PRASENJIT BOSE
It is widely recognized, even within the international economic policy
establishment, that the economic crisis which engulfed the global
economy since mid-2008 is the biggest since the Great Depression of
the 1930s. It has been over two years now that the crisis unfolded with
the bursting of the real estate bubble in the United States, leading to
widespread mortgage defaults and collapse of financial giants like
the Lehman Brothers. Since then, the financial crisis developed into
a deep recession in the US, eventually affecting the entire world
economy by the end of 2008. In 2009, world output experienced a
contraction, with GDP in the advanced capitalist countries taken
together falling by over 3%.1 This was the first annual decline in
world output in more than fifty years, leading to its official
characterisation as the ‘Great Recession’. World trade fell by over 10%
in 2009 from the previous year, which was the sharpest annual fall
since 1970.
CRISIS CONTINUES
In the first half of 2010, however, the IMF and the World Bank
announced that the ‘Great Recession’ was over and the world economy
was on the path of a ‘recovery’. The IMF’s World Economic Outlook
published in April 2010 said: “The global recovery has evolved better
than expected.” The IMF forecast was also upbeat:
Global growth is projected at about 4¼ percent in 2010 and
2011…Advanced economies are now expected to expand by 2¼ percent
in 2010, following a more than 3 percent decline in output in 2009, and by
2½ percent in 2011. Growth in emerging and developing economies is
expected to be over 6¼ percent during 2010-11, following a modest 2½
percent in 2009.
The World Bank’s Global Economic Prospects released in June
2010 noted that “the recovery is transitioning toward a more mature
phase during which the influence of rebound factors (such as fiscal
stimulus) fades, and GDP gains will increasingly depend on private
investment and consumption.” Its projections were, however, less
optimistic than that of the IMF.
The World Bank projects global GDP to expand between 2.9 and 3.3
percent in 2010 and 2011, strengthening to between 3.2 and 3.5 percent in
2012, reversing the 2.1 percent decline in 2009. Developing economies are
expected to grow between 5.7 and 6.2 percent each year from 2010-2012.
High-income countries, however, are projected to grow by between 2.1
and 2.3 percent in 2010 – not enough to undo the 3.3 percent contraction
in 2009 – followed by between 1.9 and 2.4 percent growth in 2011.
The latest World Economic Outlook released by the IMF in
October 2010, has turned cautious. It talks about “economic
recovery…proceeding broadly as expected, although downside risks
remain elevated.” The reason behind the ‘elevated’ downside risk
becomes clearer in the IMF’s latest forecast:
…global activity is forecast to expand by 4.8 percent in 2010 and 4.2
percent in 2011, with a temporary slowdown during the second half of 2010
and the first half of 2011. Output of emerging and developing economies is
projected to expand at rates of 7.1 percent and 6.4 percent in 2010 and
2011, respectively. In advanced economies, however, growth is projected to
be only 2.7 percent and 2.2 percent, respectively. (emphasis added)
The signs of slowdown have already become visible in the
advanced capitalist economies. An assessment made by the OECD in
September 2010 states:2
Recent high-frequency indicators point to a slowdown in the pace of
recovery of the world economy that is somewhat more pronounced than
previously anticipated…growth could slow in the G7 economies to an
annualised rate of about 1½ per cent in the second half of the year…It is
not yet clear whether the loss of momentum in the recovery is temporary…
In reality, economic forecasts by the international economic policy
establishment in the recent years, particularly those by the IMF, have
turned out to be entirely bogus. For instance, the IMF forecast of
world GDP growth for 2008 was 4.8% in October 2007, 3.7% in April
2008 and 3.9% in October 2008. It actually turned out to be 2.8% as
per IMF’s own estimates, and 1.7% as per the estimate of the World
Bank. Similarly, the IMF forecasted 3.7% world GDP growth for
2009 in April 2008 and 3% in October 2008. World GDP growth
actually turned out to be negative in 2009, - 0.6% by IMF’s estimate
and – 2.1% by World Bank’s estimate.
The reason why the IMF has been behind the curve as far as its
growth forecasts are concerned is not difficult to understand. Blind
ideological commitment to neoliberal orthodoxy coupled with
pressures from vested interests, which seek to preserve the status quo,
have overwhelmed its apparatus. Providing over-optimistic growth
forecasts serve the important purposes of generating the ‘feel good’
factor in financial markets on the one hand and jettisoning any attempt
to question or change the dominant policy paradigm on the other.
GDP Growth Estimates & Projections: IMF and World Bank
IMF World Economic Outlook, October 2010
World Output Advanced Economies Emerging and Developing
Economies
2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011
2.8 -0.6 4.8 4.2 0.2 -3.2 2.7 2.2 6.0 2.5 7.1 6.4
World Bank Global Economic Prospects, June 2010
World Output High Income Countries Developing Countries
2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011
1.7 -2.1 3.3 3.3 0.4 -3.3 2.3 2.4 5.7 1.7 6.2 6.0
Note: Figures for 2008 and 2009 are estimates, while that for 2010 and 2011 are forecasts
This has, however, considerably eroded the credibility of these growth
forecasts. The divergence between the GDP estimates and forecasts of the
IMF and the World Bank is also telling. It is noteworthy that this
divergence is not so much for the advanced economies. That is because
data collection and estimation methodologies in the advanced capitalist
countries are fairly robust, which does not provide room for much
manipulation. For most developing countries, however, data collection and
estimation are not carried out as rigorously, on account of both
institutional weaknesses as well as resource constraints. As a result,
there is a pronounced bias towards overestimating GDP growth in
developing countries, especially since such growth is viewed as an
exclusive indicator of economic success in the neoliberal era. Many of
the optimistic growth forecasts for the global economy are therefore
based on this overestimated GDP growth in developing countries.
The IMF is clearly overestimating the GDP growth in the developing
countries compared to the World Bank, which also accounts for its
overestimation of world output growth as a whole.
In this backdrop, the ‘temporary’ slowdown currently being
projected by the IMF for the second half of 2010 and first half of 2011
is nothing but an admission of the fact that the global economic crisis
is far from over. The myth of ‘recovery’ has been blown. The fact that
this slowdown in 2010/2011 is being projected primarily for the
advanced economies, on top of the deep recession of 2009, further
testifies for the depth of the crisis in the advanced capitalist world.
IMPACT OF THE CONTINUING CRISIS
The burden of this severe crisis has mostly fallen on the workers and
the poor, both in the advanced capitalist countries as well as the
developing countries. The average unemployment rate in the 33
advanced economies of the OECD rose from 6% in 2008 to 8.3% in
2009 and stood at 8.5% in August 2010.3 OECD’s Employment Outlook
2010 released in July 2010 reports 47 million people to be officially
unemployed in OECD countries, with 17 million more people out
of work from the beginning of the crisis in 2007. It further states that
taking into account those who have given up looking for work or are
working part-time but want to work full-time, the actual number of
unemployed and under-employed in OECD countries could be about
80 million. Unemployment rates in the US and Europe touched 10% in
2009 and has continued to remain at those high levels in 2010. The
US Bureau of Labour Statistics reports 14.8 million unemployed
persons in the US in September 2010, with the unemployment rate
remaining at 9.6%. Unemployment rate in the 16 countries of the
Eurozone was 10.1% in August 2010, with 15.8 million persons being
unemployed. Unemployment rate has climbed above 10% in several
European countries like France, Portugal, Hungary, Ireland and
Slovak Republic in 2010 and has crossed 20% in Spain. Such high
levels of unemployment currently being witnessed in the advanced
capitalist countries are unprecedented in the post-war period. The
ILO’s World of Work Report 2010 paints a grim picture of the global
unemployment scenario:
…new clouds have emerged on the employment horizon and the prospects
have worsened significantly…In many other countries in which
employment growth was positive at the end of 2009, more recent trends
suggest a weakening of the job recovery or even a “double dip”. The longer
the labour market recession, the greater the difficulties for jobseekers to
obtain new employment…In the 35 countries for which data exist, nearly
40 per cent of jobseekers have been without work for more than one year
and therefore run significant risks of demoralisation, loss of self-esteem
and mental health problems. Importantly, young people are
disproportionately hit by unemployment and, when they find a job, it
often tends to be precarious and does not match their skills. Because the
labour market has been depressed for so long, many unemployed people
are getting discouraged and leave the labour market altogether. Already,
close to 4 million jobseekers had stopped looking for work by the end of
2009 in the countries for which information is available.
This assessment suggests that the actual level of unemployment
prevailing in the world today is much higher than what official
estimates show. The global economic crisis has also increased poverty
across the developing world. The Millennium Development Goals
Report 2010 released by the UN in September 2010 notes:
Newly updated estimates from the World Bank suggest that the crisis will
leave an additional 50 million people in extreme poverty in 2009 and some
64 million by the end of 2010 relative to a no-crisis scenario, principally in
sub-Saharan Africa and Eastern and South-Eastern Asia. Moreover, the
effects of the crisis are likely to persist: poverty rates will be slightly higher
in 2015 and even beyond, to 2020, than they would have been had the
world economy grown steadily at its pre-crisis pace.
This increase in poverty rates is indeed alarming, because the
World Bank poverty estimates grossly underestimate actual poverty.
The MDG targets, based on these poverty estimates are equally absurd.
For instance, the UN claims that the MDG target would be met even
as the absolute number of people living in extreme poverty (i.e. below
$1.25 a day) is projected to be 920 million in 2015. It now appears that
even this abysmally low and virtually meaningless MDG target of
poverty reduction would also not be met, because of the continuing
crisis.
WHY DOES THE CRISIS CONTINUE?
Following the severe recession in 2009, governments and central banks
across the world initially adopted coordinated fiscal and monetary
measures. These mainly comprised of cutting interest rates to near
zero levels, bailing out failing banks and financial institutions and
substantially enhancing public spending. Realizing that the major
capitalist economies (G 7) were incapable of meeting the crisis alone,
some developing countries were also included in the efforts to rescue
the global economy in the form of the G 20.4 As per IMF estimates,
the fiscal stimulus measures (increased public spending and tax cuts)
adopted by the G 20 governments taken together amounted to $820
billion in 2009, equivalent to 2% of the combined GDP of the G 20
countries. China, South Korea, Japan, Russia and Saudi Arabia adopted
the most extensive stimulus programmes among the G 20 countries
in 2009, amounting to over 3% of their GDPs.
The fiscal stimulus measures had some impact in reviving output
growth by the beginning of 2010. The G 20 summit held in end-June
2010 at Toronto saw world leaders patting on each others’ back:5
Our efforts to date have borne good results. Unprecedented and globally
coordinated fiscal and monetary stimulus is playing a major role in helping
to restore private demand and lending…Strengthening the recovery is
key. To sustain recovery, we need to follow through on delivering existing
stimulus plans, while working to create the conditions for robust private
demand. At the same time, recent events highlight the importance of
sustainable public finances and the need for our countries to put in place
credible, properly phased and growth-friendly plans to deliver fiscal
sustainability, differentiated for and tailored to national circumstances.
(Emphasis added.)
Thus, by mid-2010 the focus started shifting to fiscal consolidation
and neoliberal orthodoxy. This was not surprising, since the forces
which precipitated the crisis in the first place had come out relatively
unscathed from the crisis. International finance capital – the bloc of
giant global banks and financial companies – which created the
speculative bubbles in real estate and asset markets in the advanced
capitalist countries, secured massive bail-out packages from the
governments after the bubbles burst. As long as such state-funded
bailouts were being administered, expansionary fiscal policies in the
shape of greater public spending were tolerated. Once international
finance regained its muscle, it started applying pressure on
governments to stop the drift towards Keynesian policies within the
advanced countries.
The most strident opposition to Keynesian policies was raised by
the European governments, as a fallout of the sovereign debt crisis in
Europe in early-2010. The outbreak of the European crisis occurred
in Greece, whose economy suffered gravely from the impact of the
2008-09 recession because of its over dependence on sectors like
tourism and shipping. As growth collapsed, dwindling government
revenues pushed the fiscal deficit in Greece to 13.6% and overall
public debt to 115% of GDP by the end of 2009, spreading panic in
international financial markets over a sovereign debt default and
making it impossible for the government to borrow from the market
anymore.
Eventually the Greek authorities entered into an agreement with
the European Union and IMF in May 2010 to implement a drastic
austerity programme in exchange of international assistance worth
• 110 billion ($145 billion) to meet debt obligations. The austerity
measures involve massive cuts in public spending through cuts in
government salaries, freeze in wages and pensions, raising the
retirement age etc. alongwith raising indirect taxes like VAT and excise
duties, in order to bring down the fiscal deficit to below 3% by 2014.
The IMF itself recognizes that unemployment in Greece will grow
from the current levels of 10-11% to about 15% in the next two years as
a result of these austerity measures. Yet, these deflationary neoliberal
policies were imposed on Greece by the EU-IMF combine, utilizing
the debt crisis. The debt crisis then spread to other European countries.
Following the sharp downturn in economic growth in 2008-09, the
average budget deficit of the 16 countries of the Eurozone had
increased from 0.6% of their GDP in 2007 to 6.3% in 2009. While this
was far less than the near 12% of GDP budget deficit incurred by the
US and the UK to fight the recession, the total public debt of the
Eurozone countries as a proportion of their GDP stood at much
higher levels. Speculators in the international financial markets used
this to create pressure on the European countries to cut down on
deficits and public spending. Countries like Portugal, Spain, Ireland,
Italy, Hungary and Latvia, which witnessed widening fiscal deficits
and sharp increases in public debt to GDP ratios since 2008, bore the
brunt with severe public spending cuts imposed by their governments,
irrespective of whether they were rightwing conservative or socialdemocratic.
The major economies of Europe, like Germany and France, also
started advocating public spending cuts from mid-2010. With the
advent of the Conservative led government in the UK in May 2010,
the austerity drive gathered further momentum. The June 2010 G 20
summit in Toronto saw European leaders strongly advocating a global
shift towards fiscal austerity, with the German Chancellor Angela
Merkel leading the charge. Among the advanced capitalist countries,
only the US administration under Barack Obama remained lukewarm
towards this aggressive austerity trend.
However, the fiscal stimulus in the US has itself proved to be
inadequate. 55% of the $787 billion stimulus plan launched through
the 2009 Recovery Act was actually devoted to tax relief for individuals
and companies as well as fiscal relief for state and local governments.
The federal spending plan amounted to only around 45% of the total
stimulus amount. Moreover, relief for the state and local governments
did not compensate for the plunging tax revenues at the state and
local levels. Overall, given the depth of the recession, and the recovery
plan in the US has fallen between two stools. Its inadequacy prevented
any major dent in unemployment. And the persistence of high
unemployment has been used by the rightwing conservatives to
launch a tirade against any further fiscal expansion.
The only way for the advanced capitalist countries to come out of
the economic crisis was through a coordinated reflation of the
economy through enhanced public spending. While this trajectory
was initiated in 2009, the developments since early-2010 have reversed
this course. European governments are currently implementing
drastic cuts on public spending in order to curb budget deficit, at a
time when high levels of unemployment persists in all advanced
economies. The initial fiscal stimulus in the US has also run its course
and no further fiscal expansion seems to be on the offing. This prepares
the ground, not only for prolonging the crisis but deepening it
considerably.
POLITICAL ECONOMY OF CRISIS
This return to neoliberal orthodoxy in the advanced economies
signifies the undiminished power of international finance capital,
which is intrinsically hostile towards any effort to enhance economic
activity and employment through public spending. This hostility
arises because of two reasons. First, an increase in public spending
also enhances the intervention and role of the state in the economy.
Enhanced state intervention implies redistribution of income from
the rich towards the poor on the one hand and greater state regulation
and control over resources on the other. If policy is to move in this
Keynesian/social-democratic direction in the advanced economies
far enough, the power and mobility of finance capital will come under
threat. Thus, finance capital views increasing state intervention as
fundamentally antithetical to its interests.
Second, the smooth operation of globalised finance capital across
asset markets requires monetary stability, which in turn requires price
and wage stability across borders. This stability is ensured only through
the persistence of unemployment, which helps to depress the value of
labour and wages. A regime of low real activity and employment
alongwith stable commodity prices is therefore preferable from the
financial point of view.6 It is precisely because of these imperatives of
international finance capital that the growth regime in the advanced
capitalist countries in the 1970s witnessed a shift from Keynesian
demand management to the neoliberal trajectory of debt and assetprice
bubble induced and export oriented growth.7
The growth regime under globalisation had predictably given
rise to significant global imbalances. The current account deficit in
the US had increased from around $400 billion in 2001 to reach
record levels of over $800 billion in 2006, accounting for 6% of US
GDP. The massive expansion of US imports during the first half of
this decade provided the market for successful exporters from Asia
and Europe. Such huge external deficits could be run by the US on
the basis of dollar hegemony, whereby countries across the world held
their wealth in dollars and finance flowed into the US to fuel the asset
bubbles in its economy. With the bursting of the bubble, however,
these imbalances have kicked in. Following the crisis, the US current
account deficit fell sharply to $378 billion in 2009, squeezing the
market for exporters of goods and services across the world. In the
absence of growth revival in the US economy, the prospects for the
export oriented growth across the world look grim.
At the heart of the crisis in Europe also lies the imbalanced nature
of development ushered in under the European Union. Germany,
with its superior technological capacity has emerged as the clear
beneficiary of the EU regime over the years, capturing the markets of
the poorer Eurozone countries. Rather than sharing the benefits of
productivity growth with their workers, Germany used it to cheapen
its exports vis-à-vis other countries and generate large export surpluses,
which were then used to export capital to other countries. This meant
that growth in the relatively backward countries of the Eurozone was
increasingly based on capital inflows from the surplus countries like
Germany, which financed booms in real estate, construction and other
sectors. As a result their current account deficits widened. With the
onset of the global recession, growth in these countries collapsed,
leading to shrinking government revenues, widening budget deficits
and enlarged public debt.8
Having adopted the Euro as a common currency, the relatively
backward countries of the Eurozone have already given up the option
of devaluing their currencies to increase exports and reduce their
current account deficits. Rather than helping these deficit countries
by restructuring their public debt and allowing them to maintain or
increase public spending to revive growth, the European Commission
and the IMF, at the behest of the German government on the one
hand and international financiers on the other, have imposed austerity
measures across the Eurozone. Besides aggravating the crisis,
squeezing the incomes of working people and increasing unemployment,
these measures have led to disillusionment with European
integration.
The continuing economic crisis in the advanced economies along
with the persistence of high levels of unemployment is having
significant political impact. The failure of the recovery plan in the
US to reduce unemployment has severely affected the popularity of
President Obama and the Democratic Party. The Republicans have
cashed in the rising discontent through the ‘Tea Party’ movement, a
rightwing backlash against state intervention and expansionary fiscal
policies with strong racial undercurrents. The half-hearted
Keynesianism of Obama, reflected in his ambiguous posturing on
crucial issues like healthcare and job creation, seems to have already
paved the way for the Republicans to stage a strong comeback in the
congressional elections of November 2010.
The political shift to the right is more pronounced in Europe.
Not only have the governments converged on the pursuit of rightwing
austerity measures, but increasing joblessness is also providing fertile
grounds for the rise of the far right and neo-fascist forces. Most
governments in major European countries are led by rightwing
conservatives today. These rightwing conservative governments are
also playing upon the racist, anti-immigrant hysterias and
Islamophobic agendas of the far right forces in order to consolidate
their support. Policy decisions like restrictions on immigrants and
bans and prohibitions on cultural symbols of religious minorities,
particularly Islamic symbols like burqas, mosques, minarets etc. are
becoming common in the European countries.9
The leftwing forces have tried to effectively intervene in some of
the European countries. The KKE (Communist Party of Greece)
and the PAME (trade union organisation) have launched militant
mass struggles against the anti-people austerity measures imposed by
the social-democratic PASOK Government in Greece. A series of
strikes and demonstrations have taken place there since mid-2010
with impressive participation of the workers and the youth. The
Portuguese Communist Party (PCP) along with the trade union
CGTP/IN is also leading the movement against the austerity measures
in Portugal, where massive protest actions have been held over the
past few months across the country. Countries like France, Spain,
Italy and Romania are also witnessing massive strike actions against
the anti-worker austerity measures. Success in resisting the rightwing
austerity measures is crucial for the advance of the Left and progressive
forces in Europe today.
UNFOLDING CONTRADICTIONS
The G 20 replacing the G 7 in the wake of the economic crisis, as the
premier global forum to deal with the crisis, reflected a relative decline
in the power of the US and other advanced capitalist countries.
Although the G 20 does not represent the interests of all the developing
countries with the absence of major economies like Iran, Venezuela
and other countries from Africa and Asia, its growing importance
does reflect an increase in the weight of some developing countries in
the international economic order. The share of some of the major
developing economies in world output has risen steadily in recent
times compared to the G 7 countries. Given the relatively higher
growth rates being witnessed by the developing countries, the share
of the developing countries in the total GDP of G 20 is projected to
increase from 35% in 2008 to 50% by 2020.10 A Policy Brief of the
Carnegie Endowment titled The World Order in 2050 goes even further
to argue:11
The economy of the G20 is expected to grow at an average annual rate of
3.5 percent, rising from $38.3 trillion in 2009 to $160.0 trillion in 2050 in
real dollar terms. Over 60 percent of this $121 trillion dollar expansion will
come from six countries: Brazil, Russia, India, China, Indonesia (the
traditional “Big Five” economies), and Mexico. U.S. dollar GDP in these
six economies will grow at an average rate of 6 percent per year; their share
of G20 GDP will rise from 19.6 percent in 2009 to 50.6 percent in 2050. By
contrast, GDP in the G7 will grow by less than 2.1 percent annually, and
their share of G20 GDP will decline from 72.3 percent to 40.5 percent.
The basic problem with such projections, however, lies in their
assumption of the current GDP growth differential between the G 7
economies and the ‘Big Five’ economies persisting for four long
decades without any interruption. Such unrealistic assumptions and
over-optimistic GDP projections are then used to arrive at dramatic
conclusions about an imminent ‘power shift’ in the international order.
This story of the emergence of a new post-crisis world economic
order under the aegis of the G 20 seems to have captured the
imagination of international and national policy establishments in
recent times.12 However, there are three obvious problems with this
story, all arising from a gross misunderstanding of the neoliberal
growth regime underlying globalisation.
First, the neoliberal growth regime essentially ushers in jobless
growth. The high GDP growth rates experienced by some of the
developing countries in recent times have not led to any commensurate
growth in employment generation, so as to absorb the enormous
pool of surplus labour existing in these countries. The stubborn
persistence of unemployment, under-employment and informal
employment in these countries has prevented wages from rising at
any meaningful rate, to catch up with the earnings of the workers in
the advanced capitalist countries. In fact, one of the reasons why some
of these developing countries have been able to attract private
investment including FDI from the advanced economies and
experience export-led growth is the availability of super-cheap labour.
This pattern of growth, however, does not raise real wages, living
standards or domestic purchasing power of the masses, precisely
because the cheapness of labour is the very prerequisite of this
investment and growth regime. Conversely, any trend towards
convergence of wages between the developing countries and the
advanced economies would discourage FDI and private investment
and undermine the growth regime in the former.
Second, since the purchasing power of the masses remains
restricted under the neoliberal growth regime, demand is generated
either through an export-oriented strategy or by promoting asset
bubbles and debt induced elite consumption or a combination of
both. However, given the dependence of these exports to import
demand from the US, the export successes of the developing countries
have come under increasing strain in the backdrop of the continuing
recession in the US economy. With the domestic unemployment rate
rising to near 10% levels, protectionist pressures have increased
manifold in the US in recent times. This is getting manifested in the
pressure being built upon China to appreciate its currency in order to
reduce US imports from China and export some US unemployment
to China.13 New restrictions on outsourcing are also affecting Indian
services exports. With expansionary fiscal policies facing a backlash
within the US, beggar-thy-neighbour trade policies on the part of the
US are bound to intensify, making the export performance of
developing countries tenuous in the near future.
Third, the unsustainability of a growth trajectory based on asset
bubbles and debt induced elite consumption has been borne out by
the experience of the US economy itself. India has been particularly
prone to this pattern of growth in the past few years, with bubbles
building up repeatedly in the equity and real estate markets. The
recent surge in FII inflows into India have once again created an
equity bubble and led to an appreciation of the currency.14 The Indian
government is directly contributing to this bubble through its
disinvestment programme, offloading chunks of equity of profitmaking
public sector enterprises in the stock market. There are reports
of a housing bubble in some cities of China too.15 Like all bubbles,
these will also burst at some point, adversely impacting the growth
prospects of the developing countries.
The parable of developing countries of the G 20 growing at a fast
pace to join the ranks of the US and other advanced economies over
the next few decades, is therefore an untenable one. If the developing
countries continue in their present trajectories, the more likely
outcome seems to be a repeat of what eventually happened in South
East Asia in the late 1990s and Latin American countries in the early
2000s.
CONCLUSION
The global economic crisis has persisted precisely because the
coordinated expansionary fiscal strategies adopted by the advanced
capitalist countries in the immediate aftermath of the crisis have given
way to the neoliberal orthodoxy of cuts in public spending and
balancing budgets. International finance capital, which received a
setback in the aftermath of the crisis, has reasserted it hegemony. The
expectation of recovery under the aegis of the G 20 is premised on
continued high growth in developing countries like China and India,
along with other countries like Brazil, Russia, Mexico, South Korea
etc. These economies will find it difficult to sustain their growth if the
US refuses to keep its domestic market open for their exports. It is
unlikely that the US will continue to run current account deficits of
the order seen over the past decade and be the engine of global growth
in the near future. The growth pattern of the developing countries is
also not immune from speculative asset price bubbles in real estate
and financial markets, which precipitated the crisis in the US economy.
The prospects for the global economy therefore remain highly
uncertain today.
Sustainable growth alongside balanced and equitable
development are possible only if the global economy moves away
from the paradigm of imperialist globalisation and export oriented
growth, and refocuses on state intervention within individual countries
to expand domestic demand by enhancing the purchasing power of
the working people. That would also entail an end to the unbridled
cross-border flows of speculative finance capital, which has caused
the financial meltdown and precipitated the crisis in the first place.
US and EU led imperialism, backed by international finance capital
and the elites within developing countries, continues to be the biggest
roadblock to this paradigm shift, which can restructure the global
economy in a sustainable direction.
It is widely recognized, even within the international economic policy
establishment, that the economic crisis which engulfed the global
economy since mid-2008 is the biggest since the Great Depression of
the 1930s. It has been over two years now that the crisis unfolded with
the bursting of the real estate bubble in the United States, leading to
widespread mortgage defaults and collapse of financial giants like
the Lehman Brothers. Since then, the financial crisis developed into
a deep recession in the US, eventually affecting the entire world
economy by the end of 2008. In 2009, world output experienced a
contraction, with GDP in the advanced capitalist countries taken
together falling by over 3%.1 This was the first annual decline in
world output in more than fifty years, leading to its official
characterisation as the ‘Great Recession’. World trade fell by over 10%
in 2009 from the previous year, which was the sharpest annual fall
since 1970.
CRISIS CONTINUES
In the first half of 2010, however, the IMF and the World Bank
announced that the ‘Great Recession’ was over and the world economy
was on the path of a ‘recovery’. The IMF’s World Economic Outlook
published in April 2010 said: “The global recovery has evolved better
than expected.” The IMF forecast was also upbeat:
Global growth is projected at about 4¼ percent in 2010 and
2011…Advanced economies are now expected to expand by 2¼ percent
in 2010, following a more than 3 percent decline in output in 2009, and by
2½ percent in 2011. Growth in emerging and developing economies is
expected to be over 6¼ percent during 2010-11, following a modest 2½
percent in 2009.
The World Bank’s Global Economic Prospects released in June
2010 noted that “the recovery is transitioning toward a more mature
phase during which the influence of rebound factors (such as fiscal
stimulus) fades, and GDP gains will increasingly depend on private
investment and consumption.” Its projections were, however, less
optimistic than that of the IMF.
The World Bank projects global GDP to expand between 2.9 and 3.3
percent in 2010 and 2011, strengthening to between 3.2 and 3.5 percent in
2012, reversing the 2.1 percent decline in 2009. Developing economies are
expected to grow between 5.7 and 6.2 percent each year from 2010-2012.
High-income countries, however, are projected to grow by between 2.1
and 2.3 percent in 2010 – not enough to undo the 3.3 percent contraction
in 2009 – followed by between 1.9 and 2.4 percent growth in 2011.
The latest World Economic Outlook released by the IMF in
October 2010, has turned cautious. It talks about “economic
recovery…proceeding broadly as expected, although downside risks
remain elevated.” The reason behind the ‘elevated’ downside risk
becomes clearer in the IMF’s latest forecast:
…global activity is forecast to expand by 4.8 percent in 2010 and 4.2
percent in 2011, with a temporary slowdown during the second half of 2010
and the first half of 2011. Output of emerging and developing economies is
projected to expand at rates of 7.1 percent and 6.4 percent in 2010 and
2011, respectively. In advanced economies, however, growth is projected to
be only 2.7 percent and 2.2 percent, respectively. (emphasis added)
The signs of slowdown have already become visible in the
advanced capitalist economies. An assessment made by the OECD in
September 2010 states:2
Recent high-frequency indicators point to a slowdown in the pace of
recovery of the world economy that is somewhat more pronounced than
previously anticipated…growth could slow in the G7 economies to an
annualised rate of about 1½ per cent in the second half of the year…It is
not yet clear whether the loss of momentum in the recovery is temporary…
In reality, economic forecasts by the international economic policy
establishment in the recent years, particularly those by the IMF, have
turned out to be entirely bogus. For instance, the IMF forecast of
world GDP growth for 2008 was 4.8% in October 2007, 3.7% in April
2008 and 3.9% in October 2008. It actually turned out to be 2.8% as
per IMF’s own estimates, and 1.7% as per the estimate of the World
Bank. Similarly, the IMF forecasted 3.7% world GDP growth for
2009 in April 2008 and 3% in October 2008. World GDP growth
actually turned out to be negative in 2009, - 0.6% by IMF’s estimate
and – 2.1% by World Bank’s estimate.
The reason why the IMF has been behind the curve as far as its
growth forecasts are concerned is not difficult to understand. Blind
ideological commitment to neoliberal orthodoxy coupled with
pressures from vested interests, which seek to preserve the status quo,
have overwhelmed its apparatus. Providing over-optimistic growth
forecasts serve the important purposes of generating the ‘feel good’
factor in financial markets on the one hand and jettisoning any attempt
to question or change the dominant policy paradigm on the other.
GDP Growth Estimates & Projections: IMF and World Bank
IMF World Economic Outlook, October 2010
World Output Advanced Economies Emerging and Developing
Economies
2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011
2.8 -0.6 4.8 4.2 0.2 -3.2 2.7 2.2 6.0 2.5 7.1 6.4
World Bank Global Economic Prospects, June 2010
World Output High Income Countries Developing Countries
2008 2009 2010 2011 2008 2009 2010 2011 2008 2009 2010 2011
1.7 -2.1 3.3 3.3 0.4 -3.3 2.3 2.4 5.7 1.7 6.2 6.0
Note: Figures for 2008 and 2009 are estimates, while that for 2010 and 2011 are forecasts
This has, however, considerably eroded the credibility of these growth
forecasts. The divergence between the GDP estimates and forecasts of the
IMF and the World Bank is also telling. It is noteworthy that this
divergence is not so much for the advanced economies. That is because
data collection and estimation methodologies in the advanced capitalist
countries are fairly robust, which does not provide room for much
manipulation. For most developing countries, however, data collection and
estimation are not carried out as rigorously, on account of both
institutional weaknesses as well as resource constraints. As a result,
there is a pronounced bias towards overestimating GDP growth in
developing countries, especially since such growth is viewed as an
exclusive indicator of economic success in the neoliberal era. Many of
the optimistic growth forecasts for the global economy are therefore
based on this overestimated GDP growth in developing countries.
The IMF is clearly overestimating the GDP growth in the developing
countries compared to the World Bank, which also accounts for its
overestimation of world output growth as a whole.
In this backdrop, the ‘temporary’ slowdown currently being
projected by the IMF for the second half of 2010 and first half of 2011
is nothing but an admission of the fact that the global economic crisis
is far from over. The myth of ‘recovery’ has been blown. The fact that
this slowdown in 2010/2011 is being projected primarily for the
advanced economies, on top of the deep recession of 2009, further
testifies for the depth of the crisis in the advanced capitalist world.
IMPACT OF THE CONTINUING CRISIS
The burden of this severe crisis has mostly fallen on the workers and
the poor, both in the advanced capitalist countries as well as the
developing countries. The average unemployment rate in the 33
advanced economies of the OECD rose from 6% in 2008 to 8.3% in
2009 and stood at 8.5% in August 2010.3 OECD’s Employment Outlook
2010 released in July 2010 reports 47 million people to be officially
unemployed in OECD countries, with 17 million more people out
of work from the beginning of the crisis in 2007. It further states that
taking into account those who have given up looking for work or are
working part-time but want to work full-time, the actual number of
unemployed and under-employed in OECD countries could be about
80 million. Unemployment rates in the US and Europe touched 10% in
2009 and has continued to remain at those high levels in 2010. The
US Bureau of Labour Statistics reports 14.8 million unemployed
persons in the US in September 2010, with the unemployment rate
remaining at 9.6%. Unemployment rate in the 16 countries of the
Eurozone was 10.1% in August 2010, with 15.8 million persons being
unemployed. Unemployment rate has climbed above 10% in several
European countries like France, Portugal, Hungary, Ireland and
Slovak Republic in 2010 and has crossed 20% in Spain. Such high
levels of unemployment currently being witnessed in the advanced
capitalist countries are unprecedented in the post-war period. The
ILO’s World of Work Report 2010 paints a grim picture of the global
unemployment scenario:
…new clouds have emerged on the employment horizon and the prospects
have worsened significantly…In many other countries in which
employment growth was positive at the end of 2009, more recent trends
suggest a weakening of the job recovery or even a “double dip”. The longer
the labour market recession, the greater the difficulties for jobseekers to
obtain new employment…In the 35 countries for which data exist, nearly
40 per cent of jobseekers have been without work for more than one year
and therefore run significant risks of demoralisation, loss of self-esteem
and mental health problems. Importantly, young people are
disproportionately hit by unemployment and, when they find a job, it
often tends to be precarious and does not match their skills. Because the
labour market has been depressed for so long, many unemployed people
are getting discouraged and leave the labour market altogether. Already,
close to 4 million jobseekers had stopped looking for work by the end of
2009 in the countries for which information is available.
This assessment suggests that the actual level of unemployment
prevailing in the world today is much higher than what official
estimates show. The global economic crisis has also increased poverty
across the developing world. The Millennium Development Goals
Report 2010 released by the UN in September 2010 notes:
Newly updated estimates from the World Bank suggest that the crisis will
leave an additional 50 million people in extreme poverty in 2009 and some
64 million by the end of 2010 relative to a no-crisis scenario, principally in
sub-Saharan Africa and Eastern and South-Eastern Asia. Moreover, the
effects of the crisis are likely to persist: poverty rates will be slightly higher
in 2015 and even beyond, to 2020, than they would have been had the
world economy grown steadily at its pre-crisis pace.
This increase in poverty rates is indeed alarming, because the
World Bank poverty estimates grossly underestimate actual poverty.
The MDG targets, based on these poverty estimates are equally absurd.
For instance, the UN claims that the MDG target would be met even
as the absolute number of people living in extreme poverty (i.e. below
$1.25 a day) is projected to be 920 million in 2015. It now appears that
even this abysmally low and virtually meaningless MDG target of
poverty reduction would also not be met, because of the continuing
crisis.
WHY DOES THE CRISIS CONTINUE?
Following the severe recession in 2009, governments and central banks
across the world initially adopted coordinated fiscal and monetary
measures. These mainly comprised of cutting interest rates to near
zero levels, bailing out failing banks and financial institutions and
substantially enhancing public spending. Realizing that the major
capitalist economies (G 7) were incapable of meeting the crisis alone,
some developing countries were also included in the efforts to rescue
the global economy in the form of the G 20.4 As per IMF estimates,
the fiscal stimulus measures (increased public spending and tax cuts)
adopted by the G 20 governments taken together amounted to $820
billion in 2009, equivalent to 2% of the combined GDP of the G 20
countries. China, South Korea, Japan, Russia and Saudi Arabia adopted
the most extensive stimulus programmes among the G 20 countries
in 2009, amounting to over 3% of their GDPs.
The fiscal stimulus measures had some impact in reviving output
growth by the beginning of 2010. The G 20 summit held in end-June
2010 at Toronto saw world leaders patting on each others’ back:5
Our efforts to date have borne good results. Unprecedented and globally
coordinated fiscal and monetary stimulus is playing a major role in helping
to restore private demand and lending…Strengthening the recovery is
key. To sustain recovery, we need to follow through on delivering existing
stimulus plans, while working to create the conditions for robust private
demand. At the same time, recent events highlight the importance of
sustainable public finances and the need for our countries to put in place
credible, properly phased and growth-friendly plans to deliver fiscal
sustainability, differentiated for and tailored to national circumstances.
(Emphasis added.)
Thus, by mid-2010 the focus started shifting to fiscal consolidation
and neoliberal orthodoxy. This was not surprising, since the forces
which precipitated the crisis in the first place had come out relatively
unscathed from the crisis. International finance capital – the bloc of
giant global banks and financial companies – which created the
speculative bubbles in real estate and asset markets in the advanced
capitalist countries, secured massive bail-out packages from the
governments after the bubbles burst. As long as such state-funded
bailouts were being administered, expansionary fiscal policies in the
shape of greater public spending were tolerated. Once international
finance regained its muscle, it started applying pressure on
governments to stop the drift towards Keynesian policies within the
advanced countries.
The most strident opposition to Keynesian policies was raised by
the European governments, as a fallout of the sovereign debt crisis in
Europe in early-2010. The outbreak of the European crisis occurred
in Greece, whose economy suffered gravely from the impact of the
2008-09 recession because of its over dependence on sectors like
tourism and shipping. As growth collapsed, dwindling government
revenues pushed the fiscal deficit in Greece to 13.6% and overall
public debt to 115% of GDP by the end of 2009, spreading panic in
international financial markets over a sovereign debt default and
making it impossible for the government to borrow from the market
anymore.
Eventually the Greek authorities entered into an agreement with
the European Union and IMF in May 2010 to implement a drastic
austerity programme in exchange of international assistance worth
• 110 billion ($145 billion) to meet debt obligations. The austerity
measures involve massive cuts in public spending through cuts in
government salaries, freeze in wages and pensions, raising the
retirement age etc. alongwith raising indirect taxes like VAT and excise
duties, in order to bring down the fiscal deficit to below 3% by 2014.
The IMF itself recognizes that unemployment in Greece will grow
from the current levels of 10-11% to about 15% in the next two years as
a result of these austerity measures. Yet, these deflationary neoliberal
policies were imposed on Greece by the EU-IMF combine, utilizing
the debt crisis. The debt crisis then spread to other European countries.
Following the sharp downturn in economic growth in 2008-09, the
average budget deficit of the 16 countries of the Eurozone had
increased from 0.6% of their GDP in 2007 to 6.3% in 2009. While this
was far less than the near 12% of GDP budget deficit incurred by the
US and the UK to fight the recession, the total public debt of the
Eurozone countries as a proportion of their GDP stood at much
higher levels. Speculators in the international financial markets used
this to create pressure on the European countries to cut down on
deficits and public spending. Countries like Portugal, Spain, Ireland,
Italy, Hungary and Latvia, which witnessed widening fiscal deficits
and sharp increases in public debt to GDP ratios since 2008, bore the
brunt with severe public spending cuts imposed by their governments,
irrespective of whether they were rightwing conservative or socialdemocratic.
The major economies of Europe, like Germany and France, also
started advocating public spending cuts from mid-2010. With the
advent of the Conservative led government in the UK in May 2010,
the austerity drive gathered further momentum. The June 2010 G 20
summit in Toronto saw European leaders strongly advocating a global
shift towards fiscal austerity, with the German Chancellor Angela
Merkel leading the charge. Among the advanced capitalist countries,
only the US administration under Barack Obama remained lukewarm
towards this aggressive austerity trend.
However, the fiscal stimulus in the US has itself proved to be
inadequate. 55% of the $787 billion stimulus plan launched through
the 2009 Recovery Act was actually devoted to tax relief for individuals
and companies as well as fiscal relief for state and local governments.
The federal spending plan amounted to only around 45% of the total
stimulus amount. Moreover, relief for the state and local governments
did not compensate for the plunging tax revenues at the state and
local levels. Overall, given the depth of the recession, and the recovery
plan in the US has fallen between two stools. Its inadequacy prevented
any major dent in unemployment. And the persistence of high
unemployment has been used by the rightwing conservatives to
launch a tirade against any further fiscal expansion.
The only way for the advanced capitalist countries to come out of
the economic crisis was through a coordinated reflation of the
economy through enhanced public spending. While this trajectory
was initiated in 2009, the developments since early-2010 have reversed
this course. European governments are currently implementing
drastic cuts on public spending in order to curb budget deficit, at a
time when high levels of unemployment persists in all advanced
economies. The initial fiscal stimulus in the US has also run its course
and no further fiscal expansion seems to be on the offing. This prepares
the ground, not only for prolonging the crisis but deepening it
considerably.
POLITICAL ECONOMY OF CRISIS
This return to neoliberal orthodoxy in the advanced economies
signifies the undiminished power of international finance capital,
which is intrinsically hostile towards any effort to enhance economic
activity and employment through public spending. This hostility
arises because of two reasons. First, an increase in public spending
also enhances the intervention and role of the state in the economy.
Enhanced state intervention implies redistribution of income from
the rich towards the poor on the one hand and greater state regulation
and control over resources on the other. If policy is to move in this
Keynesian/social-democratic direction in the advanced economies
far enough, the power and mobility of finance capital will come under
threat. Thus, finance capital views increasing state intervention as
fundamentally antithetical to its interests.
Second, the smooth operation of globalised finance capital across
asset markets requires monetary stability, which in turn requires price
and wage stability across borders. This stability is ensured only through
the persistence of unemployment, which helps to depress the value of
labour and wages. A regime of low real activity and employment
alongwith stable commodity prices is therefore preferable from the
financial point of view.6 It is precisely because of these imperatives of
international finance capital that the growth regime in the advanced
capitalist countries in the 1970s witnessed a shift from Keynesian
demand management to the neoliberal trajectory of debt and assetprice
bubble induced and export oriented growth.7
The growth regime under globalisation had predictably given
rise to significant global imbalances. The current account deficit in
the US had increased from around $400 billion in 2001 to reach
record levels of over $800 billion in 2006, accounting for 6% of US
GDP. The massive expansion of US imports during the first half of
this decade provided the market for successful exporters from Asia
and Europe. Such huge external deficits could be run by the US on
the basis of dollar hegemony, whereby countries across the world held
their wealth in dollars and finance flowed into the US to fuel the asset
bubbles in its economy. With the bursting of the bubble, however,
these imbalances have kicked in. Following the crisis, the US current
account deficit fell sharply to $378 billion in 2009, squeezing the
market for exporters of goods and services across the world. In the
absence of growth revival in the US economy, the prospects for the
export oriented growth across the world look grim.
At the heart of the crisis in Europe also lies the imbalanced nature
of development ushered in under the European Union. Germany,
with its superior technological capacity has emerged as the clear
beneficiary of the EU regime over the years, capturing the markets of
the poorer Eurozone countries. Rather than sharing the benefits of
productivity growth with their workers, Germany used it to cheapen
its exports vis-à-vis other countries and generate large export surpluses,
which were then used to export capital to other countries. This meant
that growth in the relatively backward countries of the Eurozone was
increasingly based on capital inflows from the surplus countries like
Germany, which financed booms in real estate, construction and other
sectors. As a result their current account deficits widened. With the
onset of the global recession, growth in these countries collapsed,
leading to shrinking government revenues, widening budget deficits
and enlarged public debt.8
Having adopted the Euro as a common currency, the relatively
backward countries of the Eurozone have already given up the option
of devaluing their currencies to increase exports and reduce their
current account deficits. Rather than helping these deficit countries
by restructuring their public debt and allowing them to maintain or
increase public spending to revive growth, the European Commission
and the IMF, at the behest of the German government on the one
hand and international financiers on the other, have imposed austerity
measures across the Eurozone. Besides aggravating the crisis,
squeezing the incomes of working people and increasing unemployment,
these measures have led to disillusionment with European
integration.
The continuing economic crisis in the advanced economies along
with the persistence of high levels of unemployment is having
significant political impact. The failure of the recovery plan in the
US to reduce unemployment has severely affected the popularity of
President Obama and the Democratic Party. The Republicans have
cashed in the rising discontent through the ‘Tea Party’ movement, a
rightwing backlash against state intervention and expansionary fiscal
policies with strong racial undercurrents. The half-hearted
Keynesianism of Obama, reflected in his ambiguous posturing on
crucial issues like healthcare and job creation, seems to have already
paved the way for the Republicans to stage a strong comeback in the
congressional elections of November 2010.
The political shift to the right is more pronounced in Europe.
Not only have the governments converged on the pursuit of rightwing
austerity measures, but increasing joblessness is also providing fertile
grounds for the rise of the far right and neo-fascist forces. Most
governments in major European countries are led by rightwing
conservatives today. These rightwing conservative governments are
also playing upon the racist, anti-immigrant hysterias and
Islamophobic agendas of the far right forces in order to consolidate
their support. Policy decisions like restrictions on immigrants and
bans and prohibitions on cultural symbols of religious minorities,
particularly Islamic symbols like burqas, mosques, minarets etc. are
becoming common in the European countries.9
The leftwing forces have tried to effectively intervene in some of
the European countries. The KKE (Communist Party of Greece)
and the PAME (trade union organisation) have launched militant
mass struggles against the anti-people austerity measures imposed by
the social-democratic PASOK Government in Greece. A series of
strikes and demonstrations have taken place there since mid-2010
with impressive participation of the workers and the youth. The
Portuguese Communist Party (PCP) along with the trade union
CGTP/IN is also leading the movement against the austerity measures
in Portugal, where massive protest actions have been held over the
past few months across the country. Countries like France, Spain,
Italy and Romania are also witnessing massive strike actions against
the anti-worker austerity measures. Success in resisting the rightwing
austerity measures is crucial for the advance of the Left and progressive
forces in Europe today.
UNFOLDING CONTRADICTIONS
The G 20 replacing the G 7 in the wake of the economic crisis, as the
premier global forum to deal with the crisis, reflected a relative decline
in the power of the US and other advanced capitalist countries.
Although the G 20 does not represent the interests of all the developing
countries with the absence of major economies like Iran, Venezuela
and other countries from Africa and Asia, its growing importance
does reflect an increase in the weight of some developing countries in
the international economic order. The share of some of the major
developing economies in world output has risen steadily in recent
times compared to the G 7 countries. Given the relatively higher
growth rates being witnessed by the developing countries, the share
of the developing countries in the total GDP of G 20 is projected to
increase from 35% in 2008 to 50% by 2020.10 A Policy Brief of the
Carnegie Endowment titled The World Order in 2050 goes even further
to argue:11
The economy of the G20 is expected to grow at an average annual rate of
3.5 percent, rising from $38.3 trillion in 2009 to $160.0 trillion in 2050 in
real dollar terms. Over 60 percent of this $121 trillion dollar expansion will
come from six countries: Brazil, Russia, India, China, Indonesia (the
traditional “Big Five” economies), and Mexico. U.S. dollar GDP in these
six economies will grow at an average rate of 6 percent per year; their share
of G20 GDP will rise from 19.6 percent in 2009 to 50.6 percent in 2050. By
contrast, GDP in the G7 will grow by less than 2.1 percent annually, and
their share of G20 GDP will decline from 72.3 percent to 40.5 percent.
The basic problem with such projections, however, lies in their
assumption of the current GDP growth differential between the G 7
economies and the ‘Big Five’ economies persisting for four long
decades without any interruption. Such unrealistic assumptions and
over-optimistic GDP projections are then used to arrive at dramatic
conclusions about an imminent ‘power shift’ in the international order.
This story of the emergence of a new post-crisis world economic
order under the aegis of the G 20 seems to have captured the
imagination of international and national policy establishments in
recent times.12 However, there are three obvious problems with this
story, all arising from a gross misunderstanding of the neoliberal
growth regime underlying globalisation.
First, the neoliberal growth regime essentially ushers in jobless
growth. The high GDP growth rates experienced by some of the
developing countries in recent times have not led to any commensurate
growth in employment generation, so as to absorb the enormous
pool of surplus labour existing in these countries. The stubborn
persistence of unemployment, under-employment and informal
employment in these countries has prevented wages from rising at
any meaningful rate, to catch up with the earnings of the workers in
the advanced capitalist countries. In fact, one of the reasons why some
of these developing countries have been able to attract private
investment including FDI from the advanced economies and
experience export-led growth is the availability of super-cheap labour.
This pattern of growth, however, does not raise real wages, living
standards or domestic purchasing power of the masses, precisely
because the cheapness of labour is the very prerequisite of this
investment and growth regime. Conversely, any trend towards
convergence of wages between the developing countries and the
advanced economies would discourage FDI and private investment
and undermine the growth regime in the former.
Second, since the purchasing power of the masses remains
restricted under the neoliberal growth regime, demand is generated
either through an export-oriented strategy or by promoting asset
bubbles and debt induced elite consumption or a combination of
both. However, given the dependence of these exports to import
demand from the US, the export successes of the developing countries
have come under increasing strain in the backdrop of the continuing
recession in the US economy. With the domestic unemployment rate
rising to near 10% levels, protectionist pressures have increased
manifold in the US in recent times. This is getting manifested in the
pressure being built upon China to appreciate its currency in order to
reduce US imports from China and export some US unemployment
to China.13 New restrictions on outsourcing are also affecting Indian
services exports. With expansionary fiscal policies facing a backlash
within the US, beggar-thy-neighbour trade policies on the part of the
US are bound to intensify, making the export performance of
developing countries tenuous in the near future.
Third, the unsustainability of a growth trajectory based on asset
bubbles and debt induced elite consumption has been borne out by
the experience of the US economy itself. India has been particularly
prone to this pattern of growth in the past few years, with bubbles
building up repeatedly in the equity and real estate markets. The
recent surge in FII inflows into India have once again created an
equity bubble and led to an appreciation of the currency.14 The Indian
government is directly contributing to this bubble through its
disinvestment programme, offloading chunks of equity of profitmaking
public sector enterprises in the stock market. There are reports
of a housing bubble in some cities of China too.15 Like all bubbles,
these will also burst at some point, adversely impacting the growth
prospects of the developing countries.
The parable of developing countries of the G 20 growing at a fast
pace to join the ranks of the US and other advanced economies over
the next few decades, is therefore an untenable one. If the developing
countries continue in their present trajectories, the more likely
outcome seems to be a repeat of what eventually happened in South
East Asia in the late 1990s and Latin American countries in the early
2000s.
CONCLUSION
The global economic crisis has persisted precisely because the
coordinated expansionary fiscal strategies adopted by the advanced
capitalist countries in the immediate aftermath of the crisis have given
way to the neoliberal orthodoxy of cuts in public spending and
balancing budgets. International finance capital, which received a
setback in the aftermath of the crisis, has reasserted it hegemony. The
expectation of recovery under the aegis of the G 20 is premised on
continued high growth in developing countries like China and India,
along with other countries like Brazil, Russia, Mexico, South Korea
etc. These economies will find it difficult to sustain their growth if the
US refuses to keep its domestic market open for their exports. It is
unlikely that the US will continue to run current account deficits of
the order seen over the past decade and be the engine of global growth
in the near future. The growth pattern of the developing countries is
also not immune from speculative asset price bubbles in real estate
and financial markets, which precipitated the crisis in the US economy.
The prospects for the global economy therefore remain highly
uncertain today.
Sustainable growth alongside balanced and equitable
development are possible only if the global economy moves away
from the paradigm of imperialist globalisation and export oriented
growth, and refocuses on state intervention within individual countries
to expand domestic demand by enhancing the purchasing power of
the working people. That would also entail an end to the unbridled
cross-border flows of speculative finance capital, which has caused
the financial meltdown and precipitated the crisis in the first place.
US and EU led imperialism, backed by international finance capital
and the elites within developing countries, continues to be the biggest
roadblock to this paradigm shift, which can restructure the global
economy in a sustainable direction.
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