Monday, March 30, 2009

don't expect much in London

On Thursday this week the 25 leaders of the G20 grouped of developed capitalist and developing capitalist countries meet in London, in what is being billed as the most important global economic crisis for 75 years. They are supposed to come together and come up with a mutually-agreed plan to tackle the global economic crisis that continues to gather in fury, despite what some dewy-eyed optimists might say, as well as putting in place the preconditions to ensure that the current crisis is never repeated. Don't count on it. The one-day meeting will issue a communique that is all sweetness and light, to be sure, but don't expect the problems facing the world economy to be solved on Thursday.

A critical reason why this meeting cannot solve the problems facing global capitalism, other than the absurdly short period of time that the leaders are willing to devote to the problems at hand, is that the key leaders of the most important developed capitalist countries do not agree about what has caused the crisis. There is a fundamental division between the Anglo-Saxon economies--the US, Canada and the UK--and the 'social market' economies--notably France and Germany--about why this crisis has emerged. Don't get me wrong: all 5 countries agree that the crisis has been propelled by the excessive risk-taking of US finance capital. Where they differ is in their understanding of why this propellant has assumed the destructive force that it has.

The US and British position is one that is probably most widely trotted out by the English-dominated global financial media. For Barack Obama and Gordon Brown the key problem facing the global economy has been the seizing up of the financial markets as a consequence of a 'flight to safety' engendered by the collapsing value of 'toxic assets' such as 'collateralized debt obligations'. The answer, then, is to pump money back into the system in order to get banks in particular but also non-bank financial institutions to start to lend money and advance credit again. Public sector deficits--like those created by Barak Obama's US$787 billion stimulus bill--and looser monetary policy--like the Bank of England's adoption of 'quantitative easing' to put more money into the economy, and thus ease the availability of money, and hence of lending--are the way to kick-start a financial sector that is right now unwilling to take chances to start taking chances again, lend, and get the US and world economy moving again.

The French and the Germans have a very different view. For Angela Merkel and the French policy-making elite, the problem is not too little money; it was the fact that there was too much money sloshing around the global financial system. For the French and the Germans, the response of the US Federal Reserve, under the then Chairmanship of Alan Greenspan, to the last 2 significant global events in finance--the 1997 Asian crisis and the financial impact of the terrorist attacks of 9/11--was to loosen up the availability of money in order to keep the financial markets working. This loosening encouraged excessive risk-taking on the part of global finance capital, in pursuit of profit-driven growth that was by definition unsustainable. In this view, the chickens were bound to come home to roost, and they have, with a vengence.

It's going to be hard for Angela Merkel and Barack Obama to reach agreement when they don't even agree as to what caused the problems in the first place. But here's the rub: they're both wrong. Both the Anglo-Saxons and the social market economies fail to grasp the essential characteristics of the crisis of global finance capital: finance capital has become steadily and increasingly divorced from the 'real' productive economy that produces the goods and services that people need. Moreover, in becoming divorced, global finance capital has contributed to the crisis in global manufacturing: a crisis that is well-documented to be threatening the Detroit car industry, to be sure, but which is the result of widespread, deeper, structural and systemic problems. The branch of global productive capital that makes the goods and services that people actually need has yet to find a convincing way out of the productivity and profitability-driven crisis that was unmasked in the 1970s. Finance capital, which was supposed to help sustain profits in the productive economy, has not helped; in many cases, realizing there was not enough money to be made by the 'Masters of the Universe' in the productive economy they have invented new and more esoteric ways of trying to make paper profits on the back of an inability to produce anything of worth to anybody in need. The global economic crisis has been driven by finance capital becoming increasingly divorced from the reality facing the productive economy, and the only way of dealing with the long-term issues created by the crisis and maintaining capitalism as a viable mode of social and economic organization will be to re-connect finance to industry--there is a need to shorten up and tighten the chain between credit and creditor.

The Anglo-Saxon economies want the developed capitalist and developing capitalist countries to do more, in terms of spending, to try and address the crisis. The social market economies want greater regulation of global finance. Both answers only go part of the way to addressing the problems of the global economy; more spending, yes, but redistributive spending that puts money in the pockets of people that actually spend, who tend to be those in the lower 60 per cent of the income distribution. Greater regulation, of course; finance capital cannot be allowed to run rampant. But together they are not enough, given the failure of finance to address the core needs of industry under modern global capitalism.

The communique that is issued on Thursay will praise existing efforts at fiscal stimulus, without committing anyone to more; it will highlight the need to increase financial regulation in the medium-term, which is not the here and now; it will stress the need to clean up bank balance sheets, without making any commitments to nationalization, which at this stage is probably inevitable for some key global institutions; it will lambast protectionism, even though in the months following the last G20 meeting 17 of the 20 countries increased protectionism; and it will give the International Monetary Fund more money, but more money for reasonably well-off developed capitalist countries rather than the developing capitalist countries whose people are, literally, dying as a result of the crisis. None of the core problems facing the G20 will be, in the end, comprehensively addressed. The crisis will continue: for it is a global crisis rooted in the disconnection between finance and production, and in the massive increase in global inequality that such a disconnect has fostered over the last 20 years.

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