frontline 8

Globalisation feeds economic instability

The world capitalist economy has never been stronger. So speaks all the major capitalist institutions of the world, the IMF, World Bank etc. To a certain extend they are right. For the first time in its history capitalism is a truly global system. This might seem a strange point to make for socialists well versed in the workings and history of international capitalism but consider. From 1917 until the collapse of the Soviet Union there was a large track of the world which was effectively closed to capitalism and prior to 1917 large parts of what we now call the developing world were hardly touched by the system. It is only now at the beginning of the 21st century that capitalism can claim to extend to just about every corner of the globe. Large parts of South East Asia are currently undergoing the kind of industrial revolution experienced in Europe in the 19th century while China is going through probably the greatest capitalist revolution in history. 'Capitalism triumphant' has been a common theme of right wing journal's like the Economist for several years now.

At the same time it is clear that capitalism has never been more unstable. Of course, economic instability has always been a feature of capitalism. Inherent within the system is a process of boom and slump, which is a by-product of capitalism's primary purpose, the maximisation of profit. It does this by reducing costs (mostly wages) and increasing sales. However, there is a problem here. Workers aren't just wage earners they are also consumers; buying the goods which capitalism produces. When the capitalist economy is expanding there is pressure to increase wages to buy the increasing number of goods available. This leads to a counter pressure from capitalism to restrict wages. However if this is successful, workers cannot buy the goods which capitalism produces. This leads to overproduction, cutbacks and a down turn in the economy; boom turning to slump. When this happens, the pressure is on to reflate the economy by increasing consumer spending through higher wages, increased public expenditure and the lowering of interests rates to discourage saving. This increased spending leads to a consumer driven expansion of the economy turning slump back into boom. And so it goes on. Capitalism is in a constant process of moving from slump to boom and back again.

What is different today is that this process for many capitalist economies has become much more volatile. Three years ago the Far East was rocked by a devastating economic crisis yet six months prior to that economic collapse no one would have predicted what was about to happen. Similarly, Argentina today is suffering its worst economic crisis in living memory yet a year ago its economy was relatively stable with the IMF making very positive noises about its prospects. This instability makes the system very vulnerable and opens up enormous opportunities for those forces opposed to capitalism. Capitalism will always try to make the working class shoulder the burden of the crisis; if the working class can effectively resist this pressure, it opens up the possibility of a direct challenge to the system itself.

There have been two major and inter-related developments in recent years which together represent a qualitatively new phase in the development of capitalism. They are globalisation and the freeing up of the money markets. About a decade ago the international finance system underwent what was essentially a revolution, described at the time as 'the Big Bang'. Before the 'Big Bang' the different financial centres of the world such as the City of London, Wall Street etc acted quite separately and independently and were closely tied to their respective nation-states and governments. Using new technology these different money markets were freed up to, in effect, create one enormous world money market less responsive to the needs of a particular nation-state, controlled less by national governments and with money moving between these markets much more quickly in search of the best rate of return. At the time some leading right-wing figures warned against this pointing out the damage that could be done to individual capitalist economies and the inherent instability this would cause. George Soros, the world's most successful international financier and someone who has directly benefited from the 'Big Bang' to the tune of billions of dollars still had the foresight to point out the dangers for capitalism . Denis Healy, the former Chancellor, bitterly opposed this development pointing out the long term damage that could be done to the system.

This ability of capitalists, bankers and speculators to move their money from one country to another virtually overnight and with little or no regulation leaves almost all capitalist economies vulnerable. Those with the long-term interests of capitalism at heart recognise this, hence the warnings from the likes of Soros and Healy, but of-course, given a choice between long-term and short-term interests; capitalism will always choose the latter.

The second major development has been globalisation. This writer believes that globalisation represents a new and distinct phase of capitalism. Hitherto, capitalism has remained well-bedded to the nation-state; in fact capitalism created almost all the modern nation states. As such one could talk about British or French or American capitalism etc. This is increasingly no longer the case. Capitalism is leaving the nation-state behind replacing it with international arrangements which better serve its interests. Today, the typical multi-national company probably has its headquarters in a major capitalist country but little else. However, capitalism is creating a problem for itself. The capitalist state exists to defend and extend the interests of the system. By breaking with the nation-state, capitalism is at the same time weakening the capitalist state and making it more vulnerable to challenge. Capitalism as an economic system has embraced globalisation but as a social and state system it is at a loss how to deal with its consequences.

Bill Bonnar