Sunday, 9 December 2012

NOT SO "GREAT EXPECTATIONS" FOR 2013

Can we expect great things in 2013 in the domain of economics? 

Certainly the troubled economic areas, all of Europe, UK included, with southern and most of Eastern Europe in very deep recession currently, will see their economies suffer even worse in 2013, thus dragging down the rest of the world. This is because the European Union accounts for $17.5 trillion (2011), which is a major trading partner for the US and the Asia/Oceania  regions whose GDP is just under that of the EU.

Not until autumn 2013 when Germany has its national election will there be any kind of bold moves on the part of the EU to address deep structural problems of uneven trade and development across the debt-ridden eurozone. In case Italy and/or Spain have some unexpected catastrophe in their economies, that would signal a disaster. Perhaps such a disaster could work in favor of the entire eurozone, as Germany would have to address the EU-wide monetary, fiscal and integration problems comprehensively before the election in September. Otherwise, we can expect piecemeal approach that will sink the entire EU and the world into a very bad recession with much higher unemployment in 2013.

For the US, 2013 could be a much better year than analysts expect, certainly by the second half of the year, assuming that the government does not adopt a tight monetary policy combined with a fiscal policy that places even greater burden on the middle class. Clearly, growth at around 5-6% will come from China, India, Brazil and Russia, as the IMF-World Bank and OECD are predicting, but it may not reach those levels if the US and EU suffer much worse contractions owing to tight monetary policy and a fiscal policy that puts downward pressure on salaries and wages.

To predict global economic contraction in 2013 is hardly a major prediction, considering that many analysts and agencies like the IMF-World Bank and OECD have stated as much. The more interesting question is how deep the recession will be and whether the estimates of major private and central banks as well as the OECD and IMF are on the low side - mind you, they have revised them downward already; in other words, the recession will be much deeper and impact even countries like Germany that have been enjoying fairly good growth rates and the lowest unemployment in the eurozone (just above 10% is the current average, with Greece leading at 26% and Germany at 6.5%).

Will global growth hover around 3.3% as the IMF-World Bank and OECD (at 3.4) have argued, most of it coming from China, India, Brazil and Russia; and would the volume of trade be at 3.2% in comparison with 12.6% in 2010?  I have not conducted econometric studies to dispute the 'downward revised' estimates of both OECD and IMF-World Bank. And it may be that we have a much better year than these predictions call for. Looking at monetary policy of the European Central Bank, however, the debt-ridden eurozone that is now having a huge impact on the core countries - France and Germany - and considering that the US would have to arrive at a 'fiscal cliff' compromise beween Democrats and Republicans, contraction in public spending is a certainty. Therefore, the recession in 2013 will be much worse than the IMF-World Bank and OECD have predicted, when combined with the structural problems of the EU and its refusal to address them comprehensively.

The International Labor Office forecast for world  unemployment in 2013 is at 202 million, or 5.1 million higher than in 2012, surpassing the record set in 2009 amid the great recession that started in 2008. Even worse, world unemployment is expected to reach 205 million in 2014, impacting mostly the Southern Hemisphere, developing and semi-developed nations -  Asia, Africa, Latin America and parts of southern and Eastern Europe. The EU recession is partly to blame for the continued rise in unemployment, resulting in massive transfer of capital from developing and semi-developed areas into the developed nations.

Contraction does not have to take place, if a liberal monetary policy is followed, combined with a substantial rise in the income taxes of the top 10% of income earners not just in the US, but across the world. At the same time, the tax loopholes, tax heavens, combined with massive fraud and corruption that we have seen in the financial sector must be contained, so capital can be diverted to productive enterprises, instead of hiding in offshore accounts and sunk into parasitic enterprises. How much money is in this category? No one knows, but the top US corporations alone have stashed away most of their money outside the US, demanding tax breaks to bring some of it back.

Having money outside of the nation where the corporate headquarters operates is not illegal, but there is a percentage of that money that is indeed illegally kept in overseas accounts. In the absence of cracking down on tax loopholes, tax evasion, and corruption, as well as highly taxing parasitic capitalist practices while rewarding productive investment, the recession currently plaguing the globe will be much worse in 2013.

Can we expect miracles in politics?

Political stability is not an issue for the US, China, India, Russia, and most of the G-20. It is however, an issue for some within the G-20, like Italy, and for all of them there may be a problem of social instability. It is entirely possible that social unrest will become much worse in 2013 than it was in 2012 across most of the world. This is because economic contractions that hit mostly the middle class and workers account for sociopolitical polarization and extreme reactions that include forms of protests and violence.

Grassroots protest movements are now part of the landscape across much of the world, from the US to Europe, from Latin America to the Middle East, from Russia to Japan. The biggest challenge for political elites, invariably backed by socioeconomic elites, is to engender conformity and contain social unrest. This cannot be done solely by propaganda through the mainstream media and by tougher laws and force against the people who are supposed to be the backbone of a democratic society. In the absence of political regimes altering their policies of catering so exclusively to the top ten percent of the richest in the population to the detriment of the rest, social unrest is inevitable in 2013. This does not mean mass uprising, but it does mean increased protest/demonstration activity by an ever larger segment of the population representing the middle class and workers who feel they have no stake in the institutional power structure.
 
I am assuming that there would be no major conflict in 2013, something that involves yet another US-led military operation, or US-backed one like hitting Iran or intervening in yet another Muslim country with the usual detrimental results for all concerned. If there is, as I am predicting there will be, a rise in social instability in most countries - from Kyrgyzstan to Pakistan, from street riots in Athens and Madrid, from student protests in London to Santiago de Chile, etc. - that translates into political instability and that means that investment can be held back from the most volatile areas. In short, there is an inexorable link between social peace, political stability and economic growth and development. The prescription to securing social peace is not to weaken the middle class and labor, but to strengthen it, give it the illusion at least that democracy works for them and not for a handful of rich people. Short of giving people hope, even the illusion of it, 2013 will be a year of not so great expectations for many countries around the world. 

Friday, 7 December 2012

CAPITALIST ETHICS AND MYTHS

The Question:
Does the value system and Western-centered ethics that exists under the political economy of free enterprise best serve all of humanity, or merely a very tiny percentage of it? If indeed all of humanity is best served under the system, why do we have the following deteriorating conditions throughout the world?

1. Why do so many believe that there is a great moral decline in under the market system and why does mass cruelty at the institutional (public and private) level persist and grow as we become more advanced in science and technology?
2. Why do we have high structural unemployment and underemployment, especially among the youth, regardless of educational training both in the Western and non-Western societies?
3. Why a gradual drop in incomes among labor and middle class in the last three decades, without prospects of upward socioeconomic mobility?
4. Why pervasive public-sector and private sector corruption that undermines all institutions from political to educational?
5. Why increased sociopolitical protests/demonstrations against a system that claims to be 'democratic', but in essence serves a small percentage of wealthy people whose interests the political economy serves?
6. Why growing gap between poor and rich not just in underdeveloped nations, but in the developed as well, without any prospects for improvement? a similar growing gap also exists geographically between urban and rural populations as well as between the top 20 richest nations and the bottom 180.

The Existing Ethical System
With the decline and fall of Communism, apologists of the free market argued that:

a) capitalism is the only system that respects producers and consumers;
b) a capitalist society represents the only hope for the individual to optimize his/her creative potential through the profit motive;
c) capitalism offers the opportunity to all for prosperity and the greatest chance for economic growth and
d) that the poor-rich gap will close between classes and geographic regions owing to the growing economy;
e) that the lives of people would improve because no other system engenders the values of product/services quality geared to customer satisfaction. Therefore, 'happiness' is inevitable for people only under a system that encourages freedom of opportunity to producers (capitalists).

If all five points as cornerstones of capitalist goals are true, then why do we have the six major problems on a global scale that I have delineated above? Perhaps it is too soon, given that the system has existed for about five hundred years, so we must wait another five years for capitalism to mature before it achieves those goals? Meanwhile, human suffering persists under a system that claims to be the only one under which humanity's condition can exist and make progress.

If by 'progress' we mean more and better technical gadgets, more and better medical equipment, but fewer people having access to health care and basic consumer products, then we need to rethink the concept of progress as based on social classes. But can society move forward toward in the absence of the profit motive, given that human beings are atomistic and irrational, unconcerned about the whole of society and only about themselves? Adam Smith argued that God is concerned about all humans and universal happiness, while the individual is concerned about his own happiness. If this so, then it stands to reason that capitalist ethics reflects human nature. Therefore, let us just accept it and forget about widespread global poverty and countless others domains of injustice, ranging from human rights to socioeconomic, ethnic, race and gender inequality.

GREED, rooted in atomism at the expense of the community, is at the core of capitalist ethics. By contrast, SOCIAL JUSTICE does not appear anywhere in the value system and body of ethics under the capitalist system that places the individual (those individual that own capital) at the core rather than the community as a whole.  Of course, there are elements pointing to aspects of social justice, such as human rights, volunteerism, and civil rights. However, in every instance and upon closer examination, those are subject to political considerations and only selectively are they applied.

Ethics in the age of globalization

The age of globalization means that capital that transcends national borders has created an international ruling class made up of financial and political elites that have mutual interests in preserving the existing system. Lesser elites, from academics to journalists are essentially in the business of disseminating information and analysis based on the ethical system of capitalism, while castigating anything that is critical of it. For example, when the issue of massive banking and corporate scandals arises, the answer is that it is the fault of individual and not the system that produced them and under which they operated. Moreover, there is no alternative to the existing system that is 'the best of all possible worlds'. If there are problems, they can only be fixed within the existing system that created them.

The issue of "rulers and hierarchies manage to subjugate the masses by imposing 'false ethical systems' is an interesting one, just as is the reality that people believe in myths. For those arguing that there are 'false' vs. 'true' ethical systems, let are consider that there are no absolutes, even in ethics where there is relativism and ambiguity.  In Ethics of Ambiguity, Simone de Beauvoir argues that "ambiguity is that each of us is both subject and object, freedom and facticity."

Exactly what constitutes 'false' vs. true ethical systems may be a subject of considerable philosophical debate. Let us make it clear that the domain of meta-ethics, the question of what ought we do as ethical people, is different from the domain of normative ethics that asks what is the difference between good and bad. Both meta-ethics and normative ethics raise the question of ethical relativism, that  brings into the picture the field of applied ethics - professional, business, organizational, clinical, and social ethics.

While ethical systems are invariably superimposed by elites and always have been in all societies, regardless of the nuances in ethical systems, it is also true that in the domain of normative ethics the individual exercises free will, to the degree that institutional constraints permit. As an advocate of existentialist ethics, as the most sound analytical system to explain the field, I believe that free will must be given some weight, and we must not surrender entirely to fatalism, assuming that 'superimposed ethical systems' is an absolute.
 
MYTH and SOCIETY

French philosopher Georges Sorel (1847-1922) argued that myth has inordinate power of influence in the lives of people. Long before Sorel, the power of myth in determining people's lives was evident in societies from the beginning of civilization when organized religion emerged as an integral part of the social, economic and political power structure that had a stake in maintaining the status quo and passing it onto posterity. From ancient times to the present, myth has a very powerful place in the consciousness of the masses and plays a catalytic role in preserving the status quo under the existing social contract.

Human beings live by myths because they are an integral part of a belief system that helps them cope with life, while also providing a cohesive worldview. It is also the case, that human beings need myths, good and bad not only in an existential sense because they are so fulfilling, but also because the intellectual and spiritual life of a person is shrouded by myth that contributes to shaping the individual's identity.

Myths too are superimposed by the elites of any society, but become universally accepted if people recognize in certain myths, which includes religion, a sense of purpose and utility, such as serving psychological (spiritual) needs. There are dangerous myths - destroy the enemy that the state or group has identified for now - and there are commercial myths - buy our products to make you look young - and there are innocuous 'feel-good' myths linked to commerce and political goals.

Conclusions

If we accept the relativist argument of ethics, then we cannot argue, as some have, that there is no such thing as 'ethical capitalism' because by nature the system entails exploitation of the many for the private gain of the few. Of course, one could rely on John Calvin's version of Christianity and Capitalism, as developed by Max Weber in the Protestant Ethic. Therefore, there can be a theoretical correlation between religion and the market system, given that prosperity of the individual is a manifestation of that person's faith, thus reward from God. The assumption here is that the capitalist is doing something 'good' for himself thus for society of which the individual is a part.

How humane is the ethical system that:
1. argues that 'property is sacred', but does not extend the same privilege to human beings' right to social justice?
2. places the individual's welfare above that of the community?
3. has greed as a core value?
4. is rooted in uneven distribution of wealth and perpetuates poverty?
5. legislates private morality - sexual orientation, same-sex marriage, abortion, etc. - but refuses to legislate how financial institutions appropriate capital and sink the world economy into recessions that destroy the lives of billions of people?

Prevailing ethical systems reflect institutional structures and do not come from any grassroots movements or from the wisdom of philosophers. For there to be change in ethical systems, first there must be change in the social, economic, and political structures, that would entail altering the myths and ethics people accept as absolutes. In short, there is no possible way to see systemic change in the existing ethical system, although it is always possible to see nuanced changes within that system.

Monday, 3 December 2012

HIERARCHY, SOCIETY AND HUMAN NATURE

Has human nature undergone a radical transformation in the past 10,000 years? Have people in "civilized society" created institutions that reflect an egalitarian/hierarchic dichotomy in their nature? Watching a documentary, I was amazed at one of the 9/11 survivors who claimed that when families came together to form a support network, hierarchies developed naturally because some believed "their suffering" was greater than the others. What accounts for the propensity to reject a communitarian/egalitarian spirit and to act accordingly in social groups, especially in the Western World?

Strongly influenced by Marx whose dialectical materialism he rejected, Weber developed conflict theory, and social stratification theory on the basis of property, power, prestige, age and gender--all in a white European context of the 19th century. Besides class, status, gender, ethnicity, race, and prestige, the immediate and extended family structure, the ego and desire to affirm/validate the self by claiming separateness from the other may be contributing factors to the hierarchical mindset and practice. But the irony remains that in society and in hierarchies the ideal aspiration is egalitarianism.

Food gathering communities operated under egalitarian/communitarian conditions that reflected their needs and no doubt considered it "natural." Today such conditions appear antithetical to humans that respond to hierarchical models in daily life. If universally immersed in hierarchical models, why do human beings pay homage to egalitarianism (spiritual or humanist) and seek it as an ideal? Before Judaism, Christianity and Islam, paganism which was based on nature and female deity worship evolved toward patriarchal and hierarchical structures with the stratification of society owing to private property and military conquest.

Initially rooted in hierarchy of nature and then reflecting patriarchal social stratification, paganism reflects the convergence of the real and the ideal. By contrast, Christianity, once it separates people into "good and evil" dichotomy, judges all who are "good" (saved) as equal in the Kingdom of God, while the eschatological model of Hell certainly makes liberal use of hierarchies as Dante dramatized in his ingenious novel intended to criticize secular and spiritual hierarchies in the Italian city states. Of the Eastern religions, Confucianism of course is hierarchical. Hinduism, Buddhism, and Taoism are closer to paganism in spirit and structure, while they embrace a holistic oneness de-emphasized in the hierarchical mindset.

The basic hierarchic model has remained in tact throughout history partly because it reflects the stratification of "civilized society." Today hierarchies are not only present in military, government, business, hospitals, academic institutions, NGOs, but even in community groups that begin with some kind of egalitarian structure but quickly abandon it. Communist countries never managed to put into practice an egalitarian structure as their followers hoped. After taking power, they tried to address the larger issue of social justice within the context of the regime's political perimeters. By adopting a rigid hierarchical structure to enforce "social justice," Communist regimes lost the PR war to Liberal-bourgeois regimes that idealized the individual within the hierarchic social structure.

Even to their own popular base, Communist regimes appeared to undercut Marxist ideology, thus allowing critics and their Cold War nemesis to claim moral superiority on the issue of "equality." All along, hierarchies at all levels of society East and West prevailed and the question was who is better off materially--Communist East or capitalist West? The thin layer of Communist regimes resting on top of a multi-layered hierarchical society was hardly sufficient to alter peoples' hierarchical values and envy of Western materialistic culture.

Since the French Revolution the proclaimed ideal of governments as often reflected in their written constitutions is egalitarianism in some form. Invariably this is translated into equality of opportunity in Western bourgeois regimes, a model exported to most of the world with globalization and the downfall of Communism. The (hierarchical) reality of course is far from the unreachable (egalitarian) ideal. While merit-based system is the aspired ideal of businesses, an ideal that business often projects as "equality of opportunity," the reality is one of rigid hierarchy often unrelated to merit-based models.

Given that educational and non-profit institutions have followed the business model, hierarchies prevail in those sectors despite the ideal of egalitarianism. Hierarchies may not only be the result of social conditioning, or inherent societal conflict where each individual struggles to maximize his benefit as Weber postulated, but they may have a psychosomatic basis as well. If we accept Jean Piaget's theory of cognitive development and Carl Jung's "stages of life" theory, then hierarchies are a reflection of human nature.

Shaped by society's institutions invariably dominated primarily by social and political elites, human nature is conditioned to accept hierarchies as "natural." In the Middle Ages the Divine Chain of Being (the ultimate hierarchy) was reality throughout Christendom. Human beings thirst for affirmation of self and the desire to transcend self, they struggle to maximize their individual benefits oblivious to the welfare of the community. Therefore, they live in hierarchical structures because hierarchies are an expression of neurosis to use a Freudian interpretation.

However, at the ethical and sociopolitical levels, the elites and most people in Western societies
acknowledge that some basic rights--human rights--must be conceded because we live in communities, share a common fate, and aspire to harmony that yields safety and security. At the existential level, death as the great equalizer representing the inevitability of eternal oblivion, the realization that the individual is indeed an organic part of nature's whole forces human beings to feel empathy in order to feel human and overcome fear of death, as in Leo Tolstoy's The Death of Ivan Ilyitch. Given that equality cannot exist in the absence of integration with the whole and given the individual resists integration into an amorphous mass where will and ambition are surrendered to the benefit of the "whole," hierarchies which are externally imposed will remain for eternity.

Monday, 19 November 2012

GLOBAL CHALLENGES of UNEMPLOYMENT, INCOME GROWTH, and DEMOCRACY

The Problems: 
1. Chronic high unemployment and underemployment
2. Chronic income erosion and downward social mobility
3. Crisis of Democracy

1. High rate of structural unemployment (chronic unemployment) on a world scale, but especially in developed nations where historically (from the 1950s until the stock market collapse of October 1987) they did not confront such a problem. Within this framework, it must be added that the rate of underemployment (part-time, seasonal, limited contract employment) as well as youth unemployment and underemployment skyrocketed. This poses not just an economic problem, but a social and political one as well.

2. Gradual drop of income from the middle and working class from the 1980s to the present. This is accompanied by a continued higher rate of college graduates unable to experience upward socioeconomic mobility that presumably college degree guarantees and politicians and businesses promote as the panacea. In fact, the problem today in many advanced capitalist countries is too many college graduates chasing too few jobs, and this includes graduates with advanced degrees in most fields. The question of disequilibrium between the college-educated class and the jobs available in the actual economy poses a challenge for the political and socioeconomic elites that forge policy and present it as the solution to achieving upward social mobility.

3. Can any society, especially a pluralistic society sustain itself for very long without addressing the problems of high structural unemployment and the downward mobility of the middle classes and workers, or can it expect social revolution at some point? Why is revolution possible across Muslim countries where armed rebels receive weapons from Western countries, but eventually in the Western countries where democracy is eroding? This is not to say that social discontinuity as it took place during the period from 1350 to 1650 is around the corner, but the crises I have outlined above will hasten such a process.


Global Unemployment

In January 2012, the UN's Internal Labor Organization (ILO) noted that despite the moderate recovery from the economic recession of 2008-2011, there were 27 million unemployed than before the crisis that banks and financial firms precipitated. Given that 2012 was a year of very serious financial problems across southern Europe, causing a eurozone economic crisis, combined with a global slowdown in India, China and the rest of the world, structural unemployment is likely to rise for the next five years and remain high for at least a decade, in the absence of radical state intervention.

This is especially true if we consider:
1. 2013 will be a very difficult recessionary year for the entire world, and it will likely continue well into 2014, for much of the world;
2. Global youth unemployment is at 13% according to the ILO, but that number according to BBC research is very low. Not only is the rate of unemployment calculated of those actively seeking work, thus excluding those that stopped trying, but it also factors in the total population that includes the underemployed in order to calculate the rate of unemployed.  In any case, the Middle East and North Africa, where Arab Spring has been in the headlines, leads the world in youth unemployment withe 27%. Shockingly, the EU and developed economies rank second worldwide in youth unemployment at 18% and expected to rise above 20%, with southern Europe suffering near 50% youth unemployment. 2013 will be a year much worse than 2012 for the EU because:
A) Spain will need in the neighborhood of half a trillion euros - banking system and public sector (debt service and fiscal operations);
B) Portugal and Greece will probably need between 200 and 300 billion euros for same reasons as Spain, but also in possible new 'hair cuts' and/or new extensions of existing debt service;
C) Italy's 10-year bond is under 5% today, and Italian investors command 8 trillion euros representing more than 4 times the public debt that is at 120% of GDP. However, Italian austerity measures contribute to continued rising unemployment currently at 11% with young unemployment above 30%.
D) France is likely to sink into recession and face debt difficulties amid austerity, also translating to higher unemployment and further budgetary cuts resulting in lower GDP growth;
E) Germany will probably experience a GDP drop in the second half of the year, dragging down farther the rest of EU;
F) Debt-to-GDP ratio for the eurozone rose from 54% in 2001, 59% in 2008, 80% in 2009 to 94.5% in 2013. Given that US debt-to-GDP ration is at 100% and Japan's twice the US rate, the eurozone is not in as bad shape as it seems. However, there is a huge difference comparing sovereign nations with a monetary union bloc, though in all cases it does mean that structural fiscal and monetary problems will result in much higher chronic unemployment and lower incomes for middle class and workers. In the absence of a liberal monetary policy that Germany and a few other nations following its lead strongly resist, at least until the 2013 election in Germany, all of the above point to structural unemployment hitting a new record across Europe, dragging down the rest of the world economy.
The eurozone's combined debts are equal to about 93 per cent of the region's gross domestic product this year and that figure is forecast to rise to peak at 94.5 per cent next year. In 2009, the eurozone's debt-to-GDP ratio was 80 per cent. A ratio above 90 per cent is generally considered high and can put pressure on governments' borrowing costs.


Read more: http://www.vancouversun.com/business/fp/yourmoney/Europes+government+debt+burdens+worsen+austerity+bites/7565180/story.html#ixzz2Ce4lAJT4

Role of the State and International Agencies
Are 'pure market forces' solely responsible for the rise in structural unemployment? NO! The role of government, pressured by large corporations, especially banks, and by the IMF, World Bank, European Central Bank, FED, and other central banks have been advocating lower wages and higher unemployment to reduce production costs; a theory based on the assumption that surplus capital would then flow toward the 'new investment sector'; a theory very far from reality, as those who have studied economic history know.

In all countries where the IMF has been operating it has been advising cutting the public sector workforce, lowering wages and benefits in both public and private sectors, ending collective bargaining, and weakening trade unions that are invariably linked to political parties, and in many case union bosses are corrupt and part of the problem. The main argument that both the state and international agencies use as they pursue neo-liberal policies driving unemployment higher is it is all in the name of making the economy competitive, meaning labor costs as low as possible, short of causing social and political upheaval.

Despite the lofty rhetoric about corruption, neither the IMF nor the World Bank actually base policy on the high level of corruption in the public sector, least of all defense where most of the corruption takes place, and they do absolutely nothing to encourage the reduction of massive corruption in the private sector - from corrupt banks and offshore companies to corrupt multinational corporations greasing palms to secure deals with governments.

The fact that the parasitic nature of capitalism has reached astronomical levels. Although the percentage of the world's GDP representing official and private sector corruption cannot possibly be accurate, estimates range  from a low of 5% to as high as 15%. Public and private sector corruption is an integral part of capital concentration that contribute to higher structural unemployment, and lower living standards for the middle class and workers, while reinforcing the view that democracy is just a word operating against the reality of a socially unjust oligarchic system.

Jobless Recovery 
Are there prospects for lower unemployment five to eight years from now? Yes, but structural unemployment will likely remain at historic highs. Owing to rapid advances in science and technology as well as massive transfer of jobs from West to East and from the northern  to the southern hemisphere, the recovery will not bring along with it sharp reduction in unemployment (the jobless recovery phenomenon will prevail) and there will be no corresponding income rise owing to high structural unemployment. The jobless recovery is a reality not just in the US as the FED chair has admitted, but across the world, with exceptions in the BRIC (Brazil, Russia, India, China) nations, although the double-dip recession the world in currently experiencing has impacted BRIC economies as well.

Labor Supply-Job Demand Asymmetry
It has been argued for many decades that job hunters lack the proper training and that is the reason for their lack of employment. It is true that science and technology contribute to a changing market economy, but not nearly as much as government policies and corporation relocating to the lowest cost markets possible, and then expecting that a worker in Detroit or Hamburg retrain to chase the very limited jobs available in the area. It is true there is an asymmetry between the available labor force, which is highly-educated in most of the northern hemisphere nations, does not reflect the realities of the economy. In short, there is a considerable surplus professional labor force when there is no corresponding demand. This asymmetry will likely continue for at least a decade, pending changes in public policy.

Income erosion

I have written a number of essays on the blog regarding income erosion from 1980 to present across the Western World, while income concentration has also been taking place. Watching a recent conference with the IMF Managing Director, German and Indian finance ministers, I was amazed when the chief economist of CITI group stated that the greatest challenge of governments is to forge a policy mix that restores the middle class which has been eroding in the past decades.
  
Let us take the example of one company that has been in US headlines.
2004: HOSTESS files for bankruptcy; workers agree to $110 million in cuts, but the management doe not reinvest the savings back into the company;
2011: one private Equity Fund, and two Hedge Funds take over the company and sink it into deep debt, just as it has reemerged from bankruptcy, while at the same time demanding more concessions from labor.
2012: HOSTESS cut the pay of its workers wages (average of $20 per hour) by 8% and benefits by 32%, quit paying $160 million into workers' pension, while management gave itself a 60% pay hike and the CEO's pay rose 300%, from $750,000 to $2.5 million. The factory opted closing down, blaming workers for not accepting more cuts! This case is but one of countless similar to it, and the question is where is capitalism headed under such a model of hedge and equity funds raiding companies and undermining society as though it is a motion picture - WALL STREET?

The eurozone's combined debts are equal to about 93 per cent of the region's gross domestic product this year and that figure is forecast to rise to peak at 94.5 per cent next year. In 2009, the eurozone's debt-to-GDP ratio was 80 per cent. A ratio above 90 per cent is generally considered high and can put pressure on governments' borrowing costs.


Read more: http://www.vancouversun.com/business/fp/yourmoney/Europes+government+debt+burdens+worsen+austerity+bites/7565180/story.html#ixzz2Ce4lAJT4The factory blamed workers for the closing,

Small enterprises effaced
It is the law of the market economy to eliminate or weaken smaller and weaker enterprises as the market economy expands and especially amid contracting cycles. The assumption is that firms unable to best serve the market place in terms of providing the best (desirable by the consumer base) product/service at the most competitive price possible cannot survive because of capitalism's competitive nature. To some extent this has always been the case, but this theory of free enterprise assumes that public policy making plays no role - everything from labor policy, to trade and fiscal policy that in essence is a means of redistributing wealth. In point of fact, the role of the state has always been the catalyst and not nearly as much the 'free market', which has never been free of influences by the state. 

Small businesses are defined differently in the US than they are in the rest of the world, considering that a small business in the US could very easily pass for a mid-sized one in Spain or Taiwan, while the same small business could also pass for a fairly large one in Portugal or Malaysia. Where the state in South Korea has opted to carve policies favoring large-scale enterprises, Taiwan by contrast tried a more balanced policy (mainly fiscal) approach that preserved small businesses operating alongside larger domestic and foreign companies.

Small businesses have been significant in the evolution of capitalism, especially in the less developed countries where the labor force is mostly engaged in family-type businesses and small-scale agriculture. In conventional economic thinking it would seem unthinkable to have two-three thousand automakers in the US, Japan and Western Europe, instead of a handful. It would be unthinkable to have two-three thousand telephone companies, etc., and all because the assumption is that concentration and centralization of production equals: 1. lower production costs; 2. lower consumer costs; 3; lower product cost to consumer

The evolution of capitalism necessarily entails greater concentration and centralization of production, thus the increasing effacing of family-owned and small businesses in favor of larger ones. But what if the "invisible hand" is not the catalyst to this process? What if the key is the role of the state  and the policies it forges to eliminate small businesses while strengthening larger ones?

Government’s role in this is to provide assistance in the form of policy and change in regulatory framework. Where relevant, additional funding and investments are put forward to pave the way for projects. It is obvious even to a non-expert that when the state adopt a tax system intended to burden small businesses out of existence so that they make room for larger enterprises the invisible hand is no longer invisible. This is the case today through IMF-World Bank policy around the world. The logic is that bigger is better, cheaper, more efficient, etc. But is it not the case that the big banks and financial firms created the global economic crisis of 2008-present? Moreover, can large enterprises solve the problems of chronic unemployment and declining incomes?

Persistence of monetarism by Western neo-liberals
Beside the fact that money is the asset they hold and do not wish for it to lose value, there is the reality that the US, Japan and northwest Europe will suffer a reduction in their share of global economic output in the course of the 21st century, while Asia will see its share rise sharply. This according to the OECD that sees the current developed nations losing half of their global share. The estimates are not as significant as the reality that this is Asia's century, and one way Western neo-liberals are fighting back is by lowering labor costs sharply, thus transforming Western societies more radically than has been the case since the Great Depression.

Crisis of Democracy

There are obvious threats to democracy from high structural unemployment and downward income trends for the middle class and workers:
1. Higher social instability in the form of crime;
2. Higher rate of mass protests and demonstrations;
3. Higher level of cynicism and loss of confidence in democratic institutions;
4.Higher level of poverty and growing gap between poor and rich, projecting the image that society belongs to political and socioeconomic oligarchs;
5. Higher sense of 'dependency' (semi-colonial status) by those living in developing or semi-developed nations. The perception that the fate of the poorer and weaker nations is determined by the rich nations is not only very high among Africans, Latin Americans and many Asians, but even Southern and Eastern Europeans as well.

Unemployment is the highest in five decades and unlikely to come down dramatically in this decade. Can capitalism create at least 600 million jobs in the 2010s to meet the growing demands of a rising population, while securing the existing political economy and institutions? My guess is that it is indeed possible for capitalism to meet the demands of the job market with good living wages well above subsistence levels, but it is not nearly as profitable to do so.

Therefore, we are much more likely to see:
1. escalations of regional conflicts, backed or directly involving US and/or NATO as well as Israel, as the ultimate distraction for the masses to rally behind their national flags;
2. escalated rhetoric regarding terrorism threat to national security;
3. escalated rhetoric regarding the dangers of any progressive political party or movement advocating a systemic change in policy away from the neo-liberal model and corporate welfare capitalism. 
4. political polarization and people seeking solution outside political parties, trade unions, schools, churches, and other established institutions.

It is ironic that while the NATO allies have been selectively assisting Muslim rebels to bring down authoritarian regimes in the name of freedom and democracy, the same Western regimes have been undermining democracy in their own countries as well as in those countries where the US and EU have been imposing austerity measures through the IMF. 

Wednesday, 14 November 2012

A NOTE FOR 'FOLLOWERS' OF THE BLOG

My deepest gratitude that you follow the WORLD EVENTS" blog.

Please feel free to post any messages in the comments box, and if you have a brief essay of relevant interest to share with the blog's readers, by all means send it to me and I will post it.

Again, I thank all of you.
Jon

Saturday, 10 November 2012

IS CIVIL SOCIETY POSSIBLE?

POPULARIZATION OF THE 'CIVIL SOCIETY' CONCEPT

Although the concept of civil society is ancient, it became popular with academic, media and political circles during the late 1980-early1990s, especially in the US, a period that coincided with the fall of Communism and the simultaneous rise of globalization under the neo-liberal model. For the most part, Western analysts of 'civil society' equated the concept with globalization under the neo-liberal ideology with the intent of applying the concept to the former Communist bloc and non-Western countries targeted for economic integration and geopolitical alliances.

That civil society became one that the World Bank and UN embraced signaled the co-optation and narrow definition of the concept by mainstream institutions; thus the interest in the subject by think tanks, academics, journalists, politicians, and other advocates of the status quo parading as 'reformers', always from within the system. In July 2005, the UN established a General Trust Fund, "supported by 36 Member States, its chief function is funding projects that strengthen the voice of civil society in democratic processes around the world. The large majority of UNDEF funds go to local civil society organizations -- both in the transition and consolidation phases of democratization."
 
The assumption on the part of Westerner analysts was that they lived in 'civil societies', while Africa, much of Asia, Eurasia and Latin America were transitioning from authoritarian or semi-authoritarian regime to a pluralistic one. Therefore, the latter needed to operate under a Western-style 'civil society' model. In essence, this was merely a veneer to present the West as operating under civil society as narrowly defined under globalization and neo-liberalism, and to argue in favor of a global integration model that the rest of the world must accept in order to lift itself ideologically and politically to the level of the West, especially the US, but northwest Europe as well.

While few would argue against the socially-just goals of civil society, the question is whether the concept as narrowly defined by Westerners and pro-Westerners is simply intended to serve the goals of the ideological, political economic and social institutional structure. Moreover, there is the question of the degree to which the US as the backbone behind pro-West 'civil society' projects is itself a violator of civil liberties and human rights as many organizations and individual lawyers and scholars have argued in the last decade. Considering that the US has been operating under the Patriot Act since 2001, there is a debate about the degree to which the US is a 'democracy' (comparable to Norway) or more of a quasi-police state with a Constitution. If the latter is closer to the truth, there is a serious credibility issue regarding 'American exceptionalism' invoked once again even in the civil society debate.

Does civil society exist only to serve ideological/political/economic/social agendas; is it real only in theoretical frameworks where the subjective mind loses itself in utopian thought; has 'civil society' ever existed and can it be possible in the absence of social justice, civil rights and human rights?  In the early 21st century, is civil society possible across much of the world, from the US to EU, from the Islamic world to East Asia and Eurasia; in all cases where the evidence clearly illustrates that there is substantial socioeconomic polarization, reflected in the political arena, both legitimate and underground? To answer this question, we need to examine from a synoptic perspective some aspects of the issue, from philosophical and historical to political and sociological.

DEFINING 'CIVIL SOCIETY'

One definition of 'civil society' is the activity of the organized public domain (NGOs) operating separately from both the state and the market. Before answering the question of NGO funding that reveals who is really behind causes allegedly representing the 'public interest', it should be noted that civil society assumes a non-governmental organization (s) has as its goal to protect and promote people's welfare  (interests) as well as promoting fundamental civil and human rights.

It is futile to search for a single definition of 'civil society' for it has changed from ancient Greek times to the modern period. Short of various descriptions and characterizations, there is no coherent definition, thus permitting the analyst to determine the boundaries of the concept to suit the desired goals. For example, does the concept of 'civil society' mean the same thing to an American politician as it does to an Iranian college student or a Chinese dissident? And does it mean the same thing today in France as it did during the Revolution of 1848 when Marx and Engels published the Communist Manifesto?

As political ideology changes to reflect societal changes, so does the definition of civil society. It is appropriate to ask if one equates civil society with Western-style political regimes (parliamentary democracy) and within that model whether Norway is a more just society than the US. Does Cuba qualify as a country where civil society can operate toward greater social justice, given that it is one-party state with a command economy, or is it the goal of civil society groups to destroy Cuba's institutions and replace them with American-style ones? With a parliamentary system, Israel would presumably qualify as a civil society, except that it has systematically violated the human rights of the Palestinians who are an occupied people in the Territories.

If civil society could not possibly operate under Nazi and Fascist regimes, nor military or hereditary dictatorships, then there is the assumption that civil society can only operate under a pluralistic system that respects and does not repress the rights of its citizens. But is it not also the case that parliamentary regimes violate civil and human rights? Finally, if civil society is a Western political/ideological instrument to oppose regimes selectively in the rest of the world, in the manner that human rights was in the late 1970s under President Jimmy Carter, can the concept have any credibility as anything other than a propaganda instrument?

Various NGO's have adopted the term 'civil society' to promote their specific agendas, everything from 'sustainable development' to environmental justice, from charitable works to faith-based works. Even the World Bank has a definition of 'civil society' that entails: "non-governmental and not-for-profit organizations that have a presence in public life, expressing the interests and values of their members or others, based on ethical, cultural, political, scientific, religious or philanthropic considerations." 

Even by its own definition, the question is whether the World Bank and mainstream Western national and international institutions advance of obstruct 'civil society' in practice while using the concept alone to promote globalization under neo-liberalism. Former president George W. Bush argued that civil society demands "good will and respect, fair dealing and forgiveness". The noble rhetoric sounds great, but in domestic and foreign policies he adopted, the principles of 'civil society' that he advocated were absent, replaced by specific narrow interests of small groups of people comprising the political and socioeconomic elites. 

A more idealistic definition of 'civil society is that individual sacrifice for the common good and disparate groups of people at the grassroots level can converge to prevent politically and socially unjust acts by governments that adopt coercive measures as a means of social conformity. The reason I call this idealistic is because it is a never ending process never attained. One reason may be that: "Once the state has been founded, there can no longer be any heroes. They come on the scene only in uncivilized conditions," as Hegel argued. This is not to say that those outside the corridors of power can have much impact on imposing change and creating a 'civil society', but only in the case of social revolution that will result in systemic institutional change, rather than endeavoring to reform the system from within and in essence strengthening the system needing reform.

PHILOSOPHICAL AND POLITICAL ASPECTS OF CIVIL SOCIETY

Athenian philosophers and statesmen from Solon to Aristotle debated the issue of convergence between individual interests and the harmony of the city-state's general welfare. Only through civic virtue and the containment of hubris could there be a civil society as opposed to a barbaric, or a chaotic one where disharmony prevailed and where citizens are neither good nor just, argued ancient Greek thinkers. This argument that begins with Solon and ends with Aristotle assumes that citizens will act rationally because they crave social harmony that reflects nature. In 17th century England, Thomas Hobbes, who lived during the Civil War, assumed that human beings are not rational, they do not crave harmony for the state of nature is one of perpetual conflict and chaos rooted in irrational atomistic proclivities. Order can only be imposed on society by force from the strong ruler (Leviathan), thus civil society is not possible from the bottom up.

From John Locke to Karl Marx, and 18th century Enlightenment thinkers in between, the rationalist tradition dominated social and political thought. The assumption that humans are rational and wish to live in harmony rather than a perpetual  state of conflict and chaos, found expression throughout the Western world from England's Glorious Revolution to the French Revolution, leaving a rich legacy in the 19th century when there were a number of sociopolitical revolutions. The concept of civil society by the rationalist tradition was equated with classical Liberalism inspired by Locke as well as varieties of Socialism inspired by a number of thinkers from the French Revolution of 1789 to the European revolutions of 1848. Marx and Engels essentially argued 'civil society' is an integral part of the socioeconomic base of state as an instrument representing the capitalist class.

New Left thinkers from Antonio Gramsci to the present rejected classical Marxian view of civil society, arguing that it can be a catalyst to defending people's interests against the capitalist state and market-dominated society. However, the largest impact on the civil society movement globally has been by neo-liberals who use it as a means of spreading their ideology and defending globalization against any progressive or statist oriented (nationalist) regime or movement. Neo-liberals have also used the concept of civil society against social welfare, while all along promoting corporate welfare. Clearly, there has been a vast difference of how civil society organizations have operated in the West versus non-Western countries, but the institutional support in terms of money and political backing emanates from the West trying to superimpose globalization under the neo-liberal model across the entire world.

Civil society as a concept and movement played a role in the US-EU backed Arab Spring uprisings intended to remove authoritarian regimes that were either not enthusiastic supporters of the West or they were not as well integrated economically by refusing to permit open access to Western capital. Civil society also played a role in the Occupy Wall Street movement, as well as in the grassroots protests across southern Europe. Clearly, the way that a young Muslim in the streets of Cairo sees civil society is very different from a neo-liberal professional in Washington, or even a protester against Wall Street.

Under the large umbrella of civil society, we continue to have elements ranging from reactionary to progressive seeking systemic change. The ones with institutional backing will continue to prevail, until such point as the institutional structure is so decadent that civil society movements play a role in undermining it. Given that under hegemonic integration systems, such as the EU where the strong creditor nations impose policy on the debtor EU members, thus undercutting the latter's national sovereignty, is civil society possible in an uneven playing field across the world?  For all nations, however, the question remains if civil society is indeed possible against the reality of downward socioeconomic mobility in an increasingly polarized society across the Western world.

Tuesday, 6 November 2012

ANATOMY OF CORRUPTION: PUBLIC-PRIVATE SECTOR NEXUS

According to OECD, Greece remains one of the most corrupt countries in the world, largely because the institutional structure, both public and private sectors are immersed in corruption as a way of doing business and conducting public policy. While it is true that Greece ranks better in corruption than most of the former Communist bloc countries, it is also true that approximately one-third of the money that circulates is made illegally.

This does not mean just narcotics and prostitution, but rather that the black market economy that extends from illegal petrol to illegal cigarettes are traded as part of a cash economy that evades the tax system in a country whose fiscal structure is part of the reason for the IMF-EU austerity program. How does corruption operate and what is the nexus between public officials and business people; and are politicians alone to blame, or do businesses also have a role in corruption? The example provided below is from a case in Greece and it illustrates the nexus of corruption. With the caveat that this case is based on local versions of how the city acquired its current rental property, and the case has not been proved in a court of law, the evidence to support its validity is overwhelming. The case also illustrates how businesses and government throughout the country use rental properties as a means of kickbacks and overcharges at a time that there is an abundance of government properties, in many cases vacant. 
  
CORRUPT POLITICIANS AND BUSINESSES
To finance his campaign, a mayor of a Greek  city, who is a former businessman in the construction industry, borrows a large sum from a buildings materials company in order to finance several projects and to finance his mayoral campaign. The mayor offers the company signed checks for which there is no money in the bank - bad checks that can be held by someone who covers them and expects payment at some point of mutual agreement. The expectation is that the mayor will reciprocate, presumably by purchasing materials from the company once he is in office for city construction projects. Each time the city needs building materials, it goes to the company that is holding the mayor's bad checks. The company overcharges the city and reduces the mayor's personal debt as part of a kickback scheme.

When the time comes for the local government to rent a large office building in order to house all local services in a single spot, there was a scramble of where to rent in a market that is depressed and rents are dropping sharply. The best location for the lowest price office building is available, but the owner refuses to offer bribes to the mayor and other local politicians waiting in line. Instead he offers a straight deal with a long-term lease and low rent. The property owner realizes that the building would stay vacant for at least five years, if not a decade amid a very deep recession, if the city does not lease it. The mayor refuses the offer, because there are no accompanying bribes for a long-term lease.

Another businessman in the foodstuffs import industry, but also a reputed money launderer and a narcotics wholesaler, owns several buildings, one of which could be suitable for the local government offices. The food industry businessman purchases the bad checks from the construction materials businessman and then offers the mayor the option of renting one of his buildings in exchange for reducing the mayor's debt and eventually wiping out. The cost for the rental is twice what the city would have paid if the mayor and other local politicians did not receive a bribe. Moreover, there is the stigma on the part of local politicians of renting from a reputed drug lord.

This is an actual case, and one of the more innocuous ones involving the very complex intertwined relationship between government and private sector. The money trail starts with businessmen, making to rounds to politicians who manage public funds, and ends up back in the pockets of businessmen, after some of the wealth is shared with politicians. I repeat that this case is only one of countless ones involving rental properties by government at all levels. The cost of corruption is much higher cost of products and services, concentration of wealth, and widespread cynicism about how institutions really work behind the veneer of democracy. 

Does corruption contribute to existing structural economic and fiscal problems or is it a pretext for IMF-style reforms? Does corruption hurt or benefit the economy? If corruption is an impediment to economic growth, why is it that countries with low-level corruption have just as many if not more problems growing the economy as countries with high levels of private and public sector corruption? Finally, is it realistic to divide public sector corruption from the private sector, or does one reinforce the other?

Corruption, the fraudulent method of doing business in the private and/or public sector, transcends geography and historical periods. Aristotle believed that corruption was an act intended for private benefit against the public good. The philosophers of the Enlightenment era set the standard of what is not corruption when they argued in favor of a merit-based system vs. the old regime immersed in nepotism and rooted in aristocratic privilege. The old regime's political economy of agrarian capitalism, at the head of which there was an absolute monarch dominated public service offices, was anachronistic for it clashed with the interests of mercantile and industrial capitalism that required talented people rooted in a code of professionalism to manage both the public and private sector institutions.

There is no doubt that it helps a company -  exporter of products or services like a bank, etc. - to have a friend in government. This was evident in the 19th century across Europe, given that certain companies and banks received contracts and government protection, while others did not. Government made or broke companies, although it was very difficult to determine the degree of influence companies enjoyed in policy making; something that was as true of British companies as it was of German, French or US. In the process, businessmen became wealthy, and along with them politicians, some of whom were actually former businessmen turned politicians.This tradition continued in the 20th century, as it was clear that government had to be entrusted to former businessmen or at least lawyers whose law firms represented large businesses.

The fundamental question is whether corruption by itself is:
1. an impediment to economic growth and stability; 
2. undermines social justice;
3. undermines confidence in public and private sector institutions, thus in democracy;
4. passes socioeconomic costs from the current generation to the next;

The answer to all of these questions is a resounding YES. However, this is not to say that even in the total absence of corruption the cyclical nature - expansion and contraction cycles - of the market economy can be avoided with all of their societal consequences. In other words, even if it were possible to eliminate corruption totally, capitalism operating under its own market-oriented laws, presumably unaltered by corrupt bankers, politicians and others, would still cause the problems associated with contracting cycles because capital would remain concentrated.

Monday, 22 October 2012

GLOBALIZATION AND ITS DISCONENTS: LESSONS FROM THE 2008-2010 RECESSION



Antecedents to the Crisis of 2008

Uneven development & the State’s role

In the interwar era Sigmund Freud’s Civilization and its Discontents raised concerns about early 20th century Western civilization’s constrictive pressures on individual instinctual predilections and freedom. In the late 20th century, globalization poses a threat to freedom and identity as well as a danger to effacing national and cultural autonomy. Because as an integrative system free enterprise is predicated on perpetual expansion, inevitable contracting cycles built into the system necessarily entail continuous strengthening of globalization and compromising of both human freedom and cultural autonomy. This interpretive essay argues that ‘dismantling the modern welfare state’ has been at the core of the discontents of globalization. The process of chipping away at the welfare state started in the US and UK during the 1980s during the ‘Reagan-Thatcher decade’. Despite contractions that signal a danger to eliminating the social welfare safety net, which is at the core of social justice in modern bourgeois democracies, dismantling of the welfare state has spread globally and it continues to unfold.

From the Commercial Revolution to the present, global economic integration under the evolving capitalist system has exacerbated geographic and social polarization. Owing to capital accumulation concentrated within the core (most advanced countries) of the modern world-system, social inequality and uneven geographic development is inevitable and it entails the periphery remains perpetually less developed and experiences lower living standards. This is evident merely by considering that the US as the center of the core countries (G-7 by today’s standards) enjoys 26% of the world’s GDP, but it constitutes a mere 4% of the world’s population. Another indicator of uneven geographic development is evident when considering the per capita income ratio between periphery and core is 14:1 ($14 income average for the G-7, $1 average for underdeveloped countries). 

Backed by the state, private capital incessantly appropriates labor’s value in both core and periphery. While a strong state structure is a characteristic of the core, a weak state structure plagues the periphery where foreign capital and organizations like the World Trade Organization (WTO), International Monetary Fund (IMF), World Bank, European Central Bank, European Investment Bank, among others of course, wield far-reaching influence in global trade, fiscal, monetary, and development policies. The process of capital accumulation floating toward the core during cyclical economic crises, like the one the world has been experiencing since 2008, further exacerbates income disparities and asymmetrical trade relations between advanced and less developed countries and results in downward economic pressures on labor and the middle class amid financial retrenchment.  

To rejuvenate and continue on a course of expansion, the market economy must reduce production costs, which means reducing wages and benefits – further appropriation of labor’s value - while expanding markets, many of which are highly protected. More so today than during the era of classical economists from Adam Smith to Karl Marx analyzing the dynamics of political economy from disparate viewpoints, the role of the state is catalytic. Most economists and social scientists, especially neo-liberals do not acknowledge the role of the state as a pillar of the market economy, viewing it instead an impediment to free enterprise because fiscal and social policy have an impact on business growth. In the past century, finance capitalism has been unable to operate without government indirect intervention through fiscal policy during expansion cycles and direct intervention with massive injections of public funds during contracting cycles of the 1840s, 1870s and 1890s. In the aftermath of every contracting cycle during the 19th century, there was an effort by core countries to guide capitalism back to health, namely, through policies that resulted in imperialist ventures in Africa, Asia, and Latin America. 

In the 1930s, British scholar John M. Keynes observed that capitalism left to its own devices cannot recuperate when in severe dislocation; at least it cannot recuperate without social upheaval that threatens the social order. Hence, state intervention to strengthen private capital and preserve the social order is necessary. Since the 1930s, governments adopted variations of Keynesian policies that remained at the core of bourgeois regimes for the past fifty years. The credit economy, which replaced the gold standard at the start of the Great Depression, is showing signs of over-extension, thus contributing to economic contractions. The question of how financial, political, military, and academic elites, especially in the core countries, address an over-extended credit economy is the key to social engineering and to the morphology of pluralistic society in the 21st century. 

Neo-liberal Challenge to Keynesianism – Reagan-Thatcher Origins

Milton Friedman and ‘Chicago School’ economists, who advised Ronald Reagan, who came to office in January 1981, dismissed Keynesianism as outmoded and impediment to progress. Given that the post-war global economy had not experienced another depression, and given the need to stimulate the US economy after its massive losses during the Vietnam War and loss of US global competitiveness, there was a need for a new method for capital accumulation. One option to stimulate growth was to water down ‘Keynesian militarism’ (also known as containment militarism owing to America’s ‘containment doctrine’) by slashing the bloated defense budget and invest public funds in research and development for new sources of energy that the US needed to lower its external payments deficit. Early Cold War advocates of ‘Keynesian Militarism’ like Paul Nitze believed that America’s surplus capital could be absorbed by the defense sector thereby serving both geopolitical and economic goals by presumably keeping the economy balanced. An option that an influential group called ‘managerialists’ (represented by businesspeople like the Rockefellers, labor unions like AFL-CIO, government, and academia) proposed using the surplus capital to expand the civilian economy at home and globally, thus achieving a victory of capitalism over Communism without a ‘high-geared’ arms race. Managerialists conflicted with right-wing ‘Containment Militarism’ ideology and entrenched interests profiting from the military-industrial complex.

The managerialists became prominent during the Carter administration when the Vietnam War was over and the US and world economy was faced with structural problems. The question for the US elites was how to handle the credit economy for the future, while maintaining global military and economic preeminence. The solution coming from neo-liberals was to ‘water-down’ the social welfare system. Proposing a return to classical liberal economics based on Adam Smith’s theory, the ‘Chicago School’, which also advised other governments, including former Chilean dictator A. Pinochet, contended that greater wealth at a faster pace for more people could be generated if government limited regulation and privatized public enterprises. From the conservative era of Reagan-Thatcher to the present, globalization accompanied by deregulation of business and privatization of public enterprises promised to deliver an economic and social miracle; at least that is what neo-liberal apologists contended, and they enjoyed the political support of right-wing ideologues and advocates of bigger defense spending. Recent developments prove that the neo-liberal theory a fallacy, especially when accompanied by ‘Keynesian militarism’. Capitalist prosperity would not rise indefinitely if government allow greater market freedom and everyone would not benefit as neo-liberals maintained, while allowing for inordinate defense spending.

Rising Rich-Poor Gap & Globalization

Transforming the social welfare state into corporate welfare not just in the US but globally became policy. There was and there remains a major public relations effort by business, government and media on a global scale to indoctrinate the public that the social welfare state is the enemy of progress. At the same time, neo-liberals and advocates of corporate welfare argued that the free market system generates prosperity and reduces poverty. This argument of course became even more powerful with the downfall of Communism. Empirical studies, however, by the World Bank and UN confirm that in the past forty years, poverty has been rising and capital remains highly concentrated on a world scale. If it were not for the social welfare state, the lower classes would suffer a great deal more during the cyclical contracting cycles of the market economy. 

The crisis of 2008-2010 has added millions more to the poverty pit with one out of six Europeans living below poverty levels. Similarly, there has been a widening gap between rich and poor nations, about to widen further during the 2010s decade owing to the current crisis. Many social scientists, business people, and politicians contend that the return to economic growth and development rests with neo-liberalism accompanied by the dissemination of the ‘consumerism doctrine’ floating outward from developed to underdeveloped regions and from upper to lower classes; a trickle-down theory. Maxime Laguerre’s Innovation & Growth, points out: “Only through the acceptance of the dogma that growth in consumption equals a growth in happiness does every capitalist system legitimize itself.” Therefore, the multifarious and ubiquitous marketing of the illusion imbedded in “consumption equals growth” dogma is far more significant than the reality of material progress and human happiness. 

Globalization-privatization-driven growth since the 1980s resulted in massive capital accumulation concentrated in a small percentage of private ownership, especially energy multinationals, mostly in the advanced capitalist countries. If the state had vigorously regulated and progressively taxed businesses to absorb surplus private capital, the inevitable contracting cycle of 2008-09 would have been far less severe. Long-term causes of the recent crisis include: 

a) US fiscal policies favoring a small percentage of the richest Americans;
b) a trade policy undercut by a weak dollar and prejudicial quotas;
c) massive capital concentration winding up in speculative enterprises instead of productive ones;
d) exorbitant defense spending that has added enormous debt and left the bill to the next generations.
In varying degrees, EU and other countries including former Communist bloc nations tried emulating US-style capitalism, thereby creating similar conditions. 

Hedge Funds, Neo-Liberalism & Globalization

Operating under the dogma of neo-liberalism, globalization-privatization is only partly to blame for the financial and economic crisis the world is currently facing. Another factor that resulted in the current crisis and accounted for the absence of rising productivity or horizontal economic development was market speculation in the form of Hedge Funds (unregulated mutual funds in all areas from energy and currencies, to stock, precious metals and mortgages). Very loosely regulatory environment and the assumption the government would come to their aid, emboldened corporations to engage in duplicitous accounting and take immense risks with Hedge Funds that were beyond regulatory mechanisms. In the past few months, the press has uncovered that Goldman Sachs among other financial institutions were responsible for selling high-risk products to clients. They were then shorting the same products they sold to clients knowing those products would decline in value, thus making money. Moreover, Goldman Sachs was responsible for striking deals with a number of countries, including Greece, to ‘cook the books’, that is, to falsify public accounts in the same manner that accounting firms in the 1990s and early 2000 were helping corporations do the same thing. The US and the EU were aware of the operations of such investment banks. Governments looked the other way and Goldman Sachs continues to operate with impunity.   

Because the influence of Hedge Funds was far reaching, the assumption was that the federal government would rescue them. Although the FED was aware of the dangers, it permitted their operations to spread and play a major role, thus contributing to volatile stock markets that drove many otherwise solid companies like AIG to engage in Hedge Fund speculation that the world had not seen since the collapse of energy-trader ENRON. Via computer stock market trading, hundreds of billions exchanged hands. None of it reflected rising or falling productivity in the real economy. Only timing of the market mattered, a process more fitting for Las Vegas gambling. For a tiny investment, speculators were buying insurance betting on shorting certain firms and government bonds that were bound to decline. 

For a dollar worth of insurance, Hedge Funds were buying insurance betting that AIG would decline, or that countries with weak fiscal structures like Greece and others would not be able to meet its bonded debt. Because multi-millionaires and finance capital fund political campaigns, the US and other governments would not regulate Hedge Funds. In January 2010, Barak Obama proposed tougher measures for financial institutions investing in Hedge Funds. French President N. Sarkozy concurred. Some EU leaders going along and others hesitated. Stock market reaction was negative reflecting the inordinate influence of Hedge Funds. In April 2010 the Securities and Exchange Commission and the US Congress is investigating Goldman-Sachs for ‘improperly’ if not illegally manipulating the housing market. EU governments are following in the footsteps of the US government with regard to Goldman-Sachs.

Obviously, the issue is larger than Goldman-Sachs and larger than Hedge Funds; it is one of how parasitic capitalism helped to undermine the entire world economy and drove it to the worse contracting cycle since the 1930s. Here is a case where governments failed in their responsibility to protect the public from predatory capitalists. The reasons of course include everything from heavy lobbying to campaign contributions that account for the inexorable relationship between finance capital and the state. Even after receiving about one-third of US GDP in subsidies and loans, finance capital wants an ideal marketplace of no investment restrictions and no corporate accountability; it wants a return to the same environment that caused the recent crisis. The artificially glittering quarterly reports accompanied by the promise of future earnings was enough to keep more investors coming much like a pyramid scheme. Because there was very little behind speculative capital in terms of productive capacity to support the investment build on a paper pyramid, it was only a matter of time before the reality of actual values of companies caught up with the hyper-inflated stock market paper values. High oil and gas prices combined with the real estate bubble, and saturated markets chasing limited consumer demand accounted for finance capitalism’s cyclical crisis.

Consultancy & Outsourcing

Along with Hedge Fund and real estate mortgage speculation, both aspects of parasitic capitalism, consultancy and outsourcing, in some cases one-and-the same entity was an additional contributing element to recycling of money toward parasitic instead of productive sectors. From the early 1980s to the present, the utmost parasitic element of ‘consultancy’ emerged to infect everything from banking and high finance to universities and government. This phenomenon reflected first the neo-liberal demand that government must create a larger and stronger private sector and second the trend for greater bureaucratization of the private sector. While not every ‘outsourcing’ endeavor and every consultant can be classified as parasitic, in fact some are productive, for the most part outsourcing was carried out as part of the ‘privatization’ trend. Consultants and consultant committees offered advice for the most part that was common sense, already known, some combination thereof, or something called ‘coffee table reports’ to the ‘contractor-client’. Nevertheless, the ‘contractor-client’, whether the State Department or Exxon-Mobil, justified having ‘consultant committees’ on the payroll because it was part of the corporate culture.

In some cases, consultants and consultant committees were simply on the payroll serving a political agenda, or because of some interest group’s pressure, or because of a quota needed to secure a public or private sector contract. In those cases where consultants for private or public sector actually worked for their money, the advice had to be cloaked in what served the client management’s interests, and not necessarily the company or government’s broader interests. Often justified as ‘outsourcing’, consultancy became a fad and it resulted in enormous amount of capital siphoned off without any productive result. The madness of consultancy spread globally. It became a way of doing business to the degree that even small and debt-burdened countries like Greece were notorious for ‘consultant committees’ composed of politically-connected people that siphoned off public funds.

Fall of Communism-Failed Capitalism

Despite the tremendous rise of parasitic finance capitalism that included consultancy as an obstacle to growth and development, the world economy in the 1980s and 1990s was sufficiently dynamic and had enough impetus to expand without suffering a crisis of the 2008-09 magnitude. The integration of former Communist countries into the world-capitalist system in the 1990s, the low energy/raw materials prices for most of the decade, and the new high tech revolution should have been sufficient to sustain the expanding economic cycle without the experience of a mini-depression crisis. The Euro as a reserve currency and relatively cheap labor in the Third World as well as advanced countries where trade unionism has been eroding along with real wages were additional stimuli for global economic growth. Such synergy of global developments could have strengthened capitalism only if the state and IFIs (International Financial Institutions) had vigorously regulated the corporate world, and better managed and coordinated the world capitalist economy through monetary, fiscal, and trade policies. Only by absorbing surplus capital instead of allowing its greater concentration could the state mitigate the crisis. Therefore, the catalysts to the mini-depression crisis of 2008-09 rests partly with the role of the state and IFIs that pressured all governments around the world to privatize, liberalize, and strengthen the strongest within the private sector. The net result is the continued weakening of the social welfare state and the corresponding strengthening of corporate welfare.

Blame Game & Damage Control -- US Banking Crisis & EU Reaction

The inevitable contracting economic cycle notwithstanding, what specific forces were responsible for the biggest economic crisis since the Great Depression? Who must be accountable to the public? US banks like Citi-Group and Bank of America, insurance giants like AIG, investment firms like Lehman Brothers, a corporate culture based on deception and speculation together with government regulators who failed to regulate financial institutions, greedy and corrupt bankers around the world that invoked a neo-liberal ideology to secure greater profits, or all who took part in the globalization-privatization euphoria. When the financial crisis erupted in the US, European businesspeople, expert analysts, and EU officials confidently predicted that the banking problem was limited to the other side of the Atlantic. Hence, there was no threat from the ‘American-made banking-real estate crisis’ to the EU or to other parts of the world. 

Within weeks after it became clear how inter-dependent and how high-tech-rapid the world financial system has become, EU governments scrambled for political and financial ‘damage control’ followed by the ‘blame game’. Yet, they seemed at odds and in panic mode about a concerted solution given the uneven economic strengths of each EU member, and associate Balkan and East European members waiting to join. Initially it was every country’s central bank buttressing its own banking system in coordination with the European Central Bank. The delayed coordinated EU-wide approach sent the markets into a tailspin, bank loans to a halt, and the ‘real economy’ beginning to feel the pain in terms of drop in producer and consumer demand, and job losses. When EU finance ministers finally agreed on a more coordinated approach, the bailout plan appeared similar to what US was doing. For the World Bank to publicly accuse the G-7 of not doing enough to control the crisis means that the time for wider coordination had come after many months of each country fending for itself, each bank for itself, each multinational corporation for itself. 

As a world system, capitalism operates under the same rules of capital accumulation, thus requiring similar solutions despite variations in modalities. For example, Ireland adopted an IMF-style austerity program that the EU applauded as a model for other countries like Greece, but at a great social cost. By contrast, social-democratic Sweden, whose manufacturing sector suffered immensely, has social safety mechanisms to lessen the impact on labor and middle class. The ‘bail-out’ solution to the crisis of 2008-09 benefited the strongest financial institutions that were actually partly responsible for prolonging and deepening the crisis by using public loans to buy out weaker institutions. One course of action available to governments to ensure market stability and return to growth would have been to nationalize all banks and provide liquidity to stimulate growth, instead of purchasing stock and imposing stricter regulations mainly regarding management bonuses while the bailout loan remained outstanding. 

As much as the US banking crisis, chronic external equilibrium problems, and skyrocketing defense spending have contributed to the global crisis originating in the US with the real estate sector and speculative below-prime lending at its core. Vladimir Putin was correct to claim that under US unilateral financial leadership the world economy had faltered, thus the world needs multilateral economic leadership. However, the European Central Bank’s (ECB) decision to keep interest rates high at the outbreak of the crisis was even more irresponsible than anything Washington was doing under the inept and perilous Bush administration. The idea of fighting inflation and keeping a strong currency amid rising unemployment and economic stagnation was one only the IMF would recommend on behalf of finance capitalists that benefit under such conditions at the expense of the middle and lower classes. 

At the Rome Conference on global poverty in November 2008, ECB’s announcement to hold steady interest rates and thus maintain a strong euro against a weak US and Chinese currencies indicated incredible confidence in IMF-style monetarist policies that invariably redistribute income from the bottom income earner toward the wealthy. Instead of providing more liquidity for the civilian economy at the dawn of the crisis, ECB was keeping it tight; instead of raising taxes on high-income groups, EU governments were providing subsidies and making it easier for further corporate consolidation, asking the average taxpayer to pay the bill. 

Global Campaign to Save Finance Capitalism

With central banks and IFIs (IMF, World Bank, OECD, European  Investment Bank, etc.) helping to analyze and coordinate a concerted policy to stimulate growth by injecting inordinate public funds into the financial system, it was possible to moderate the impact of the stock markets’ crash on the ‘real economy’. The ultimate goal, however, was to save finance capitalism as the economy’s backbone, instead of focusing on a jobs-based economic growth that would generate consumer spending and faster revival. As expected, there were rifts within G-8 and even more within G-20 where President Ignacio Lula of Brazil argued that the Third World was suffering from a First World crisis. Although all evidence pointed to Wall Street and US financial institutions, common fear to get a handle on the crisis before it was out of control drove the summit leaders to strengthen world finance capitalism. 

World leaders and public opinion realized that the worst economic crisis since 1929 took place against the background of the war and occupation in Iraq and Afghanistan and perpetual instability in the Middle East owing to the Israeli-Palestinian conflict. The long-standing policy of ‘Keynesian militarism’ designed to stimulate growth at a time the US was suffering balance-of-payments and budgetary deficits weakened the American economy that was spending about five percent more than it was producing; deficit that needed external financing. Concurrently, out-of-control energy prices fueled by speculative investment climate in a number of sectors that accounted for inter-sector imbalances – real estate values rising to unrealistic levels because banks were expecting to make money with below-prime loans. At the same time, balance of payments and budgetary deficit contributed to the dollar’s decline, thus resulting in a further loss of investor and marketplace confidence. 

When the crisis erupted, there was a scramble by governments to save their own economies, even if they had to resort to mild economic nationalist measures. As the largest dollar holder, the Chinese government proposed a world reserve (supra-national) currency above the dollar, euro, yen, sterling pound, etc. Russia agreed with the Chinese proposal, but Obama promptly rejected it and naturally supported the dollar as the preeminent reserve currency. Could the Russian-backed Chinese proposal inspire monetary stability and thus prevent future mini-depressions as the one we are currently experiencing, or are the Chinese regretting investing two trillion dollars in US bonds out of necessity? A number of economists and politicians maintain that the world economy may not be in ‘real growth mode’ until 2012 – much longer for non-energy producing countries in the periphery - and there may not be dynamic growth until the end of the decade.

Structural weaknesses, which includes immense public debt combined with low consumer demand and unemployment, will continue to rise in the next 12 to 24 months. Outside of China, India, select Asian countries, energy-rich Russia, and perhaps Brazil, this decade may be one of slow growth. Even as countries aim to lower public debt and even if the Chinese ‘reserve currency solution’ were adopted, will such measures avert another cyclical crisis? If the single super-reserve currency is not the solution, is there a need as the Europeans, Russians, and others claim, for a new Bretton Woods system? Some economists and social scientists have suggested that the world needs a Green Bretton Woods, one rooted in new eco-friendly science and technology of self-sufficiency, especially in the energy sector, if the world is to avoid economic dislocations like the one we are currently experiencing. 

The gradual power shift in the world economy from the Atlantic to the Pacific, with calls for a new Bretton Woods or a ‘New Deal’ that British PM Gordon Brown proposed, and the Chinese proposal for a new reserve world currency placed immense pressures on the US at the G-20 meeting in London in April 2009. Given that the EU and Japan together account for 38.1% of IMF contributions, and given that Gordon Brown has repeatedly asked the Arab countries to make a multi-billion contribution to strengthen the IMF, the question arises about the US role in that organization headquartered in Washington and essentially run as a US bureaucracy since Bretton Woods. 

Global Crisis and Realignment of Elites
The fall of the Communist bloc reinforced and emboldened the ‘Markets-over-State’ (financial over political elites) theme. After the fall of Communism, there was an enormous rise of stock markets (‘irrational exuberance’, as FED chair A. Greenspan once called it) around the world in the 1990s. The ‘end of history’ was here, so proclaimed true believers in the market economy, neo-liberals, and right-wing ideologues celebrating the death of their nemesis Communism. Presumably, serious academics lined up behind the ‘Cold War winner’ and ready to sound the trumpet on behalf of a social order that seemed to transcend history. Prevalent since the Reagan-Thatcher era, the ‘markets-over-state’ theme filtered down to the middle classes throughout the world, operating under the Hegelian (G. W. F. Hegel) assumption of steady upward progress for the market economic system. 

From fixed-income retirees to millionaires, euphoric individuals invested their savings in an institutionalized fallacy that drove stock markets higher along with the boundless speculation bubble. The new reality today is that the financial elites have recognized the global economic crisis diluted if not obviated the ‘markets-over-state’ ideology and culture. Obviously more serious and far reaching in its economic and social impact than most people believed before autumn 2008, the current crisis temporarily forced governments toward a quasi-statist course – greater role of the state in guiding, managing, regulating the market economy which would collapse in the absence of public funding. However, this was only an ephemeral phase that quickly gave way to the same old neo-liberal policies.

As a last resort and presumed arbiter in society, the state in the hands of political elites is far more significant in times of crisis to guide the course of the economy than the financial elites. Besides the monumental weight of fiscal policy, government subsidies, public contracts, and legislation, the reality is that the public sector is becoming increasingly larger in the developed nations and smaller in semi-developed and developing ones.. The neo-liberal crusade since the Reagan-Thatcher era was precisely to create a larger private sector and stronger financial elites, while retaining ‘Keynesian militarism’ responsible for ‘winning’ the Cold War. 

Political party machinery is the foundation of the political elites, although in some cases, those who are part of the political elites may also be a part of the financial hierarchy, as in the case of Silvio Berlusconi. Under mechanisms (at least some depending on the individual country) of public scrutiny and accountability, political elites have a responsibility for all institutions to preserve social harmony and avert instability that may lead to systemic change. Assuming they are operating under legal and regulatory guidelines, financial elites’ accountability does not extend beyond corporate management, followed by investors and consumers.

As the largest entity in the economy and main engine of economic stimulus, the state determines the economy’s fate, institutions and social order. Given that markets require such intervention in times of crises to survive, political elites are currently more hegemonic than they have been in the last 30 years. Such realignment of financial and political elites of course takes place depending on whether society is undergoing economic crisis, war, revolution, or other destabilizing episodes. The current contracting economic cycle will result in a long-term rather than temporary realignment of elites because it will be a long time before the political climate is such that it permits the revival of the unfettered ‘market-over-state’ culture of the last three decades. Another reason for realignment of elites is the relative success of countries where statism in some form takes precedence in comparison with countries that followed the neo-liberal route.

Quasi-Statist Alternative to Neo-Liberalism

Can the welfare state, which neo-liberals fear as a form of statism, co-exist under globalization predicated on corporate welfare? China, India, and Brazil, three countries where statism in varying degrees prevails did not suffer nearly as much as a result of the current global crisis and have the best prospects for rapid growth in the rest of the decade when most other countries will struggle. Brazil, for example, did not have to bail out its banks largely because the Lula da Silva regime had imposed transparency and accountability in banking. Foreign investment in BRIC (Brazil, Russia, India, China) nations is driving growth - $45 billion for Brazil in 2008 vs. $2 billion in 1994. Such reliance on foreign capital entails ‘dependent development’. While the combined BRIC nations have the largest population of poor on the planet, their development prospects are better than those of advanced nations. 

According to some estimates by 2014, Brazil’s economy will be fifth in the world, surpassing France and England. BRIC nations have demonstrated first that political elites enjoy paramount influence in guiding the economy, and second that statism is here to stay because it works to save national and international capitalism. Scandinavian style social democracies operating under statist policies are another model with historical roots of the relationship between political and financial elites. Regardless of models, political elites will remain strong first because capitalism thrives under a strong state structure and secondly because their role in protecting and preserving the political economy and existing social order will remain more significant than that of financial elites. 

Public Debt & Living Standards

In the last three decades, there is a correlation between runaway public debt and astronomical corporate and consumer debt in most countries. There is nothing wrong with public borrowing when it contributes to horizontal economic development that meets society’s broader needs. Nor is there anything wrong with corporate debt, if the goal is asset building and adds value to the company, and not intended to reward a handful of ‘insider’ investors, executives, and consultants engaged in fraudulent accounting and investment schemes. The convergence of rising public debt, partly for the parasitic defense sector, the rise of private debt – corporate and consumer – reflects the reality of a consumer-oriented capitalist economy that spends more than it produces. Servicing loans is not a problem when the economy is expanding, even on credit. The problem arises when the state, businesses, and individuals cannot service loans on a chronic basis because they have overextended. Inordinate public borrowing coinciding with similar trends in private borrowing in the last 30 years weakened the economy and resulted in mini-recessions culminating in the current crisis. 

Of the $3.6 trillion US budget that Obama presented in February 2010, $1.6 trillion is in deficit, money that must be borrowed and paid by future generations through lower living standards. Given the US is currently suffering a budgetary deficit that accounts for 9% of GDP, at a time that official unemployment is at 10% (at least 15% unofficially, growth rates must be above 5% for the next ten years to bring down both percentages. Otherwise, the result will be sustained official unemployment of above 6%, poverty above 15%, and weaker middle class.  

Cyclical crises of capitalism are inevitable because the dynamics of the system predicated on continued expansion with periodic contraction upon market saturation. Established to maintain market growth in the world economy and help alleviate the symptoms of crises by providing currency stabilization (IMF) loans and World Bank development loans, IFIs have proved beneficial, especially for corporate America and the other advanced capitalist countries whose corporations profit from stable currencies and open markets. 

Conditionality of IFI loans, which entail the recipient must deregulate the market place and reduce labor costs while reducing corporate taxes, further benefit multinational corporations. Because loan ‘conditionality’ drains capital from loan recipients and does not lead toward self-sufficient development, the IFIs role has entailed cyclical debt-crises and perpetual dependence of the Third World on the core countries. Playing a key role in austerity programs that perpetuate asymmetrical trade and uneven geographic and social development, IFIs have been major obstacles to sustainable development and strong state structure in the Third World. 

At the urging of the US and EU, during the 1980s the IMF, World Bank, European Investment Bank, OECD, and regional IFIs like the Inter-American Development Bank, Asian Development Bank fostered deregulation, privatization, cuts in social programs, reduction in the public sector, reduction in wages, raising indirect taxes, and cutting taxes on corporations and upper income groups. Backed by the G-7, the IFIs recommended to borrowing member countries that they offer all types of incentives from less regulation to lower taxes to attract domestic and foreign capital investment. Borrowing governments went along with IFI policy recommendations, and only then did the IMF-World Bank-Paris Club declare the loan recipient ‘credit worthy’ so that consortium loans led by the World Bank would approve funding for development projects. 

Public and private banks would then provide guaranteed and commercial loans to the borrower. Such policies resulted in de-capitalization from the periphery to the core and from labor to capital and strengthened the process of globalization. Moreover, borrowing countries remained structurally weak to face the next cycle of global economic recession like the recent one when currency devaluation, lower wages, and higher indirect taxes are among the austerity measures become necessary to strengthen finance capital. The result was lower living standards for borrowing nations, especially labor, and the lack of sustainable development that would allow upward social mobility instead of widening rich-poor gap. 

The Global Crisis & the Shrinking Middle Class

In all economic contracting cycles throughout finance capitalism’s history, blue collar skilled to unskilled labor, agricultural day laborers to small farmers, and white-collar employees to mid-management ultimately pay the price for economic dislocation. The middle class, as the media and governments define it today to include a very broad range from upper working class to highly paid professionals and managers, experiences downward pressure toward ‘proletarization’ status instead of upward mobility as it envisions its destiny in a pluralistic society. Very clear in the 1930s, this phenomenon is taking place amid the current crisis not only because people are losing jobs, homes, and retirement savings, but because the future looks bleak for their children’s opportunities for upward mobility. 

Besides part-time and contract work, the middle class and workers are asked to accept pay cuts, reduced benefits, reduced work schedules, flexible working conditions, all of which will be accompanied by the expectation of retiring at a later age. That limited market opportunities means limited possibilities for upward mobility for the next generation translates into loss of confidence in bourgeois democracy. Where is the recent ‘proletariatized’ middle class headed; will it emerge stronger than it did after the Great Depression, helped immensely by the war-stimulated economy, or will the middle class society lapse into chronic decline? There is a fundamental question of whether the ‘middle class’ was on sound footing in the last four decades, or artificially created by a deficit-spending system now in crisis throughout the world. 

On paper, the combination of low labor values in the Third World that allowed for higher incomes in the advanced countries and the postwar credit economy accounted for the quantitative and qualitative growth of the middle class in core countries. A large percentage of the population in western countries of the northern Hemisphere, as well as Japan, Taiwan, and South Korea experienced upward mobility in the past 40 years, and China more recently. Middle class mobility was based on the credit economy and the ‘wealth effect’ was a mirage because the middle class lived on credit and hoped values in everything from their incomes to homes and securities would continue to rise indefinitely. The current crisis has exposed the bourgeois facade of endless progress, and revealed that a large percentage of the middle class was really working to pay off debt until death. All along, the proletariatization of the middle class was taking place serving both the economic goal of capital accumulation and the political purpose of liberal democracy as a material utopia. 

The US Congressional Budget Office estimates that in the next three years there will be a $2.9 trillion gap between productive capacity and actual output. In short, more than 300% the amount congress initially approved as part of Obama’s stimulus package. Such a gap will mean that the state must decide if the top 10% of income earners will bare the brunt of the bailout cost, or if the middle class and workers will have to endure lower living standards and downward instead of upward social mobility. Because capital accumulation on a world scale takes place by the more thorough exploitation of labor, the state will support financial elites’ efforts to squeeze out the maximum from middle class and workers short of precipitating social upheaval and political instability. Arbiter of social relations through control of the fiscal system, the political elites in each country will determine how weak the middle class will be for society to function without paying the price of radicalization and violence.

        Because effective demand is limited by the earning power of workers and middle class in the post-credit crisis of the early 21st century, and the sharply reduced personal wealth (drop in real estate values, private pensions, and stock portfolios) the illusory middle-class ‘wealth effect’ will remain low and the accumulated surplus capital high. Of course, China with a strong state structure and dynamic economy growing faster than any other in the world is the exception, followed by India, despite very low average living standards. 

         Naturally, science and technology innovation will result in new growth, as will the degree to which the state in the core countries will intervene to limit capital accumulation by financial elites to keep a relatively stable middle class. Because there are multiple institutional means that condition people toward conformity, most exercise self-restraint toward the status quo as they are convinced that there are rewards in such behavior and punishment for social dissidence. In the end, the middle class perception of upward social mobility for their children may be a catalyst to a political solution or social action.

Global Crisis & the Working Class

Few would disagree that the most dramatic and lasting impact of the recent recession will be on workers especially in less developed countries. Even with G-8 coordination, as the IFIs urged throughout 2009, the recession of 2008-2010 will not turn into an expansion cycle before workers have paid a very high price to revive the ailing monster whose tentacles reach around the planet. Unemployment will rise – officially, averaging 10% in US and EU, closer to Great Depression levels if one counts those who have stopped registering for work and those working seasonally and part time. Wages will fall along with benefits and workers will be doing the tasks of two or more people because businesses reduce staff. Socioeconomic polarization will continue as price inflation reduces working class living standards. 

Some of the sociological consequences of this crisis include a rise in suicides, rise in physical and mental illnesses, rise in divorce rates and single-parenting, and a rise in crime to mention only a few. However, it will all be worth it knowing that capital concentration will thrive once again, that stock market speculators, bankers and investment gurus, and tough-talking industrialists make a few extra million in annual bonuses and other compensation! The media and ‘expert analysts’ will blame everything from workers lacking training for the ‘right jobs’ to bad character traits of the individual unable to cope in the otherwise ideal democratic society operating under the ideal market economy! The poorer the country the worst off labor conditions will be. However, regardless of whether the worker is unemployed and homeless in Manila or in Detroit, the painful consequences are the same. Although this scenario did not have to unfold as pessimistically as I am describing it, I fear that it has evolved somewhat so because the greater the wretchedness of the multitudes, the greater capital accumulation on a world scale. Therein rests the essence of the market economy as operates even with existing social safety nets – the somewhat more humane Scandinavian model notwithstanding.

Within the capitalist camp, there are of course, other ‘gentler kinder’ paths to follow that will be less painful for labor and the Third World that had nothing to do with precipitating the crisis but will have to pay for it. Instead of a policy mix intended to strengthen the financial sector, governments could absorb surplus capital from the top 10% of income earners and stimulate the economy. Transfer of income from the parasitic capital-intensive private sector to productive labor-intensive public areas as a way to stimulate job growth that results in consumer spending, greater stability in the investment climate and greater confidence in the economy can be carried out by more aggressive Keynesian measures. Although the current crisis presents the state with the opportunity to redistribute wealth from top down for a change instead from bottom up, so far there is no sign that is likely to occur. 

More socially progressive policies always meet with vehement objections because they entail asking capitalists to share in the recovery of the economy they have debilitated. And behind finance capital are the political elites. Because capital accumulation on a world scale will be financed by the more thorough exploitation of labor, the state must continue to back capitalists to drain every ounce from workers short of precipitating social upheaval and political instability. Of course, apologists of capitalism ranging from social democrats to neo-liberals will try to mold public opinion that this is how life is in a pluralistic society; that indeed it is the fault of the individual worker who lost his/her job with all the consequences to follow, or that everyone must share in the ‘sacrifice’. 

Given the weak trade unions in most countries, the fact that leftist groups have been co opted by the center in the last four decades or they are marginalized by their own archaic ideology, tactics, and corruption, workers in most countries lack effective leadership. Desperate, fearful, anxiety-ridden workers will run for help to bourgeois political parties that represent capital. They will demand crumbs; they will beg not to have so much blood drained from their veins this time around. It is indeed a testament of globalization that household pet in the core countries enjoy better health care, housing, and food than more than 50% of the world’s poor in the periphery!

Corporate Bailout or Corporate Welfare

In the US in 1970, the average worker-to-CEO compensation ratio was 20-30 times or $1 for worker to $20-30 for CEO. In 2007, the same ratio had risen to 350 times, or $1 for worker to $350 for CEO). Along with its products and services, the US exported its corporate and consultant culture and we now see such outrageous worker-to-CEO compensations in Europe. Government bailout funds for banks, insurance companies, and other corporations has been used primarily for consolidation, rather than easing the credit crunch. 

          With the approval and in some cases urging of government, European and US banks have used public funds to buy other banks, investment, and insurance firms on the cheap, and/or as reserve capital to stabilize their stock price. When British PM, Gordon Brown, approved Lloyds TSB purchase of HBOS in September 2008, did Mr. Brown know that on 13 February 2009 Lloyds would ask that the state to save the bank that had purchased $17 billion bad debt from HBOS? Similar cases abound in the US where the Bush administration urged banking consolidation more for ideological considerations than financial, namely, to save financial institutions from state control and/or ownership. 

Because economic crisis can cause social and/or political instability as well as destabilize foreign relations, Obama’s election was actually necessary to de-radicalize the disgruntled workers and the middle class, while appeasing world public opinion that had turned decidedly against the US more than ever in its modern history. Many believed that Obama would follow in the footsteps of F. D. Roosevelt, and thus revitalize society in every sector from banks to social programs. As much as Obama represents hope for the masses at home and abroad as the ‘reformer Messiah’, he is in fact the Messiah of finance capitalism following watered-down Keynesian policies. Even billionaire Warren Buffet admits that no one really knows if Obama’s measures will bring about the publicly stated result. 

Nor do we know that Obama’s policies and those of the other advanced countries will result in inflationary pressures once the world economy revives and their impact on labor. To control inflation it will mean higher interest rates and further credit tightening that will result in lower living standards for workers. Indicative of finance capital’s pervasive influence, in January 2010 the US Supreme Court ruled that limiting corporate campaign contributions constitutes an infringement of free speech. As the US economy improves, there will be greater pressures on Obama and the congress to revert to loosen government regulation of business and revert to the same policies that led to the current crisis. And the rest of the world will follow because capitalism is a world-system operating under the same rules.

The Poverty of Globalization

Despite GDP growth in the last two decades before the economic crisis of 2008-2010, social inequality, uneven social and geographic development and rising poverty are among the reasons that the legitimacy of capitalism and the myth that materialism engenders happiness comes to question. Besides the planet’s rapid environmental degradation, decline in the bourgeois lifestyle characterized by boundless consumption and self-indulgence, a weakened middle class today is possessed more by fear and anxiety for its children’s future than comfort that capitalism promises in the marketing of the “growth and happiness dogma”. 

One of the major concerns is how higher education around the world is increasingly tailored to serve capital and that only the wealthy will be in a position to secure a classic Renaissance-style ‘liberal arts’ education in the future. There are many complex variables, among them objective conditions of how the evolving capitalist system is restructuring society. Progressives throughout the world have an undeniable responsibility for surrendering to the status quo or surrendering to fatalism. This is partly because bourgeois democracy no longer has a nemesis as it did during the Cold War to provide an alternative, but also because of thorough indoctrination of the masses.

Hovering just under 20% in the US and about the same in the EU, chronic poverty will remain a long-term legacy of the current recession. ‘Third World-type’ conditions already exist within the advanced capitalist countries – families in the American Deep South and northern inner cities subsist on a few hundred dollars per month and rely on food stamps to feed themselves. Conditions for the bottom 20% of the population are not that much better in the EU where the prospects for recovery are not as bright as in US, and even less so for Japan. 

If finance capitalism is to survive with the inevitable wealth concentration within the top 10%, there must necessarily be downward income pressure on the middle class and workers. Generating greater surplus amid global contraction than the market can absorb will keep the capitalist economy in a limited-growth mode for at least a decade, unless the state absorbs the surplus capital from the top ten percent of income earners and spends it for labor-intensive socioeconomic development.

History’s most destructive holocaust may unfold in the next decade as one billion poor fight just to be fed unless the richest nations that control most of the wealth act fast to lessen the crisis. The pets of the wealthy and middle classes live better than one-third of the world’s population (two billion) that will experience further decline because of the current contracting cycle. Although international organizations (NGOs and official entities) and even some heads of state have been warning about this issue almost on a monthly basis, there is yet no concerted action by the G-20, which own most of the world’s wealth, to reduce poverty. 

Meanwhile, there is no shortage of empirical studies warning about the rise in global poverty owing to everything from market speculation to the multi-trillion global financial crisis and the lack of the state to address capital concentration. The poverty holocaust will have social and political implications and cause instability and further weaken the world economy as the UN has warned to the shrugs of the richest nations responsible the crisis. To deflect attention from the poverty holocaust, the EU is accusing China of neo-colonialism in Africa, which suffers the lowest living standards in the world. I have no doubt that informed Africans are amused at blatant European hypocrisy at a time that food, water, and medicine are the key issues for hundreds of millions, especially given that a few multinationals control a large global share of water, medicine and foodstuff resources.

Greece & the Global Financial Crisis

Greece financed its War of Independence with European loans. Because throughout its modern history Greece has been financially dependent on the Great Powers, it suffered chronic underdevelopment. External financial dependence is continuing despite the fact that Greece is an EU member, which presumably projects the image of a First World country protected by the euro as a reserve currency. Financial dependence entails economic dependence that includes trade and manufacturing dependence. Structurally, Greece remains an externally dependent society that has raised living standards in the past four decades largely through public and private borrowing.

All Greek politicians were well aware during the national elections of autumn 2009 that the country would have to ‘put its house in order.’ Under pressure to satisfy ‘market conditions’, the EU compelled Greece to undertake a series of deficit-reduction measures that are as harsh as those that the IMF imposes on underdeveloped and semi-developed countries. The fundamental prescription for austerity measures has not changed in the past fifty years and they are essentially the same for all IMF borrowers, including Greece today. That bond rates rose sharply in order for Greece to borrow is an indication of its lack of creditworthiness, speculation by Hedge Funds, and the extremely tight global market for loans at a time that most of the world suffers staggering budgetary and balance of payments deficits. 

Austerity or IMF-style stabilization is not about the funds applied to the country that needs it but about fiscal and economic policies that the country adopts which make it attractive for domestic and foreign capital. More political than they are economic, stabilization programs serve as the pretext for unpopular privatization/liberalization policies. While IMF austerity entails cutting public sector spending, wages and benefits, and providing incentives for capital investment, the unique aspect about Greece having to resort to the IMF as Germany demanded is that it is a full member of the EU and a stab at the monetary union’s integrity. 

Associate members in Eastern Europe are IMF borrowers, but they are outside the common currency. Tested under the extreme economic contracting conditions of 2009-2010, the EU integration model is not nearly as cohesive as it had promised in the past decades. On the contrary, the EU integration model ostensibly more egalitarian than the US or Japanese models proved rather tenuous. Moreover, the entire eurozone area also proved a more vulnerable against intense global competition and less communitarian.

The Greek and foreign press presented the course toward financial regression, if not near-bankruptcy, in 2009 just before the national elections, but the seeds for regression have their origin in the transfer of dependency from Great Britain to the US during the 1940s and then back to dependency on Europe upon its induction into the EU. How could near-bankruptcy happen to a country that hosted the Olympic Games in 2004? How could Greece, once EU’s best examples of how integration works for smaller members. The answer is that the Greek economic miracle in the past 25 years was largely financed by a combined public and private sector debt that may amount at least 300 billion euros and perhaps as high as one trillion. 

The current recession accompanied by a stabilization program will have an impact on the economy and living standards for the rest of the decade. This is because of international economic slowdown, limited domestic growth prospects, and Third World-type official and private sector corruption combined with a marked absence of EU-style institutional mechanisms to deal effectively with a fiscal system designed around a corrupt private and public sector. Despite the Greek economy’s impressive growth rate in the previous decade, the socioeconomic gap has widened sharply once again after it had been closing in the past three decades, as it did in Spain, Portugal, and Ireland. As the EU’s weak link, Southern Europe may in fact reflect the greater flaws in the monetary union’s structural integrity, namely, that the EU was never prepared to confront a crisis of the magnitude as it is currently facing.

In 2008, one study indicated that by 2012 Greece and Spain could approach Italy’s living standards. That prediction based on the infamous “Greek statistics” and boundless optimism now seems only a dream for Spain and Greece. IMF-EU privatization recommendations that have been implemented under the ‘reform’ label and more are on the way, which are designed to strengthen big businesses and attract direct private investment. Curbing social security benefits and keeping wages low, which are among the lowest in the EU entails that Greece is hardly Southern Europe’s economic miracle of the early 21st century that some observers once praised. 

Baksheesh Capitalism & Austerity’s Political Price

Some of the chronic problems facing the country and keeping it from enjoying higher living standards and upward social mobility include unrelenting rampant corruption in all sectors of society from church and state to health and education. The current regime has used corruption as a pretext to undertake austerity measures and strengthen the private sector. Greece suffers chronic and widespread tax evasion not much different from a Third World country, but the majority of fiscal income not flowing to the state is from big business. The thriving subterranean economy estimated at 70 billion euros, or about one-third and it includes everything from street vending to narcotics and sex traffic and money laundering activities, is of course a serious drain on the fiscal system. The World Bank ranks Greece’s corruption at about the same level as some Latin American and African countries.

The issue of speculators targeting Greece is both accurate and a pretext for the austerity measures. The real issue is one of horizontal development that Greece lacks during its entire history, including the period from its induction in the EU. Despite receiving EU development funds, for various projects from infrastructural development to subsidies for building hotels and cheese factories, there has never been central economic planning, especially absent of bribery and corruption, aimed to generate sustained development. As one of the smaller EU members without a manufacturing sector, Greece entered the current crisis later than Western Europe. Although Greece accounts for a tiny percentage of EU’s GDP, its monumental fiscal deficit, combined with public and private external debt payments deficit (estimated at more than one trillion euros), and chronic public and private sector corruption has resulted in threats that threaten the currency’s integrity. 

After PASOK’s election in autumn 2009, the EU immediately demanded speedy austerity measures, preferably similar to those of Ireland, so that the Europeans (mainly Germans) do not pay for the costs for Greece’s chronic budgetary and balance-of-payments deficit that have weakened the euro. Some Greek analysts have wondered why the US government helps bail out states like California, while the EU refuses to bail out Greece. Why is it that the EU offers loans for associate members in Eastern Europe, but no comparable aid to its own members? First, as a sovereign nation, member of a common market and common currency, Greece is not a state like California. Second, bailing out Greece would set a precedent for all full members to spend above the 3% of GDP. Finally, the EU as a common market competes globally, which means that its strongest members are apprehensive about their global competitiveness diluted by weaker members. Therefore, just as the US would impose IMF austerity on its common market neighbor Mexico to stabilize its currency and make it attractive to investors, so does the EU demand austerity from Greece. That Germany encouraged the IMF to take part in a bailout program of a Eurozone member is indicative that the reserve currency is much more vulnerable than politicians or financiers believed until 2010.

EU political support for stabilization has come at a high price. Stabilization programs weaken national capitalism, strengthen foreign capital; they weaken labor and the middle class and strengthen finance capital; they weaken the public sector and strengthen the private sector. For example, there are several thousand foreign firms in Greece (perhaps as many as 16,000) which are exempt from many of the taxes imposed on national firms, at least those national firms that actually pay taxes in the required amount. That Germany became the obstacle to the EU bailout for Greece is understandable, given Germany’s preeminent role in the EU and in Greece. Eastern Europe that borrows from EU and other sources including the IMF has less freedom to decide its fiscal program than Greece. Papandreou acknowledged that in fact Greece has lost a part of its fiscal autonomy, in reality most of it. However, the \experience of Greece amid the current contraction threatened EU monetary stability, thus the idea of an EU super-fund for future financial crises is a valid proposal and it may come to pass, if the richest EU members agree. 

Although unemployment is hovering around 25% in autumn 2012, or 15% above the EU average, it is expected to rise an additional 5% during 2013, while the combined budgetary and balance-of-payments deficits will amount to 17% of GDP, and the country will remain in negative GDP growth for the fifth straight year. Spending 4.3% of GDP for defense, Greece has one of the largest military budgets owing to its NATO commitments and unstable relationship with Turkey. Even when Papandreou announced austerity measures, defense contracts were not canceled, despite revelations about bribery scandals involved with each contract. 
Corruption on a global scale shaves off about 10% of the legitimate economy and public finances. In the case of Greece, the percentage is much higher and approaches the levels of sub-Saharan and South American countries. Paradoxically, the government is using the stabilization program to integrate a greater segment of the informal economy into the legitimate economy that the ministry of the finance can document and tax accordingly. Under the guise of EU-imposed austerity, the government is reforming the fiscal structure that was one of the weakest in EU.

Equally alarming to the abyss of public spending, it is estimated that an ever-larger percentage of households are over-extended and as many as one-third may not be able to service them on time this year. Loan-payment delinquency is a global problem the credit economy created, and its impact entails widening rich-poor gap. All of this was before the current stabilization program, which will result in lower living standards. In short, Greece, along with many other core and semi-periphery countries, built a credit middle class that will be facing retrenchment during this decade. On the optimistic side, GDP growth may reach just under one percent, but capital flight and high interest rates for bonds will remain an obstacle to such growth.

In the last analysis, the tourism-shipping industry are hardly sufficient to stimulate new vertical growth, at a time the country needs ‘horizontal development’, that is to say, development in new sectors that will serve domestic needs and reduce import dependence so that there is a drop in the external payments deficit. Hardly a microcosm of EU’s northwest members, Greece is a reflection of the periphery and future members in Balkans and Eastern Europe. Moreover, the recent problems with the public deficit may in fact be a reflection of the fragile EU system and its lack of proper centralized mechanisms to prevent any member from jeopardizing the Union’s monetary integrity. That a small EU member caused the euro’s decline by several percentage points was a hard lesson to Europeans who will have to institutionalize more rigorous safety net mechanisms in the future to prevent a similar eventuality.

GOLDMAN-SACHS

Partly of because Greek officials have been falsifying statistics for many years, the fiscal deficit stands not at 6% they presented as fact last summer but at 12.7%, or more than double that of Germany, which explains the much higher interest rate.  Since last summer/autumn bondholders had been speculating on a debt crisis and purchasing insurance betting on the existing shortfall nearly bankrupting the country. In February 2010 the New York Times revealed that Goldman Sachs was helping the previous administration conceal its real debt from the EU, and Goldman was interested in buying Greek debt, a scheme that never materialized. Greek accounting methods of the public sector in the last decade or more are actually a reflection of how some corporations also operated, namely, falsifying numbers and hoping to cover the gaps with future receipts. However, such accounting methods were not very different from mega-corporations engaging in fraudulent accounting. Fraudulent accounting is based on the assumption of continued economic growth to cover gaps.

In November 2009, Goldman approached the newly elected Socialist Government of George Papandreou in Greece and proposed purchasing the Greek debt, at least a portion of it, presenting it to the EU lower than it actually is, and in exchange take control of the airport tolls and other frozen income sources. In October 2009, Greece’s official debt presented to the EU was 6% of GDP as opposed to 12.83% that was the real debt. Having run a campaign to clean up rampant corruption involving both domestic and foreign firms, Papandreou rejected the Goldman-Sachs proposal. What followed was a campaign by Goldman-Sachs to expose Greece along with all of Southern Europe as EU weak links whose bonds should command much higher bond yields than what Germany pays. 

Before the NYT published the Goldman-Sachs story, Papandreou went public with implicit accusations that the EU was complicit in covering up fraudulent statistics that Greece was submitting for a number of years in exchange for policy measures that it (EU) wanted Greece to adopt. The German government acknowledged that the EU had not done its job properly. Ironically, in March 2010, the Greek government used Goldman-Sachs as one of the investment banks for the issuance of bonds. Besides their working relationship with investment banks like Goldman-Sachs and bond investors, accrediting agencies like Moody’s and Fitch responsible for assessing Greek bonds are essentially in the business of pursuing a neo-liberal agenda that strengthens finance capital. Concerned that Greece would have difficulty refinancing past debt was what bond traders focused on and one of the key reasons for the high interest rates until of course the EU and IMF agreed on a bailout with interest rates much higher than developed countries are paying. 

Stabilization’s Economic Growth & Social Impact

In the era of globalization and privatization, the inherent characteristics of ‘Greek-style baksheesh capitalism’ are evident in other countries and contribute to social instability and radicalization of the masses. The rapid rise in public and private debt during the past 30 years in Greece as much as in many western countries, combined with the expected higher interest rates once western economies recover in 2010 posed another impediment to economic growth for the next five years. That the public sector and the various social security funds are in debt to the tune of billions and the government must borrow to finance such staggering debt entails high interest rates, which incidentally benefit German investors who hold an estimated of 80% of Greek bonds. The price for EU backing Greece financially carries the same quid-pro-quo as any Third World borrower, which means Greece will be making large trade deals that involve everything from defense contracts to consumer items from Germany and France, which are the main financial supporters.

Hyper-debt and the current EU-imposed stabilization program entails stagnation that may last for the entire decade and result in lower living standards and contraction of the middle class, in the absence of rationalizing the otherwise chaotic market economy that is externally dependent and not inwardly oriented – designed to serve the domestic consumer’s needs. While France was relatively cordial toward Greece, Germany has been much tougher. Merkel’s conservative government favored monetarism at the cost of cuts in social programs. Having to contribute the largest amount for Greece’s bailout, Germany has immense debt of its own and it does not know how much it will have to devote to help other EU members in the future. As the third-largest buyer of French defense supplies Greece has earned a receptive audience in Paris. Austerity in the Greek economy is also a signal that Germany wants to send to the rest of the members that fiscal discipline will be observed at the national level. 

Radicalization of workers and middle class will only intensify not just in the weaker EU members like Greece, Spain, and Portugal, but in other countries where protests are expressed in different modes from student riots and labor strikes to rising crime. The gap between these social groups and political parties and trade unions, invariably extensions of political parties, will widen. The result will be spontaneous uprisings indicative of far reaching indignation with those who claim that democracy means lining up behind established political and labor organization. In short, bourgeois democracy’s challenge in the early 21st century, as much in Greece as in the EU and elsewhere, will be the widening gap between the under-represented broader social classes and institutional structures like political party and trade union bosses. Entrenched political, business, trade union, and academic elites divorced from the lives of the masses contributes to social alienation and sociopolitical instability.   

Greece’s Prospects for the Future

The extremely difficult phase, which Greece is undergoing owing to austerity measures, will come to an end in a three to five year period. Assuming that the state modernizes and utilizes its enormous talent in the form of an educated work force, there is reason for guarded optimism. Greece under the EU ‘inter-dependent’ model of integration has performed much better than it had under the US-imposed ‘dependency’ model. The natural gas deal with Russia and the Black Sea Trade and Development Bank consortium present opportunities for capitalist growth. Greece has untapped mineral resources that can be used to stimulate new capitalist growth. 

Assuming the current regime succeeds in curbing corruption and addressing tax evasion by going after the top ten percent income earners, while at the same time pursuing multilateral commercial relations, Greece as a national economy may actually do better than its northern Balkan neighbors, despite lower living standards for workers and the middle class. Consortium investment represent considerable impetus; Greek-owned firms have been taking advantage of low-cost labor and have been expanding in the Balkans and the Near East where Greece has created its own mini-zone of limited influence. Moreover, Greece has benefited from cheap immigrant labor that continues to fuel its economy, and it looks for further stimulus by expanding its Russian natural gas pipeline connection. 

Some politicians claim that Greece is the 30th richest country in the world and that may very well be correct, is we count the assets of the top 10% of wealthy people whose assets are outside the country. There are options before the Greek government, ranging from a mixed economic model that South Korea and Taiwan are following to the Scandinavian that Papandreou likes but does not emulate. Moreover, there are sources claiming that Greece has enormous unexplored strategic mineral resources that can be the basis for new economic development. Assuming that Greece will follow the example of other countries around the world to curb parasitic consultants and outsourcing, there can be some savings realized along with continued pursuit of legitimizing the subterranean economy and addressing rampant corruption and tax evasion. However, the plan is to privatize and pursue IMF-EU liberalization measures. While the austerity program will work as it always has, namely, to weaken the public sector and strengthen private capital at the cost of a weaker middle class and laborers, the state can prevent ‘brain drain’ (the exodus of educated workforce) and develop a modern economy under a socially just system with domestic and EU resources. 

Global Macroeconomic Prospects

The core issue for the early 21st century is the degree to which globalization will continue to erode the social welfare state in order to strengthen corporate welfare. Although some economists and investment gurus remain guarded about economic growth owing to rising unemployment and very high public and private debt, the IMF is optimistic that 2010 will yield global economic growth slightly above 1%, whereas 2009 plunged the world economy into negative territory. Given that the G-20 have invested about one-third of GDP to bail out financial institutions from 2008 to the present, the IMF is correct that a recovery is imminent, led by China, India, and developing countries in the Pacific, with the G-8 following. China may enjoy double-digit GDP growth in 2010, while Germany has declared it would take at least three years to emerge from the current crisis that has resulted in a budgetary deficit 6% of GDP. 

Assuming relative political stability with the major powers led by the US, 2010 may be a much better year than the IMF is predicting, but growth will be limited to corporate profits amid a jobless economy. To the degree of it may be political plausible option, economic nationalism and statism are ways to lessen the burden on labor and the middle class. For countries like China, Russia, India, or energy-rich Iran, such a course is much easier than for dependent countries in the periphery and semi-periphery of the world-system. For example, historically dependent economies whether it is Greece and Turkey, or countries undergoing dependent development do not exercise economic nationalism under bourgeois regimes to the degree Germany can. Of course, a radical government such as those in Bolivia for example could adopt quasi-nationalist policies to mitigate economic inequality and the power of foreign capital. Given that international organizations like the IMF, World Bank, and the World Trade Organization best serve the interests of the most advanced capitalist countries under the globalization model, economic growth will continue under the existing framework. 

Given the US is currently suffering a budgetary deficit that accounts for 9% of GDP, Germany at 6%, and at a time official unemployment is at 10% (at least 15% unofficially, growth rates for US and EU must be above 5% for the next ten years to bring down both percentages. Otherwise, the result will be sustained official unemployment of above 6%, poverty above 15%, and weaker middle class. This is social engineering designed to strengthen capitalism! Within the EU, growth prospects are even worse for Europe’s “PIGS” – Portugal, Italy, Greece and Spain, (Ireland also belongs in this group) all of which are targets by bond speculators and partly responsible for the euro’s and stock market slumps since January 2010. 

With 11.5% of the EU’s GDP, Spain is the fourth largest Eurozone economy confronting a budgetary deficit that is 9.3% of GDP (lower than the US percentage) and cumulative public/private debt that amounts to 207% of GDP (equal to Japan’s), while European average currently runs about 180%. As of December 2009, Eurozone’s private debt as a percent of GDP was divided as follows: Businesses – 73.6%; Households – 61%; Mortgages – 44.5%; and Credit card & consumer – 16.5%. Credit will become much tighter as interest rates will be rising and banks will be reluctant to float loans. Because banks receiving bailout public funds reinvested to consolidate by strengthening their own and/or purchasing other banks, credit tightening has already choked the real economy and in 2010 interest rates will be going higher according to several EU central bank forecasts. 

As banks and other corporations continue to dish out huge bonuses, while governments do not impose restrictions and refuse to regulate effectively, the question is whether structurally anything has changed since 2007, and if the conditions that structural causes of the current crisis may precipitate another crisis during the next downward economic cycle five-to-seven years hence. A number of social scientists have written that this entire decade will be one of modest recovery and paying off debt, thus lower living standards and relatively low growth on a global scale. Technological and scientific innovations in a number of areas from nanotech to biotech, from bio-fuels to ‘green economic models’ that impact agriculture, transportation, building and manufacturing sectors may hold a window of opportunity for growth and development, assuming there is relative geopolitical stability. On the other hand, the internet revolution of the 1990s was a major stimulus to the world economy. However, because it operated under the rules of speculative capitalism, by the end of the decade, the bubble busted like all bubbles throughout history. I expect the future high tech and science revolutions to follow the same pattern of over-speculation and eventual retrenchment.  

Global Social Prospects

In the next 18 months at the very least and perhaps for the next three years, rising unemployment, lower wages, social security and social benefits cuts will mean lower living standards for labor and the middle classes that must work longer to secure the ‘retirement dream’ they seek. Urban and rural labor and student unrest will accelerate in many countries in the next few years, as it becomes clear that governments will demand that the lower classes will pay for the banks’ bailout. Social unrest will result in political realignment within existing systems whether more conservative or progressive. Since the Reagan administration in its first term broke the air traffic controllers union in the name of national interests and security, governments throughout the world manipulate inter-sector interests and invoke transcending ‘national interests’ to quell labor unrest. For example, if French farm workers engage in mass strikes and protests, the government points to truck drivers and retailers as interests that will be hurt along with consumers. Whereas the state immediately funds banks facing default, it will not use public funds to support labor in its grievances. In short, quasi-statism is limited to buttressing finance capital not labor. Therefore, under such policies class solidarity becomes difficult partly because bourgeois regimes use the ‘national interest’ as a shield against strikes, and because the state in a populist, almost ‘Bonapartist’ manner uses one sector against the other. 

The most intense social unrest will take place in underdeveloped countries that will suffer the worst from the recent recession’s lingering effects. In underdeveloped countries, radicalism and militancy finds expression in secular movements of leftwing or rightwing orientation, or religious movements like Islam. Therefore, we can expect rising tensions in areas already afflicted by disparate political, social, and economic problems. Increase in crime, suicides, divorce rates, single-mother births, and continued erosion of the otherwise cohesive bourgeois social fabric will take place at the same time that there will be political, ideological and religious polarization widening the gap between the privileged few and the multitudes in despair. The current economic crisis may translate into a crisis of confidence in bourgeois democracy. For example, in January 2010, the more cynical voters in the Ukraine were offering their national election votes and those of their families for sale on the internet. 

Global Geo-Political Developments

World economic recovery will be hastened with the end of US military engagement in Iraq and Afghanistan and a settlement of the perennial Israeli-Palestinian conflict. Continued Middle East instability is a certainty, although the Obama administration has demonstrated the symbolic willingness to discipline Israel, a foreign policy we have not seen since Secretary of State Cyrus Vance tried to bring some balance in the region. Unless the US utilizes Russia, China, and especially EU to secure stability in the Middle East, Obama-Clinton policy will fail and Israel, not Iran or Afghanistan, will remain the key source of regional instability. The latest developments in Israel (especially in Gaza Strip) prove there is reason for pessimism in any type of permanent peace settlement. 

While there is a great deal of optimism about U.S.-Russia and U.S.-China relations, there may be a widening rift in EU-US relations over dollar-euro reserve currency competition, trade, and market share in each other’s domain as well as in the rest of the world. In short, the competition-cooperation dynamic between EU and US will intensify as the struggle for global influence increases amid tightened economic conditions. Finally, the futile attempt by the US to use Afghanistan and Iran as focal points to appease the right wing and Israel will prove a continued drain on the US budget, and it may contribute to unexpected instability with oil prices rising and the world economy experiencing an unexpected return to global recession. 

The global balance of power will continue to shift increasingly toward the EU as the ‘new old center’ of world power, with China, Russia, India, and much of the Third World looking to Europe for economic and political leadership. Increasingly a Hemispheric power, the US will hold on the strongest nuclear force and largest military budget on the planet, hoping that translates to political, economic, and financial power as in the early Cold War. Such a scenario of America’s decline in not inevitable, if the US faces a domestic catastrophe more or less like the Great Depression, or a very serious foreign policy crisis that requires collaboration with the EU on an equal partnership basis. In the absence of such developments, the new administration will re-package more or less the same policies, continue to create mini-crises as a way to divert focus from significant domestic problems and from Iraq, Afghanistan, and/or the Palestinian question, and it will pay lip service to multilateralism. Is America’s decline as inevitable as the Roman, as predictable as its determination to retain a unilateralist course in a multi-polar world? Can America renew itself like imperial China under various dynasties?

Absence of Alternatives to Global Capitalism

Since the downfall of Communism and China’s thorough integration into the world capitalist system, there are no apparent alternatives to the status quo. Of course, there is the ‘green solution’ but the capitalist establishment has absorbed it thoroughly. There is the ‘terrorist alternative’ (undeclared war or random violence against the establishment and imperialist targets), but history shows the severe limitations of such tactics. There are the varieties of ‘reformist options’ that include the ‘greens’, community-based organizations NGOs, etc., but the establishment quickly co-opts anything with a ‘reform label’. The most efficacious method of co-optation is some form of populism that appeals to a broad segment of the population on the basis of nationalism, class, mutual group interests, and banding together for the good of all. Such populist tactics work especially in times of crises and especially in countries with strong nationalist or religious proclivities.  

Among the concrete reformist suggestions that governments have co-opted, mostly in rhetoric only, include stronger regulation of banking and finance, and the return to the public sector of major industries that were privatized. The neo-liberal belief ever since the Reagan-Thatcher decade was that the private sector can do it better, faster, cheaper, and more efficiently for the consumer. While public sector employees invariably do not have the best reputation for efficiency, the last three decades proved the private sector is far more costly to the consumer and pays much lower wages to workers, while amassing capital for a handful of managers and investors. 

The question today is whether the public sector is in the position to re-purchase public enterprises – everything from transportation to communications and utilities.  There is a sense of contentment for about one-fifth, at best, of the world’s population mostly in the developed countries, tolerance for about one-fifth, and despair for the rest mostly in the Third World. That capitalism remains the only ‘game in town’ actually entails inherent stability, despite the inevitable acts of non-state violence (terrorism) that is more a symbolic threat than real, and inadvertently helps to engender conformity to the capitalist regime.