Global Capitalism Today: Unstable, Moribund, Or Just Resting?

✑ JAYATI GHOSH ` ╱ ± 10 minutes
‟In the process of killing off all its prey, to the point that its own existence could be threatened.

Capitalism may have been too ‘successful’ for its own good. In conquering its opponents (like trade unions) it has weakened global demand. Bad news for developing countries, which continue to depend on the capitalist core.

Jayati Ghosh (1955) is professor of economics at the Centre for Economic Studies and Planning at Jawaharlal Nehru University, New Delhi, India. She has written many books on globalization, global inequality and neoliberalism, collaborated with numerous social movements and serves as the executive secretary of International Development Economics Associates (IDEAs). See her personal blog posts at IDEAs here.

Ever since the global financial crisis of 2008–2009, the trajectory of the world economy has been hesitant, unstable and prone to many risks. Output recovery has been limited and fragile; and, more significantly, even in the more dynamic economies, it has not increased good-quality employment or reduced inequality and material insecurity. Global capitalism as an economic regime is increasingly unable to deliver on its own promise of continuous expansion within a largely stable society. Even so, discussions of the ‘end’ of capitalism still typically seem overstated and futile, not least because those hoping and mobilising for bringing in an alternative system are everywhere so scattered, weak and demoralised. In effect, capitalism remains the only game in town, which is why even in its current debilitated and even decrepit state, there are no rivals.

Indeed, it could be argued that the current difficulties of capitalism are not the result of any external threat or combined socio-political opposition to it, but because it has been too ‘successful’ for its own good, and so has to confront the contradictions generated by this ‘success’. Contemporary globalised capitalism has managed to overrun and conquer its opponents or those that could restrain it (such as trade unions and other associations of workers that could reduce capital’s bargaining power; democratic accountability working through regulatory structures that limit or constrain the activities and profits of capitalists and large corporations; expressions of collective concern voicing the requirements of the larger social good; and so on) to the point where it is now almost completely untrammelled. As a result, there are no checks and balances of the kind that in various periods in the past have generated both less economic volatility and more social stability within a broadly capitalist framework.

In purely economic terms, this ‘success’ of capitalism in vanquishing its opponents means less expansion of demand for products that the system must keep coming up with in terms of its own logic. It also means less ability to create new sources of demand, as financialisation and credit bubbles also appear to have run their course, despite almost endless injections of synthetic liquidity through very loose monetary policy. In ecological terms it means the accelerated exploitation and degradation of nature, to the point where it is not merely irresponsible with respect to the future but actively damaging material conditions in the present. In socio-political terms, it means more widespread despair, alienation and individualised responses that threaten the very basis of functioning societies. In an almost textbook extension of the biological argument of the prey–predator relationship, it could be argued that capitalism as a system is in the process of killing off all its prey, to the point that its own existence could be threatened, even if not in the form of an ‘overthrow’, but simply by losing steam altogether.
‟This ‘success’ of capitalism in vanquishing its opponents means less expansion of demand for products that the system must keep coming up with in terms of its own logic.
This is most evident globally in the overall deficiency of demand that characterises the world economy, despite a few pockets of relatively fast expansion. The underlying causes of this aggregate demand deficiency have existed for some time, but they were disguised by credit-driven expansions that were inherently unsustainable. The boom that preceded the crash of 2008 could occur because (particularly in the United States, but also in parts of Europe and some emerging markets) wage stagnation that would have led to stagnant demand was countered by financialisation that enabled consumption to increase faster than the real incomes of the majority of workers. As has been widely argued (UN 2006; UNCTAD 2008; Ghosh 2010), the pattern of pre-global-crisis economic growth in both developed and developing countries suffered from several limitations, paradoxes and inherent fragilities. These ranged from economic imbalances to environmental constraints to social and political tensions and volatility emanating from increased inequalities. As is well known, in the US and other advanced economies, the boom was based on speculative practices enabled and encouraged by financial deregulation. It also drew recklessly on natural resources in a manner that has created a host of ecological and environmental problems, especially in the developing world. Even during the boom, despite aggregate employment increases, most paid work became more fragile and less secure, in both developed and developing countries. Furthermore, because its benefits were spread so unequally, most people in the developing world – even many in the most dynamic economic region of Asia – did not really gain from the boom.

From a purely macroeconomic perspective, in the 2000s the economic expansion of some large economies’ demand was sustained by a combination of financial liberalisation and loose monetary policy that enabled households and companies to consume and invest beyond their means through borrowing. This then enabled some developing countries (especially in Asia, but subsequently across all developing regions) to expand on the basis of increased demand for their exports from the core capitalist countries. Therefore, almost all developing countries adopted an export-led growth model, requiring the containment of wage costs and domestic consumption for the sake of international competitiveness and growing shares of world markets. In a spectacularly irrational twist, this was accompanied by the net transfer of financial resources from the South to the North (BIS 2008; 2010; UNCTAD 2010; 2014; 2016) as more and more countries sought to achieve current surpluses and all developing regions sent their net savings to advanced economies, most of all to the United States. This was famously described by the then head of the US Federal Reserve, Ben Bernanke, as a ‘savings glut’, especially in Asia, but it could more properly be categorised as an investment famine, since it was typically associated with falling investment rates in the capital-exporting developing countries. The current-account imbalances that were subsequently seen as one of the ‘causes’ of the global crisis were in fact utterly necessary for the prior much-celebrated boom, which could not have occurred in that form otherwise.

Other than the current-account imbalances, which have since reduced or changed form, none of these problematic features of global capitalism has been fundamentally altered in the post-crisis scenario. This makes any current or future expansion just as vulnerable as it was before the global crisis erupted. Further, there seems to be little likelihood of widespread and coordinated implementation of macroeconomic policies that would generate more demand. The incredibly loose monetary policies in the advanced economies operated to keep them afloat for a while, and contrary to standard monetarist predictions thus far they have not generated significant inflationary pressures. But they have not managed to kickstart real recovery either. In any case, it is clear that they have run their course and are in the process of being revised. However, the more deregulated financial structures and systems that enabled speculative bubbles to develop and persist still remain. Post-crisis attempts to bring in appropriate regulation were extremely limited and even these are now sought to be dismantled in the US as well as in the EU, while any form of labour protection has become even more difficult than before. Meanwhile, ideological opposition to expansionary fiscal policy remains strong across most governments, even as the continued lobbying power of large corporations and moneyed elites prevents any substantial cross-country effort at raising tax revenues by curbing tax evasion and avoidance strategies. The absence (and lack of immediate prospect) of coordinated fiscal expansion across major countries, even to the limited extent that occurred in 2009 just after the global financial crisis, suggests that it would be difficult if not impossible for individual countries to ‘go it alone’ and indulge in expansion without prompting capital flight. Along with these concerns, there is now a real possibility of the eruption of trade wars, reminiscent of the interwar period of the twentieth century.

Therefore, it is evident that we are in a period of global capitalist stagnation and instability. This is already reflected in lower aggregate growth rates, with the world economy growing at an estimated average of 3.3 per cent per annum since 2008, compared to 4.5 per cent in the period 2000 to 2007.1 GDP data are notoriously unreliable, as well as problematic, because they do not really capture crucial aspects of material life, but since capitalism is ultimately all about accumulation, aggregate income growth does provide some indication of capitalism’s success in its own terms. This is obviously deficient at present.
‟The continued degree of dependence of the periphery on the capitalist core was reaffirmed during and after the global crisis.
The period during and since the Great Recession has also put paid to another myth that was widely held during the earlier boom: that of the ‘decoupling’ of growth in the developing world (particularly in some major emerging markets like China, India and Brazil) from that of the advanced economies. This optimistic assessment was based on what turns out to have been a relatively short period in the 2000s, essentially from 2002 to 2008, when the advanced economies grew at an average annual rate of only around 2 per cent, while the emerging market and developing countries showed higher as well as accelerating rates of GDP growth (Figure 1, overleaf). However, this turned out to be something of an aberration: the continued degree of dependence of the periphery on the capitalist core was reaffirmed during and after the global crisis. This originated in the United States and then spread to Europe – but also immediately affected the emerging markets in the developing world, even those with current-account surpluses and other signs of economic strength. Thereafter, GDP growth rates of these two categories of economies have moved broadly in tandem, with a sharper slowdown (from higher rates) evident for the emerging and developing economies.

Figure 1. Real GDP growth (per cent per year)

This is bad news for development, since this expression of the exhaustion of advanced capitalism is occurring when in many parts of the world it is still far from reaching maturity, or even delivering the types of economic and social outcomes that residents of the advanced or developed countries have taken for granted across many decades. Even as the development project is nowhere near complete for much of the world’s population, the apparent weakening of capitalist dynamism means that the previous method of achieving higher per capita incomes may not be available to most developing countries. In this conjuncture, an important question then becomes that of where the global demand can come from to ensure more GDP growth globally.

This was part 1 from a longer paper, originally published in the European Journal of Economics and Economic Policies: Intervention, Vol. 15 No. 2, 2018, republished here with the author's approval. Follow Jayati Ghosh's Blog on IDEAs here.


1 Based on calculations from data in IMF World Economic Outlook October 2017.

Top image: Fast food strike and protest for a $15/hour minimum wage at the University of Minnesota, April 15, 2015. From: Fibonacci Blue


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