People's Democracy

The Unstable World Economy

Jayati Ghosh

THE world economy may appear very unipolar and dominated by one superpower, but it is also more unstable than it has been for some time. It is prone to systemic instability and constant possibility of crisis. There are several factors behind this.

FAILURE

OF THE US

First, the US is not currently fulfilling its role of leader in the world economy to maintain stability. Such a role requires the US to fulfil at least three functions:

·         discounting in crisis, which means preventing financial meltdown in the face of severe liquidity problems in countries or major markets;

·         counter-cyclical lending to countries who are for some reason or other rejected for the time being by private investors; and

·         providing a market for net exports of the rest of the world, especially those countries requiring it to repay debt.

It is not as if there has been no discounting in crisis. Even in the recent past, there are countries that have received large bailouts orchestrated by the US Treasury and the IMF. But the spectacular collapse of Argentina, the bleeding of Sub-Saharan Africa despite impending large-scale famine, and the indifference to implosions in Eastern Europe and elsewhere, bear witness to the fact that the US administration does not see its responsibility to discount in terms of the larger system.

Similarly, counter-cyclical lending has not been provided adequately, and so private finance has been associated with creating sharp boom-and-bust cycles. When the capital flows in, a small (and possible artificial) boom is created, causing changes in the real economy which eventually cause private capital to panic and move out, then causing a crisis. US policy has been geared towards protecting such behaviour rather than repressing it.

Finally, while the US did play a crucial role as engine of world trade by running very large external trade deficits in the 1990s, that role has been much diminished after 2000. Indeed, even before then, the import surplus in the US reflected private investment-savings deficits, as the government’s budgetary role became more contractionary.

DECELERATION

IN GROWTH

Aggregate growth in the world capitalist system has been far below expectations in the recent phase of globalisation. This is partly because the US has not played the role of responsible leader as described above. But it is also because of the greater mobility of finance capital, which forces governments to spend less and reduces their ability to stimulate growth through public expenditure. So the recent period has been associated with a deceleration of economic activity in much of the developed world, a continuing implosion in vast areas of the developing world including the continent of Africa, and a dramatic downslide in what had hitherto been the most dynamic segment of the world economy - East and Southeast Asia. These processes are reflected in rates of growth of world trade (in value terms) which have decelerated despite the enforced liberalisation of trade in much of the world, as well as in declining rates of new productive investment across the world.

INCREASED

DISPARITIES

Further, the recent process of imperialist globalisation has been marked by greatly increased disparities, both within countries and between countries. The gap in per capita income between industrial and developing worlds has more than tripled between the 1960 and 1990. Between 1960 and 1991, the income share of the richest 20 per cent of the world's population rose from 70 per cent to 85 per cent, while the income share of the poorest 20 per cent of population fell from 2.3 per cent to 1.4 per cent. In fact, the income shares of more than 85 per cent of the world's population actually fell over this period. The ratio of shares of the richest to the poorest groups doubled from 30:1 to 60:1. Since then, such disparities have actually worsened.

In addition, the bulk of the people across the world find themselves in more fragile and vulnerable economic circumstances, in which many of the earlier welfare state provisions have been reduced or removed, public services have been privatised or made more expensive and therefore less accessible, and employment conditions have become much more insecure and volatile.

CRISIS OF

LEGITIMISATION

These features have led to a major crisis of legitimisation for the system. The basic tenets of the market-oriented framework are increasingly under question. And even the institutions which serve to uphold it the system (the IMF, the WTO and so on) lack popular support and legitimacy. The anti-globalisation umbrella movement is one expression of such growing dissent, but there are many other social and political expressions of popular revulsions in local and national contexts.

One important – and new – feature, is that the process of integrating elites from developing countries, and rewarding them materially for their active co-operation in furthering corporate globalisation, has slowed down. The complicity and participation of local elites has therefore been a potent force in ensuring the success of global capitalist integration – but as the world recession bites and rewards become more scarce, such complicity can no longer be taken for granted. Since the political economy of resistance movements everywhere requires the involvement of at least some middle class and professional elements and often some local elites as well, this may prove to be a critical development.

Finally, one important contradiction looks likely to become more significant in the near future. This is the requirement of deflation, which predatory finance capital imposes on the system as a whole. A sustainable prey-predator relation requires the continued existence of the prey, but widespread deflation makes this less likely. The current downslide in the major stock markets, and especially in the US, suggests that while finance can be separated from real economic trends for extended periods, and can even profit by such separation, it cannot do so indefinitely.

All this means that, while the world capitalist system may not yet be in full-fledged crisis (even though parts of it clearly are) there are systemic instabilities, which suggest that the current pattern cannot continue without some changes or even substantial overhaul in the medium term.