Capitalist Crisis and Neoliberal Logic: Prof. Vibhuti Patel

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Capitalist Crisis and Emerging Neo-liberal Agenda:

Capitalist Crisis and Emerging Neo-liberal Agenda Dr. Vibhuti Patel, DIRECTOR, P.G.S.R. Professor and Head, Post Graduate Department of Economics, SNDT Women ’ s University, Smt. Nathibai Thakersey Road, Churchgate, Mumbai-400020 Tel  91) (22) 22031879, Ext.243, Mobile-9321040048 E mail: 1


NEO-LIBERALISM WAS BORN OUT OF CRISES recession in the developed capitalist economies after 1973, the The Organization of the Petroleum Exporting Countries (OPEC) oil crisis, and the collapse of the Bretton Woods system de-linking from the ‘Gold Standard’ internationalisation of financial markets as a result of the widespread abandonment of exchange controls the massive increase in foreign bank lending to the Third World as consequence of the recession in the major economies 2

Crisis and Neo-liberalism:

Crisis and Neo-liberalism the growing stagnation of command economies the shift from “import substitution” in favour of “export promotion” in the Third World and the rise of the NICs in East Asia the imposition of structural adjustment programmes (SAPs) on the heavily-indebted Third World as conditionality attached to rolling over foreign debt the restructuring of global production towards ‘post-Fordism’ and the growth of MNCs‏ Dismantling of large units- Globalisation triangles- Financial hubs, suppliers of cheap labour and suppliers of raw material Anciliarisation, fragmentation, dual economy 3

Macro economic policies:

Macro economic policies the revolution in macroeconomic policy that resulted in the weakening of trade unions, the cutting of state budgets, deregulation, privatisation in education, health, insurance, physical infrastructure. the advances in ICT (as the new ‘techno-economic paradigm’) ‏ National Developmentalism (postwar-1970s) Crisis of Fordism/Keynesianism (stagflation) Washington Consensus – 1 st Generation Neoliberal reforms (1980s – mid-1990s) Crisis of market fundamentalism of the Washington Consensus — ‘East Asian Miracle’ (8 HPAEs High Performance Asian Economies: Hong Kong, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan, and Thailand showing high growth and high equity with state intervention) Post-Washington Consensus – 2 nd Generation reforms (mid-1990s - 2008) Cacophony of crises: financial crises, over-accumulation, overproduction, over-/under-consumption, climate change, ecological degradation, political legitimacy, global governance crisis, oil crisis, food price crisis, subprime crisis 4

Emerging Neoliberal Agenda:

Emerging Neoliberal Agenda The neo-liberal form (i.e., market fundamentalism) is dead; But not the substance of capitalism as a: process of capital accumulation; relations in which labour is subordinated to capital The pillars of global capitalism-the World Bank, the International Monetary Fund, the World Trade Organization In Asia, Africa & Latin America “Democracy has Triumphed over Tyranny” “Dictatorship damages growth.” “Good governance begets development.” 5

A strategy for market-led development, A blueprint for crisis management:

A strategy for market-led development, A blueprint for crisis management Neo-liberal values : well-being of the financial institutions over well-being of the people E.g. Debt crisis in Latin America (1982) Crisis Response: SAPs Financial Crises: Scandinavia (early 1990s); Mexico (1994); East and Southeast Asia (1997); Russia (1998); Argentina (2001); Turkey (2001-02); US Subprime mortgage (2007-09), Dubai crisis (2009-10) Crisis response: ‘open’ international financial architecture US subprime crisis (2007-09) Crisis response: Bush-Paulson-Bernanke-Obama Bailout Programme (restore power of corporations; assure ascendancy of finance capital) 6

From Uni-polar to Multi-polar:

From Uni-polar to Multi-polar From its neoliberal form propagated by a single capitalist superpower, the United States; to a new regulated global economy with a multi-polar base when multiple centers of economic and military power will come to define the nature and dynamics of 21st century globalization. Issues at stake: nuclear power, water, energy, environment, population (young or old),oil, arms, ballooning of bubble economy “socializing the costs while privatizing the profits.” Unprecedented Gap between the haves & the have-nots-social unrest & identity politics 7

Results of Neo-liberalism :

Results of Neo-liberalism Growth and development for some have been immense. Unfortunately, for most people in the world there has been an increase in poverty and the innovation and growth has not been designed to meet immediate needs for many of the world’s people. Global inequalities on various indicators are sharp. For example, Some 3 billion people — or half of humanity — live on under 2 dollars a day. 86 percent of the world’s resources are consumed by the world’s wealthiest 20 percent. 8

Agriculture in developing countries:

Agriculture in developing countries Transformation of subsistence economies along capitalist lines and effected their integration into the global economy to further the process of capital accumulation on a worldwide scale. TNCs, MNCs, SEZs, FTZs Impact is witnessed : the denationalization of their economies through privatization, transnational corporate control, increasing foreign debt, deteriorating terms of trade, uneven distribution of income and wealth, criminalisation & lumpenisation of the working class, farmers suicides, starvation deaths and increasing class polarization. 9

The Cacophony of Crises Today:

The Cacophony of Crises Today Overproduction Finance (securitisation, speculative investments in land, sports, entertainment ) Environment Climate (global warming) Oil Food (post-Green Revolution, the Great Hunger of 2008) Governance (WB, IMF, WTO, states) 10

Responses to Crisis:

Responses to Crisis SCHUMPETERIAN: ‘ IT HAS TO BURN OUT ALONE’. More innovation KEYNESIAN: ‘ REPAIR IT’, but without encouraging the very behaviour that caused the problem in the first place. Government intervention- increase purchasing power, employemtn generatrion MARXIST: ‘REPLACE IT’ — overthrow crisis-ridden capitalist system; establish socialism, a democratic economic planning 11

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12 Mechanisms of Financial Crises and their Effects on the Real Economy ”Black Box” Production of goods and services Money/capital The real economy Financial economy THE CIRCULAR FLOW OF ECONOMICS

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13 COMPLEMENTARY FUNCTIONS, DIVERGENT NATURE Socio-economic results will differ depending on the criteria that lead investment Production capital Financial capital Money and paper wealth Static property “Investible” capital Wealth-producing wealth Fixed capital, technical capital, human capital, good will Assets Essentially mobile Knowledge indifferent Mobility Tied to fixed assets, to knowledge of products, processes, capabilities, clients and markets Wealth-creating assets, LONG-TERM GAINS Bias Quasi-liquid assets, SHORT-TERM GAINS

WORLD BANK: Exactly the same global neo-liberal project! World Bank, Global Monitoring Report 2009: A Development Emergency, p. xii. :

WORLD BANK: Exactly the same global neo-liberal project! World Bank, Global Monitoring Report 2009: A Development Emergency, p. xii. 14 The report sets out six priority areas for action to confront the development emergency that now faces many of these countries . First, we must ensure an adequate fiscal response in developing countries to protect the poor and vulnerable groups and to support economic growth. Priority areas must be strengthening social safety nets and protecting infrastructure programs that can create jobs while building a foundation for future productivity and growth. The precise fiscal response needs to be tailored to individual country circumstances, consistent with maintenance of macroeconomic stability. Second , we must provide support for the private sector and improve the climate for recovery and growth in private investment, including paying special attention to strengthening financial systems. Helping small and medium enterprises get access to finance for trade and investment is vital for job creation. But the crisis has also underscored the importance of broader reforms to improve the stability and soundness of the financial system. Third, we must redouble efforts in human development and recover lost ground in progress toward the MDGs. We can do this not only by strengthening key public programs for health and education, but also by better leveraging the private sector’s role in the financing and delivery of services. In support of these efforts to help developing countries, the report emphasizes three key global priorities. Donors must deliver on their commitments to increase aid. Indeed, the increased needs of poor countries hit hard by the crisis call for going beyond existing commitments. National governments must hold firm against rising protectionist pressures and maintain an open international trade and finance system. Completing the Doha negotiations expeditiously would provide a much-needed boost in confidence to the global economy at a time of high stress and uncertainty. Finally, multilateral institutions must have the mandate, resources, and instruments to support an effective global response to the global crisis. The international financial institutions will need to play a key role in bridging the large financing gap for developing countries resulting from the slump in private capital flows, including using their leverage ability to help revive private flows. Source: World Bank, Global Monitoring Report 2009: A Development Emergency, p. xii.

IMF: ‘An opportunity to make progress on seemingly intractable issues’ IMF (February 2009), Initial Lessons of the Crisis for the Global Architecture and the IMF:

IMF: ‘An opportunity to make progress on seemingly intractable issues’ IMF (February 2009), Initial Lessons of the Crisis for the Global Architecture and the IMF Bottom line. The crisis has revealed flaws in key dimensions of the current global architecture, but also provides a unique opportunity to fix them. On the flaws, surveillance needs to be reoriented to ensure warnings are clear, successfully connect the dots, and provide practical advice to policy makers. An effective forum for policy makers with the ability and mandate to take leadership in responding to systemic concerns about the international economy is key. Ground rules for cross-border finance need to be strengthened. And, given the growing size of international transactions, resources available for liquidity support and easing external adjustment should be augmented and processes for using them better defined so they are more readily available when needed. These are all ambitious undertakings. But the damage wrought by the crisis provides an opportunity to make progress on seemingly intractable issues. The moment should not be missed . 15

ASEAN: ‘Ensure free flow of goods, services and investment’ ASEAN Member States, Press Communiqué, Thailand, 1 March 2009:

ASEAN: ‘Ensure free flow of goods, services and investment’ ASEAN Member States, Press Communiqué, Thailand, 1 March 2009 16

Lessons of the 1997 Asian Crisis for TSP Campaign (Towards a Democratic and Human Rights Response to Crisis):

Lessons of the 1997 Asian Crisis for TSP Campaign (Towards a Democratic and Human Rights Response to Crisis) Democratisation may be stalled. Justification for authoritarian rule (e.g. ‘Asian Values’) Human Rights compromised. Human rights obligations sidelined in the name of surveillance and internal security (Malaysia, Singapore, Indonesia, Sri Lanka, India, Pakistan) The poor severely neglected. e.g., PPP-Public Private Partnership has failed to target the poor, workers, and the vulnerable, adversely affected groups . Massive displacement and inhuman relocation, homelessness 17


CONCLUDING REMARKS 1. The Constitutive Role of Crises in the Evolution of Neo-liberalism was born out of the crises of the 1970s has evolved through a series of crises over the last 30 years died of the cacophony of crises culminating in the current global economic crisis . 18

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As it shows, crises have so far been functional, rather than dysfunctional, to neo-liberalism: Crises reshape class and social relations but in ways that perpetuate the hegemony of capital over labour and the preservation of elite rule. Crises restrategise development plans of institutions from international organisations to states to further advance, not retreat from, market-led development. Crises restructure states and societies in which social institutions are oriented towards the logic, requirements, and imperatives of neo-liberalism. 19

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2. The responses to the global crisis from the multilaterals, to regional organisations, to states are fundamentally the same through the years, with or without crisis. But there are differential catastrophic impacts across social classes, amongst the poor, marginalised, vulnerable sectors. 20

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Another world is necessary! Tranformative Social Protection now!!! ‘Social Security’ (at a minimum, right to livelihood, food, healthcare, water, housing, education, and other essential services): both timeless and universal The TSP Campaign: find, advance, and create a democratic and human rights response — protect, care for, and work with the most vulnerable sectors such as the urban and rural poor, the workers, women, migrants, farmers and fisher-folks , persons with disability, and indigenous peoples 21

Thank You:

Thank You 22

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