Capitalism: A system built to fail

Professor, Richard Wolff of the University of Massachusetts explains in this superb lecture, why the financial crisis is the biggest crisis of capitalism in his, and our, lifetime. Listen till the end, because that is where the symphony’s crescendo is.

Click here to watch the video (38mins). Link via Lenin’s Tomb

[and WordPress- I hate you, for once, because I can’t embed a google video in the post].

Read also Prof Wolff’s recent articles in MR.

Capitalism happens.  When and where it does, capitalism casts its own special shadow: a self-critique of capitalism’s basic flaws that says modern society can do better by establishing very different, post-capitalist economic systems.  This critical shadow rises up to terrify capitalism when — in crisis periods such as now — capitalism hits the fan.  Karl Marx poetically called that shadow the specter that haunts capitalism.

This one is on the so- called distinction between the main street and wall Street, or regulated and un- regulated capitalism. Capitalism is capitalism, in whatever form in comes. The main street leads to the Wall Street.

Capitalism has everywhere oscillated between private and public phases.  Private capitalism minimized government interventions and mostly kept state officials off boards of directors.  In capitalism’s public phases, governments intervened and sometimes replaced private with public members of boards of directors.  Crises of one phase often provoked transition to the other.

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‘Bailouts’: Socialism (and Capitalism) on its head

John Lanchester, writing in the LRB has one of the finest writings from the left on the financial crisis (no, unlike the fall of ‘socialism’, it is a mere crisis, not the ‘End of History’!). Lanchester also ends with the general pessimism on the left regarding the lack of a left alternative despite the optimism generated by the vindication of its theoretical criticism of capitalism in general and the neo- liberal led globalization in particular.

Perhaps, Francis Fukuyama was right and it indeed is the end of history.

The invention which made it possible for the lending to become so reckless was securitisation: the process by which loans were added together and sold on to other institutions as packages of debt. This had the effect of making the initial lender indifferent to whether or not the loan could be repaid – he’d already sold the debt to someone else, so he didn’t need to care. These packages of debt were then sold on and resold in the form of horrendously complex and sophisticated financial instruments, and it is these which are the basis of the global jamming-up of capital markets.

Continue reading “‘Bailouts’: Socialism (and Capitalism) on its head”

Karl Polanyi’s The Great Transformation and the Wall Street Crisis

Dr Girish Mishra has a very informative piece on Karl Polanyi’s book The Great Transformation (1944). Polanyi’s name has figured in a quite a few places of late in light (or the shadow!) of the Wall Street financial crisis. As neo- liberalism recedes- its most articulate proponents now reduced to a tiny die- hard group of ostriches, it is pertinent to speculate on how things will shape now. Lessons from history may not provide recipes, but help in providing a perspective. The concluding words from the article indicate a much desired possibility, at least on the medium to long term.

A few excerpts:

The mission to create a totally self-regulating market economy is predicated on the assumption that both the human beings and natural environment are turned into pure commodities, that is, they are freely bought and sold.

Continue reading “Karl Polanyi’s The Great Transformation and the Wall Street Crisis”

Wall Street Crisis and Das Capitalism

One week of the collapse of the New York investment banking network, and its ‘rescue’ by the US federal government speaks louder than any arguments against the “free market”. The stock market, considered the ideal mechanism in identifying winners and losers and thereby contribute to an efficient system in contrast to ostensibly inefficiently run government enterprises, has spoken loudly and clearly. An unbridled, or insufficiently bridled, system where companies run by teams of specialists and accountable to no none but a small base of investors has run amok with the bad bad governments bailing out investment banks in the heart of what Maxim Gorky once called The City of Yellow Devil. The devil has certainly reared its bloody head all over Wall Street last few days with a vengeance.

The $700 billion bailout by the US federal reserves is nearly twice the GDP of the apparently roaring economy of India! While investment banks are in the business of making money out of nowhere, these do have an impact on the real economy since industries depend on investments by what is ultimately speculative finance capital for sustenance and growth. The whole web of finance transactions is said to be so complicated that the bankers themselves have lost track of the sources and direction of transactions.
Continue reading “Wall Street Crisis and Das Capitalism”

The Low Side of High Growth

I wish I could summarize Amit Bhaduri’s critical take on India’s high growth rates in recent years-titled India’s Predatory Growth from last week’s EPW. It is, however, so succinct that I’d suggest reading the whole article. Here are a few excerpts:

Statistical half truths can be more misleading at times than untruths. And this might be one of them, insofar as the experiences of ordinary Indians contradict such statistical artefacts. Since citizens in India can express reasonably freely their views at least at the time of elections, their electoral verdicts on the regime of high growth should be indicative. They have invariably been negative. Not only did the “shining India” image crash badly in the last general election, even the present prime minister, widely presented as the “guru” of India’s economic liberalisation in the media, could never personally win an election in his life.

In contrast to earlier times when less than 4 per cent growth on an average was associated with 2 per cent growth in employment, India is experiencing a growth rate of some 7-8 per cent in recent years, but the growth in regular employment has hardly exceeded 1 per cent. This means most of the growth, some 5-6 per cent of the GDP, is the result not of employment expansion, but of higher output per worker. This high growth of output has its source in the growth of labour productivity. According to official statistics, between 1991 and 2004 employment fell in the organised public sector, and the organised private sector hardly compensated for it.

At the extreme ends of income distribution the picture that emerges is one of striking contrasts. According to the Forbes magazine list for 2007, the number of Indian billionaires rose from nine in 2004 to 40 in 2007: much richer countries like Japan had only 24, France 14 and Italy 14. Even China, despite its sharply increasing inequality, had only 17 billionaires. The combined wealth of Indian billionaires increased from $ 106 to $ 170 billion in the single year, 2006-07 [information from Forbes quoted in Jain and Gupta 2008]. This 60 per cent increase in wealth would not have been possible, except through transfer on land from the state and central governments to the private corporations in the name of “public purpose”, for mining, industrialisation and special economic zones (SEZs). Estimates based on corporate profits suggest that, since 2000-01 to date, each additional per cent growth of GDP has led to an average of some 2.5 per cent growth in corporate profits. India’s high growth has certainly benefited the corporations more than anyone else.

Food in the Time of Crisis

What we are witnessing today is not so much a food crisis, but the question of food in a time of crisis.

Senior Indian ministers have mistakenly attributed the current rise in food prices to the poor consuming more because ‘the economy is growing’.

This fallacy arises when one is blind to both history and the present.

A few days after agriculture minister Sharad Pawar blamed the South Indians for eating more chapatis causing wheat shortage, commerce minister Kamal Nath on Friday said increased food consumption by poor people is a challenge before the government. “We have great supply-side challenges in India at the moment with 15 million people moving from having one meal a day to two meals a day,” Nath said on the the sidelines of a conference in Singapore. (source, via anindianmuslim)

[To be fair, Sharad Pawar has had an afterthought, though he still does not hit the bull’s eye:
Pawar said that agriculture was globally faced with serious challenges from factors like climate change, natural calamities and crop failure, diversion of agriculture land for bio fuels and increasing prices of food grain. (source)]

The production this year is estimated to about 227m tons, which is little less than the the current consumption.

It is certainly not a supply side problem, contrary to the minister’s assertions.

Since the food riots of the 1970s, the country, especially its middle classes, have not witnessed a large scale famine or a crisis. However, historically, some of the biggest famines were caused during an earlier phase of globalization- it was then more bluntly called colonization.

In neither case the reason was the insufficiency of food grains. On the contrary, both then as now, the reasons were linked to the vagaries of the world market, ‘free market’ only in name and controlled by financial interests in reality. During the 18th and 19th centuries, for example:

One third of the population of the then province of Bengal, which includes today’s Bangladesh, West Bengal, Orissa, Bihar and South Assam, were wiped out in the famine of 1770, immediately after Bengal was occupied by the British East India Company, due to their inhuman tax system. According to author Mike Davis, during the famine of 1876, “the newly constructed railroads, lauded as institutional safeguards against famine, were instead used by merchants to ship grain inventories from outlying drought stricken districts to central depots for hoarding…In Madras city, overwhelmed by 100,000 drought refugees, famished peasants dropped dead in front of the troops guarding pyramids of imported rice.”

Interestingly, “these famines took place at the very same time that annual grain exports from India were increasing.” (source).

Does history teach us anything? Is there anything in common with the present, almost sudden food crisis?

In the 18th and 19th centuries India suffered terribly as millions starved to death, its countless tons of grain were exported to England because the mother country could afford higher prices impoverished Indians couldn’t.

The situation is similar today though the immediate triggers are different. The 19th century crises was caused because of the de- industrialization of India, forcing a movement from the town to the countryside and increasing the pressure on land At the same time there was a dismantling of its traditional grain reserve system. Finally, the focus of crops shifted to growing “cash” crops that were exported to the global market.

There certainly is no crisis because of the production, or its possibilities, in not being able to cater to demand. It is not a question of supply versus surging demand. Certainly, demand has increased over the years- though not because, as Kamal Nath would like us to believe “because the poor are eating more”.

It is partly due to the increasing demand from the rising middle classes in Asia (FP edit), and also wastage in the developed world. The structural reforms unleashed over last two decades have led to a general agricultural crisis (impacting food grain production as well):

Between 1996 and 2001, prices of all primary products (cotton, jute, food grains and sugar) fell by 40 to 60 per cent and farmers who had contracted private debts in particular, became insolvent. The syndrome of hopelessly-indebted farmers committing suicides in Andhra Pradesh and Punjab started in 1998 and rapidly spread to other areas where cultivation of cash and export crop was predominant. The crash in pepper, coffee and tea prices came a few years later after 1998 and farmer suicides in Kerala and insolvency of tea estates in West Bengal date from around 2002.

Most recently, rising fuel costs that have shot up to $117 from $50 three years ago, have turned many in the developed world towards bio fuels, which means that instead of grains feeding human stomachs they now feed the cars and vehicles in the rich world.

More immediate is the role of finance speculation in futures trading (which means that future products are purchased in advance), because finance capital has to invest where the returns are the highest and in light of the fuel crises means that bio fuels are promising speculations.

Commodity speculation spread long ago from standard products like oil and gold to anything edible and available for trade on the Chicago Futures Exchange. These days there are futures contracts for everything from wheat to oranges to pork bellies. The futures market is a traditional tool for farmers to sell their harvests ahead of time. In a futures contract, quantities, prices and delivery dates are fixed, sometimes even before crops have been planted. Futures contracts allow farmers and grain wholesalers a measure of protection against adverse weather conditions and excessive price fluctuations. They can also help a farmer plan how much to plant for a given year.

But now speculators are taking advantage of this mechanism. They can buy futures contracts for wheat, for example, at a low price, betting that the price will go up. If the price of the grain rises by the agreed delivery date, they profit.

Some experts now believe these investors have taken over the market, buying futures at unprecedented levels and driving up short-term prices. Since last August, this mechanism has led to a doubling in the price of rice — including the 500,000 tons that the Philippine government plans to buy in early May to address its own shortage. (source)

If railroads were responsible for moving foodgrains from areas of surplus to be sent to the ports for shipping to England instead of to areas of famine, computer networks today provide a lightening speed strike for finance capital to move funds from one sector to another, one country to another, creating sudden imbalances. The rich can afford to pay more for food and so that is where the the direction of flow is.

As Woody Allen commented in one of his movies, “the universe is one big restaurant”, in which everything from stars to the lowly organisms in the food chain on this lonely, and at the same time boisterous planet is busy devouring each other, and are thereby linked to each other. One cannot explain the food crisis without looking at whole picture. The food crisis is linked to the fuel crisis which is linked to the war in Iraq. It is also linked to the sub- prime crisis in the United States and the need for finance to grow and bring increased returns to its investors, which at best constitute not more than 15% of the population in any country, whether in the developed world or the so called ’emerging world’ or the ‘developing’ world (no one seems to use the phrase ‘under- developed’ nowadays, though- even Haiti is referred to as a developing country).

To cut a long story short, it is not the increased food consumption of the poor, but the cycle of production and the fleeting moods of finance capital and the production and exchange cycle that it increasingly determines and that now flows faster than the sun traverses the world each day, that lies behind the crisis.

In the current context of food availability, one of the more fundamental contradictions of capitalism is coming to the fore- when it starts consuming its own potential consumers, when it is not able to sustain their bare minimum existence.

Much of the media, especially television, focuses on single issue of the day, one day it is Tibet, another Iraq, another day it is rising fuel costs and yet another it is food riots now in Haiti and then in another place. Those like the Dalit intellectual Chandrabhan Prasad too err when they stretch the identity issue too far and start looking at globalization and even the British rule as beneficial for Dalits, most of whom are at the receiving end of globalization, whether during the British mis- rule or the contemporary wave of globalization.