be traded will always dominate the currencies in which commodities like ‘raw materials’ and agricultural goods will be traded. This was the beginning of the financial apartheid or introduction of financial caste system within community of nations. The currencies of OECD countries settled on the top of the hierarchy for long time to come.
Surreptitiously brought about changes in the banking sector along with the above had helped in ensuring money and credit supply to deal with the ‘crisis of markets’ which tend to occur more frequently than before. Significant amongst such changes are introduction of ‘cash reserve ratio (CRR)’ which allow banks to loan several times more than the deposits they generate and the notion of treating ‘outstanding’ loans of bank as their assets and not liability in their balance sheets. These changes not only transformed bank ‘credit’ into a product but also encouraged the banks to go out aggressively to sell their product called ‘credit’ in order to consolidate their balance sheets.
It is result of some of these interventions that we are living today in a world whose economy is steered by virtual money (that only exist as book-keeping entries in the ledgers of banking system) and pushed by bank credit. Nations are running on credit, businesses & corporations are running on credit and even households are running on credit. Supply of credit is generally managed by frequent manipulations of interest rates and cash reserve ratio.
These strategies were put in place very inaudibly but with iron gloves through the help of Bretton Wood twins WB and IMF and don’t even take centre stage in the discourse of their detractors.
However, after the opening of China (in 1980s) and fall of Soviet Bloc (1991) the route of accessing newer markets had dried-up but the strategies and instruments mentioned above kept the flame of capitalism alive. Demands were kept at par with supplies through ‘credit’ accessibility; credit flows were insured by cuts in bank rates and CRR; and nations were mowed by hegemony of few currencies and resultant balance of payments. The show went along.
While all these processes were unleashing, the right-wing fundamentalist group within the ranks of capitalist think tank shaken by the capitalist crisis embracing 24X7 characteristic embarked on articulating what is today known as neo-liberalism. In their enthusiasm to debunk stalwarts of capitalist economics i.e. Adam Smith and Keynes they not only went as far as to claim ‘market perfection’ but also relative autonomy from the patron - the State. They have not only propagated that the market is capable of taking care of all human and ecological concerns but also don’t require State patronage to do so!
It is difficult to figure out at this juncture as to how much of all this was rhetoric and how much was their genuine belief. The fact remains that they were able to realize a lot of it by hook or crook with explicit support of US establishment and its hegemonic dreams. A lot of things fell in place for them and provided the decaying capitalism with a life supporting system in the ICU of human history.
In retrospect it becomes clear that the attempts to deal with the crisis never seek solutions but only help to postpone the present crisis and create new one. Either the perpetrators of capitalism know that solutions are not there within the system as their detractors know or over a period of time they have mastered the art of making more money from the crisis and enjoy living with it.
As a result the character of capitalism in this phase has also changed drastically. It is no more driven by the engine of industry and manufacturing but it is steered by (speculative and nonexistent) financial capital and thus lacks a substantive foundation. It is no more able to bear its mask of ‘liberty, fraternity and equality’ and sustain its own project of democracy on which it has taken pious ride for couple of centuries in a surreptitious manner. The capitalism today is in a state of survival in the most naked form in its own history.
The recent crisis has thoroughly exposed the neo-liberal doctrines of ‘market perfection’ and its capacity to survive without State spending. The detractors are feeling somewhat jubilant but perpetrators are not jittery at all. The flaws will be shamelessly admitted as had been done throughout history and they will come-up with newer plans to supply the dying capitalist system some breathing for sometime to come.
The international financial institutions surrogated to the neo-liberal designs have been working overtime to device politically safer routes of public spending by the State to provide stimulus to both the banking sector and the market. Direct method of public funds being used to rescue Banks and Corporations in recent years has not gone that well with public at large as it is proving to be a politically costly affair.
The new design proposes to stimulate both the banks and the market by inducing a lot of public money in the name of poor through banks. The two experiments carried out by World Bank are called Conditional Cash Transfer (CCT) and Direct Cash Transfer (DCT). These programmes envisages to transfer cash through banks to the accounts of the targeted poor (in case of India the BPL) either with conditions of spending it on specified heads like children’s education, health or food or without conditions to fend for themselves. In this proposition the political risks are less because the State spending is sought in the name of poor and in the name of market but the structural architects of such programmes ensure that ultimately the banking sector and the markets get stimulated!
First of all it proposes to monetize all poverty eradication efforts and secondly it suggests routing it through banks. The first ensures that what goes out of public exchequer reaches its ultimate destination - the market. The second ensures huge amounts of public money spent on these efforts enters the banking system as deposits through millions of individual accounts and thus permit banks to advance credit at least 10 to 15 times of these deposits because of CRR policies and innovative accounting systems.
For example if under NREGA-related current financial year’s stipulated spending of about Rupees 390 billion around 220 bilion of wage component is getting distributed through individual bank accounts of the beneficiaries over the year, this will figure as ‘deposits’ in the banking system and based on this strength banks will be eligible to dole out around Rs. 3000 billion as credit to their credit worthy clients- the credit guzzler corporations and consumerism addicted Indian elite.
If implemented such instruments will provide face saving for protagonists of neo-liberal doctrines and conveniently go back to Keynesian doctrine in a very ragged form in ideological terms and fulfil the requirements to postpone the present crisis for sometime in the future.
By the time such arrangements get exhausted, the possibilities of rejuvenating capitalism again from coma are being explored through disasters resulted by its own deeds in the past like climate change. If the developments at recent Copenhagen Summit are any indicator the capitalist system appears to be all set to take advantage of climate disaster by pushing through market centric and market driven solutions.
These propositions are strategically and politically very dangerous for forums like INSAF because they not only create conditions for co-option of large sections of fraternity but also send confusing signals in terms of larger politics. The apparent jubilation of failure of neo-liberalism is more sensual in nature and not substantial. The challenges it seems to be posing in times to come will be more confrontational in nature and the State, armed to its tooth, seems to be more and more nakedly subservient in serving the greed of the market as against its own people. We are already getting the glimpse of this in recent years and now need to enhance our understanding, sharpen our strategies, and strengthen our linkages to prepare for upcoming challenges.
INDIAN SOCIAL ACTION FORUM (INSAF)
A124/6 1st floor, Katwaria Sarai, New Delhi 110016; Tele-fax: +91-11-26517814; Email: insaf@vsnl.com ; Web: http://www.insafindia.org
RESIST GLOBALISATION, COMBAT COMMUNALISM, DEFEND DEMOCRACY
Background note
The three most distinctive features that illustrate the voyage of capitalism through history are its intrinsic crisis; its structural inability to seek solutions to ensuing crisis at any given juncture and its perpetual want of patronage and protection from ‘State”.
The fundamental crisis of capitalism had been the ‘crisis of market’ which largely was dealt by either capturing (without any moral remorse) new markets (countries) or resorting to convert new items and/or areas into profit making ventures in connivance with its patron ‘The State’.
The annals of colonial era are testimony to the brutal attempts of capturing new markets and wars (I & II) amongst the powerful nations for distribution and redistribution of these markets. The fierce competition for the control of share of global market continued in post colonial era in variety of forms including the ‘cold war’.
The evidence to the second route of coping with crisis can be found in negotiations and renegotiations between market and the State with regards to obligations of building infrastructure and public services.
By and large in the initial phases of capitalist development (in any specific country) the State was obligated to spend public money on development of infrastructure and thus not only create conducive conditions for capitalism to grow but also stimulate current market through contracts and supplies. The State was also looked upon to spend public money on public services and utilities i.e. education, health, municipal functions etc. and manage the same.
With consolidation of capitalism, the markets were first able to successfully negotiate with the State to leave areas i.e. electricity, transport, communication, road construction etc. for profit making. After gaining experience from post second World war reconstruction of Europe, privatization of infrastructure is been promoted throughout the world using instruments of international financial institutions like World Bank and IMF.
The proposals made at the Uruguay round of GATT negotiations in 1983 that led to formation of World Trade Organisation (WTO) in 1995 were also in the line of converting new avenues i.e. agriculture goods and services into legitimate profit making areas and treated at par with manufactured goods. Providing equal playing field to all kind of corporations and business houses and protecting their Intellectual Property Rights were the additions in the package deal.
Apart from these two routes of overcoming crisis, another critical instrument which had been craftily used was seeking policy changes in monetary and banking sectors. For example good old ‘gold standard’ used for valuation of currencies was dumped way back in 1944 during Bretton Woods conference that created the World Bank (WB) and International Monetary Fund (IMF) on the promise by USA to small group nations. In a way, the US dollar ($) acquired the status of ‘standard’ for valuation of currencies. In congruence with its true characteristics, USA broke the promise in 1971 and thus rendered the valuation of currencies devoid of any standards.
Thereafter the currencies were left to be valued by their ‘demand’ in the global financial markets. Imperatively ensuring that the currency in which high value commodities (arms, aviation and auto) and the commodities with perpetually increasing captive demands (Oil) will be traded will always dominate the currencies in which commodities like ‘raw materials’ and agricultural goods will be traded. This was the beginning of the financial apartheid or introduction of financial caste system within community of nations. The currencies of OECD countries settled on the top of the hierarchy for long time to come.
Surreptitiously brought about changes in the banking sector along with the above had helped in ensuring money and credit supply to deal with the ‘crisis of markets’ which tend to occur more frequently than before. Significant amongst such changes are introduction of ‘cash reserve ratio (CRR)’ which allow banks to loan several times more than the deposits they generate and the notion of treating ‘outstanding’ loans of bank as their assets and not liability in their balance sheets. These changes not only transformed bank ‘credit’ into a product but also encouraged the banks to go out aggressively to sell their product called ‘credit’ in order to consolidate their balance sheets.
It is result of some of these interventions that we are living today in a world whose economy is steered by virtual money (that only exist as book-keeping entries in the ledgers of banking system) and pushed by bank credit. Nations are running on credit, businesses & corporations are running on credit and even households are running on credit. Supply of credit is generally managed by frequent manipulations of interest rates and cash reserve ratio.
These strategies were put in place very inaudibly but with iron gloves through the help of Bretton Wood twins WB and IMF and don’t even take centre stage in the discourse of their detractors.
However, after the opening of China (in 1980s) and fall of Soviet Bloc (1991) the route of accessing newer markets had dried-up but the strategies and instruments mentioned above kept the flame of capitalism alive. Demands were kept at par with supplies through ‘credit’ accessibility; credit flows were insured by cuts in bank rates and CRR; and nations were mowed by hegemony of few currencies and resultant balance of payments. The show went along.
While all these processes were unleashing, the right-wing fundamentalist group within the ranks of capitalist think tank shaken by the capitalist crisis embracing 24X7 characteristic embarked on articulating what is today known as neo-liberalism. In their enthusiasm to debunk stalwarts of capitalist economics i.e. Adam Smith and Keynes they not only went as far as to claim ‘market perfection’ but also relative autonomy from the patron - the State. They have not only propagated that the market is capable of taking care of all human and ecological concerns but also don’t require State patronage to do so!
It is difficult to figure out at this juncture as to how much of all this was rhetoric and how much was their genuine belief. The fact remains that they were able to realize a lot of it by hook or crook with explicit support of US establishment and its hegemonic dreams. A lot of things fell in place for them and provided the decaying capitalism with a life supporting system in the ICU of human history.
In retrospect it becomes clear that the attempts to deal with the crisis never seek solutions but only help to postpone the present crisis and create new one. Either the perpetrators of capitalism know that solutions are not there within the system as their detractors know or over a period of time they have mastered the art of making more money from the crisis and enjoy living with it.
As a result the character of capitalism in this phase has also changed drastically. It is no more driven by the engine of industry and manufacturing but it is steered by (speculative and nonexistent) financial capital and thus lacks a substantive foundation. It is no more able to bear its mask of ‘liberty, fraternity and equality’ and sustain its own project of democracy on which it has taken pious ride for couple of centuries in a surreptitious manner. The capitalism today is in a state of survival in the most naked form in its own history.
The recent crisis has thoroughly exposed the neo-liberal doctrines of ‘market perfection’ and its capacity to survive without State spending. The detractors are feeling somewhat jubilant but perpetrators are not jittery at all. The flaws will be shamelessly admitted as had been done throughout history and they will come-up with newer plans to supply the dying capitalist system some breathing for sometime to come.
The international financial institutions surrogated to the neo-liberal designs have been working overtime to device politically safer routes of public spending by the State to provide stimulus to both the banking sector and the market. Direct method of public funds being used to rescue Banks and Corporations in recent years has not gone that well with public at large as it is proving to be a politically costly affair.
The new design proposes to stimulate both the banks and the market by inducing a lot of public money in the name of poor through banks. The two experiments carried out by World Bank are called Conditional Cash Transfer (CCT) and Direct Cash Transfer (DCT). These programmes envisages to transfer cash through banks to the accounts of the targeted poor (in case of India the BPL) either with conditions of spending it on specified heads like children’s education, health or food or without conditions to fend for themselves. In this proposition the political risks are less because the State spending is sought in the name of poor and in the name of market but the structural architects of such programmes ensure that ultimately the banking sector and the markets get stimulated!
First of all it proposes to monetize all poverty eradication efforts and secondly it suggests routing it through banks. The first ensures that what goes out of public exchequer reaches its ultimate destination - the market. The second ensures huge amounts of public money spent on these efforts enters the banking system as deposits through millions of individual accounts and thus permit banks to advance credit at least 10 to 15 times of these deposits because of CRR policies and innovative accounting systems.
For example if under NREGA-related current financial year’s stipulated spending of about Rupees 390 billion around 220 bilion of wage component is getting distributed through individual bank accounts of the beneficiaries over the year, this will figure as ‘deposits’ in the banking system and based on this strength banks will be eligible to dole out around Rs. 3000 billion as credit to their credit worthy clients- the credit guzzler corporations and consumerism addicted Indian elite.
If implemented such instruments will provide face saving for protagonists of neo-liberal doctrines and conveniently go back to Keynesian doctrine in a very ragged form in ideological terms and fulfil the requirements to postpone the present crisis for sometime in the future.
By the time such arrangements get exhausted, the possibilities of rejuvenating capitalism again from coma are being explored through disasters resulted by its own deeds in the past like climate change. If the developments at recent Copenhagen Summit are any indicator the capitalist system appears to be all set to take advantage of climate disaster by pushing through market centric and market driven solutions.
These propositions are strategically and politically very dangerous for forums like INSAF because they not only create conditions for co-option of large sections of fraternity but also send confusing signals in terms of larger politics. The apparent jubilation of failure of neo-liberalism is more sensual in nature and not substantial. The challenges it seems to be posing in times to come will be more confrontational in nature and the State, armed to its tooth, seems to be more and more nakedly subservient in serving the greed of the market as against its own people. We are already getting the glimpse of this in recent years and now need to enhance our understanding, sharpen our strategies, and strengthen our linkages to prepare for upcoming challenges.
INDIAN SOCIAL ACTION FORUM (INSAF)
A124/6 1st floor, Katwaria Sarai, New Delhi 110016; Tele-fax: +91-11-26517814; Email: insaf@vsnl.com ; Web: http://www.insafindia.org
RESIST GLOBALISATION, COMBAT COMMUNALISM, DEFEND DEMOCRACY
