In addition to several trillion euro injected into the banking system to revive the extremely anemic capitalist system from 2009 until 2013, the EU has also spent several trillion in fiscal measures intended to sustain the private sector at the expense of the welfare state. Most countries injected massive capital to sustain capitalism until markets stabilized and those under austerity measures continue along such path. This is all in the name of global competition and based on the argument that there is no choice other than the neoliberal model of economics. From 2008 to 2013, the advanced capitalist countries have devoted about one-fourth of their GDP to sustain the "free market economy," if that term is even appropriate these days, while semi-developed and "developing" countries went into austerity mode that has been a blatant manner of redistributing income from the middle class and workers toward the upper quarter of the income earners, and especially the top ten percent.
How much public capital must be spent to "save" ailing finance capitalism before apologists of the system insist that Adam Smith's laissez-faire theory remains alive; was it ever alive, even in the 18th century? Depending on how deep and how long the current crisis lasts, the percentage of public capital to save finance capitalism may rise above 30% of GDP. But regardless of the percentage, which can be deceiving owing to the fact that the state is constantly enriching private capital through tax laws, lucrative government contracts to corporations, lids on wages, etc., the capitalist system is entering a new phase after globalization and neo-liberalism have destabilized the world economy.
Imperialism Enters a New Phase
The economic crisis that started in the US in 2008 and it is continuing in a number of counties through 2013 is a catalyst for the speedy transition of state-directed capitalism entering a more concentrated phase under
which greater government participation will be buttressing finance capital and under which there will be a more thorough exploitation of labor. In one of its many significant statements about the current
crisis, the IMF announced that the Third World will have to share in the sacrifice for the structural dysfunction of the marketplace in the developed countries. This will indeed be inevitable given that the IMF
expects growth rates in the advanced countries to be around zero for 2009.
Naturally, given that the crisis was deeper than originally estimated, growth rates fell below zero with double-digit unemployment in many countries, including the entire European Union. The value of labor in the world, but especially in the Third World, has been diminishing and it will continue to decline as lower consumer demand will follow. Moreover, many developing and semi-developed nations have been unable and will be unable to service public debt, while household and commercial debt to private banks has seen new highs. Together with the drop of labor values, higher indirect taxes that hit the mass consumer and loan rescheduling will entail mass transfer of capital from the Third World to the advanced countries. This will be one way to help pay for the current crisis, but in conjunction with a massive income transfer from labor and the middle classes in the all countries to support finance capital. As a result of the current crisis which will linger for the balance of the decade in weaker economies, trans-national corporations--everything from banks to communications--will enjoy an even greater role in society and they will have a stronghold on the captive state whose interests are intertwined with finance capital.
Twilight of Hyperpuissance and a New Bretton Woods
Capitalism is constantly evolving. It entered the phase of Keynesianism during the 1930s and remained at that phase with structural modifications at Bretton Woods that reigned supreme for decades. During the Reagan-Thatcher era, the state reduced the social safety net, engaged in deficit spending to strengthen corporate capital and defense. As hyperpuissance (former French foreign minister Hubert Verdine coined the term to explain the simultaneous military, economic, technological and cultural hegemony), the US has been
gatekeeper of world capitalism under the umbrella of Pax Americana.
Molding institutions around the world to preserve an international order under its hegemony for the past sixty years, the US had help from its European and Japanese junior partners that have evolved into more equal partners as US relative power has been declining while East Asia power will continue rising. The catalyst to American hyperpuissance was its unmatched economic, military, and scientific/technological power against the background of the Cold War--now against Muslim Terrorism, because empires must always have an enemy to distract public opinion from domestic problems.
Superpower status in the past sixty years has allowed the US to remove obstacles that hindered the international order of the American-based imperial network. Though US hyperpuisance is hardly finished no matter what V. Putin and others want to believe for their own political reasons, it is obvious that China, EU and to a lesser extent Japan have evolved into nearly equal partners with the US and have greater flexibility in moving more swiftly and freely in molding the new phase of state-directed capitalism, especially now that there is no Cold War.
The Europeans have been calling for a new "Bretton Woods" type of conference, given that the global economic power structure has been changing and the EU led by Germany has had a greater voice in IMF policy. This was an inevitable move given that the new phase of state-directed capitalism that has been evolving since Reagan-Thatcher will necessitate a new model for the international order with a
multi-polar (EU, Japan, China, Russia, India, and Brazil) power structure; a recognition that the old international economic order has outlived its usefulness and a new order must be built to take into
account the realities of today instead of operating under rules of the 1940s when the US was at its zenith.
New Social Contract
What social class benefits and what social class shortchanged under the new phase of state-directed capitalism? The answer to this question will determine the level of rising resistance from labor and the middle class that will feel increasingly pressured under an unjust international order, where the state in the advanced capitalist countries is the guardian of even more powerful monopoly capitalism than we have seen thus far. Small businesses will be placated, though many of them will be not saved amid inevitable capital concentration. Small businesses, which generate most job growth, are essential to provide a laissez-faire cover for finance capitalism, and they are the catalyst in cloaking the system as "fair" and "democratic." Because economic growth in the near future is coming from capital-intensive rather than labor-intensive enterprises, unemployment, especially among the young, will remain in the double-digit area, thus causing social and political instability.
But to prevent political and social instability under the new phase of state-directed capitalism, a new social contract will be needed that goes far beyond the largely symbolic gestures of throwing a few crumbs
to small businesses, the middle classes and workers. Minor tax breaks and selective incentives for small businesses and rebates for low-to-middle income families as Obama and EU leaders have pledged,
are band aid solutions. Regardless of the multi-faceted PR campaigns by the state, media, professional establishment apologists-for-hire, and businesses to placate the masses, governments will have to either
promulgate a new social welfare state or confront the threat of instability by resorting to police measures or creating foreign policy and/or military crises to unite the masses behind the flag.