A survey of the financial crisis, systemic regulation problems for global capital, the economic growth of China, India and Brazil and its relation to the investment strategies of transnational capital.
"Contrary to what happened the 1930s, the economic and financial crisis which the United States is undergoing is not a world crisis but rather the strengthening of the development opportunities of huge areas of the globe."
The author asserts that the tension between nation states and transnational corporations, with neither at present in a position to oversee the interests of the global system as a whole, will be central to any resolution of the crisis.
With declining union membership ruling out the trade unions' earlier role within post-war Keynesianism of brokering higher productivity in return for rising living standards, Bernado sees credit expansion as having become the new disciplinary weapon of a, for the moment, fragmented labour force. But, with unions functioning now primarily as "holders of capital" this weakened labour representation contains its own potential problems for capital in controlling and integrating the working class.
Source; Revista Textos de Economia (vol. 11, nº 2, 2008), Departamento de Ciências Econômicas, Universidade Federal de Santa Catarina (Brazil)
As opposed to what left-wing Marxist economists and historians usually assert, I have, for many years, held the view that a theory of capitalist crisis was not possible. Each crisis is specific and results from the fact that the economic system, with the worsening of certain contradictions, is unable to overcome obstacles which in other circumstances would have been easily overcome. So it all depends then of knowing which contradictions worsen and this analysis changes from crisis to crisis. On this basis, to develop a theory of crises would be to fall into formalism and substitute an analyis of structure with descriptions of episodes.
On the other hand, sectoral crises have frequently been confused with global crises. When a given branch of activity is in decline there is always someone who anticipates a generalised catastrophe of this situation for all of the economy, forgetting that − which is simultaneously cause and effect − the decline of one branch brings about the rise or even the emergence of other branches. Even worse, the cyclical functioning of the economy is frequently mistaken for a crisis. Galbraith said, in a frequently quoted piece, that economists have predicted many more crises than those which really happened, and he is certainly referring to his own colleagues and not to Marxist leftists prone to write about the economy, since for these latter a new crisis is just around every corner. There is a lot of magic in such deliberations as though the mere fact of discussing crises could weaken capitalism. And those Marxists who believe that the basis of capitalism continues to be very solid and that its capacity for ample growth is not affected are looked upon with hatred by other enemies of capitalism, as though an analysis which they think wrong could breath new life into the system.
In truth, the anticapitalist left show their fundamental weakness on these occassions, hoping that they are able to achieve, thanks to the crisis in capital, what they haven’t achieved by the very force of the working class. The leading lights of the revolution haven’t yet decided whether capital will auto-destruct or whether it has to be the workers who destroy it. And as long as they waver in this indecision, the far-left will never have its own strategy, or if you like, never mature.
In my opinion, the present financial crisis, − because this is what, for the present, we are dealing with − is the result of various interlinked processes.
One of the factors in the present crisis is the long decline of the United States as an economic power. This decline has gotten worse in recent times and shows itself most flagrantly in Iraq where the strictly economic measures of imperialism were substituted by war measures. One of the most instructive and least used lessons of this deathly war is the fact that a North-American administration which carries out the wishes of the big oil companies, instead of taking over the Iraqian production of oil by using market forces and investment of capital, has instead tried to control it by warfare which has caused the destruction of a large part of its extraction and transportion capabilities. With incomparably higher costs, not to talk about the loss of human lives, North-American capitalism profits much less with Iraqian oil than it would have had, had it not invaded and destroyed Iraq. Compare this paradox with the behaviour of Chinese capitalists, whether private or State, which in recent years have had a huge but discreet presence in Africa just by using economic measures. Those who were once the masters of the international economy are now reduced to some sort of world police force.
In the short scope of these notes it is not my intention to outline, even in synthesis, the main aspects of the decline of the United States economy. But one figure seems to me to be expressive enough, when we know that in percentage of Gross Internal Product, North-Americam investment in material infrastructure of Communication and Transport is half (2.4%) that of the European Union (5%). Thus we are dealing with the deterioration of a general condition of production which affects all economic branches. The United States is not just going through a financial crisis, but over the last few decades has accumulated problems which affect the very heart of the productive process.
Closely related with what I outlined in the previous thesis, another of the factors in the crisis is the rebalancing of world powers. Typically between 2/3 and 3/4 of direct external investments − which here we can define in a simplified manner as those investments made by transnational companies − circulate between three poles: Europe, the USA-Canada taken together, and Japan. In the first half of the 1980s, developing countries received 25% of total external direct investments, this being reduced to 17% in the second half of the 1980s. In the years which followed, an increase was noted which caused some economists to reach hasty conclusions, given that in 1991, 26% of external direct investments were in developing countries and 35% in 1992. But this increase was due to the fact that some three dozen developing countries, including China and India, which up till them had been opposed to transnational investment, had opened up their borders. At the same time the wave of privatisation of publicly owned companies in developing countries increased the scope for opportunities for foreign investment. In 1995, this group of countries got 32% of external direct investment, although by 1999 this had declined to 25%.
Contrary to a deep-seated conviction held by the population of the poorer countries, the transnational companies don’t prefer to exploit cheap labour but qualified labour, because this is more productive. It wasn’t in Haiti or the Congo where capitalism prospered but in Sweden and Germany. What transnational investment is looking for are regions of greater productivity where the economy is developed and the work force is sophisticated. Certainly, if two work forces have the same levels of qualification, and in dollar terms one of them is worse paid than the other, the transnational investors would prefer it. But even in this case they would pay more attention to the material infrastructures of the country or the region and the lack of infrastructure might not compensate for the advantages of lower wage costs.
This same criterion governs the sharing out of direct external investments within the group of developing countries. The big transnational companies look out for countries with a more qualified work-force and with material infrastructures which can secure more potential for growth. Because of this, outside the three great poles, made up of the European Union, North America and Japan, the remainder of direct foreign investments has been focused preferentially in China, India and Brazil. In this way, while on the one hand we see the decline of the United States, on the other hand, we see a reorganisation which turns China into a new economic power and puts India and Brazil well on the way to becoming economic powers. Contrary to what happened in the 1930s, the economic and financial crisis which the United States is undergoing is not a world crisis but rather the strengthening of the development opportunities of huge areas of the globe.
This picture is made much more complex by the fact that in the last few decades, countries have stopped being truly economic entities and thus the national states and their respective governments have lost their supremacy. I have written widely on this topic and lots of other writers have done the same, each one with their perspective, but dealing with identical facts. What characterises the transnational flow of capital is the ability to overcome all custom controls, depriving governments of their own weapons.
To understand the ins and outs of this question we can start with a simple example. In the first half of the 80s, when the Reagan administration was concerned about the competitive edge of Japanese exports of cars, trucks and motorcycles they imposed increased import charges. But Japanese companies simply invested in the United States and began to manufacture their vehicles there, thus hastening even more the decline of the North American auto industry. In fact it was enough for the big Japanese companies to be apprehensive about the custom duties to begin manufacturing inside the United States, as also happened with machine-tool production. And the same happened in the second half of the 1980s with the production of computers. According to Dennis Encarnation, professor at the Harvard Business School, at the start of the 1990s, sales in the United States of factories and production outlets, set up in the US but owned by Japanese capital was double that of Japanese exports to the US. The same thing happened, in the opposite direction in the mid 80s when many Western companies in order to avoid protectionist measures by Japan, set up factories there rather than exporting their products.
Today, what most statistics show as a commercial flow between national economies, really happens within transnational corporations. According to a crucial study by DeAnne Julius, at the end of the 80s, business between companies and their overseas branches made up more than half of the total trade within the OECD countries. In the same years some 1/3 of North American exports were sent to foreign firms owned by companies with US headquarters and another 1/3 were made up of goods which foreign owned companies with branches in the US exported to those countries where they had the headquarters. In the opposite sense, in 1986, nearly 1/5 of imports to the US came from US owned companies situated in foreign countries and nearly 1/3 was composed of goods which foreign companies with branches in the US had gotten from the countries where they had the headquarters. If we take a global view, at the end of the 80s, the calculations of DeAnne Julius show that the total sales made by North American owned companies, whether headquarters or branches, to foreign owned companies were five times that of the value usually attributed to US exports. And at the same time foreign firms bought three times more than the volume of US imports. And at this time amongst the 12 main OECD countries, 11 had sold more in the US through north American branches of companies with headquarters in those countries than through direct export.
In a situation where only nationally based data is made public, and company statistics are confidential, these calculations are very difficult and only the rare economist would dare make them, but everything indicates that the values calculated for the second half of the 80s are even higher. Therefore, when the competitive nature of Chinese goods is mentioned, it is better not to forget that the greater part of Chinese export growth is due to Chinese branches of transnational companies. This shouldn’t surprise us because at the end of the 80s going into the 90s, Japanese branches set up within the US were the biggest exporter from this country to Japan.
In effect, the very fact that the only published statistics have a national basis feeds into the outdated nationalist vision of the economy. Instead of considering the existance of an organised plan of production and distribution inside the big transnational companies some sort of disorganised competition among national entities is envisaged.
A world economy in which the nation states and their respective governments lost their primacy and in which transnational companies are managed by a network of interlinking and always changing poles can no longer depend on national currencies.
In 1970, when North-American official institutions had nearly 24 billion dollars (109) abroad, individuals and firms had approximately 22 billion and this imbalance has grown since then. It means that in trying to set up a world currency, the North-American administration has lost control over this currency. This was the fundamental fact which led to the dismissing of Bretton Woods and to the Smithsonian Agreement at the end of 1971, one of the most important dates of this long process of economic reorganisation which still to this day remains to be completed.
But, in these days, it is not a question of dollars and a comparison between official and private deposits. With the present volume of financial transactions, which is far superior to any banking reserves, it is impossible for the Central Banks to control national currencies independently of the wishes of the transnational companies. Clear or implied agreements have to exist. No Central Bank can sustain its currency if there are systematic movements against that currency.
It is in this perspective that we should understand the changes in credit and the financial mechanisms which have taken place over the last few years. Much is spoken about “speculative capitalism”, apparently ignoring or forgetting that this was always one of the typical concepts of the fascist or proto-fascist extreme right during the 20s and 30s. Hitler’s National Socialism gave “speculative capitalism” a biological connotation, identifying it with Jews, in such a way that the gas chambers in the Third Reich and the Einsatzgruppen (Extermination Commandos) in the occupied Eastern territories were the final consequence of “speculative capitalism”.
There are many leftist Marxists today, who in all simplicity, reproduce this terminology and, even worse, these ideas. Under capitalism there is no collision between production and credit; actually it didn’t even exist in merchant times as least in regard to credit gotten by banking instruments. The function of credit is to enable production and when it reaches the present complexity, the financial mechanisms cannot but be very complex and above all diversified. Also in circumstances in which the national framework of economies is superseded and in which anyway the printing of national currencies is perfectly insufficient for its needs, the banks and other financial institutions see themselves as being oblidged to create other forms of banking money and doing it directly in the transnational scope in which they operate.
Obviously there are speculators in financial sectors but they always existed just like there are counterfeitors in industry and pickpockets in shopping malls. It is not in this way that we can understand how the economy works. It would be good, if sometimes, Marxists would follow Marx who in “Capital” proceeded to criticise capital not by its irregularities but by observing it normal functioning.
So there exists a new economic framework, there exists the means, there exists the tools but what is lacking is the coordination of them. The regulatory mechanisms are obviously inadequate for present day needs. With the decline of nations in the economic framework and likewise the decline of national governments, the institutions and interstate mechanisms are under pressure. Some of them survive as they were laid out in the Bretton Woods Agreement, others underwent changes which didn’t alter their substance, while big transnational capital overshot all of this by its development. On the other hand, however, the big transnational companies while they had shown themselves more or less able to regulate themselves, they seemed not to be able to regulate the system as a whole.
Really these big companies tried till now to get the best of both worlds, being public institutions in practise but still being private by law. In 1992, the World Bank adopted the Guidelines on the Treatment of Foreign Direct Investment, a document accepted by the World Bank and The International Monetary Fund after consulting interested governments, business groups and international legal associations. But although it was a assortment of voluntary recommendations, it’s aim was to regulate Government action rather than the transnationals. The World Bank on this occasion effectively declared that the Guidelines were “ useful parameters in the admission and treatment of private foreign investment in their territories, without prejudice to the binding rules of international law.” The secondary aspect has been in negotation for a long time within the framework of the United Nations Code of Conduct on Transnational Corporations, but after informal consultations in July, 1992, the delegates decided that any agreement was impossible and called a halt to all negotiations conducted over the previous 15 years. Thus a deliberate legal vacuum was created around the transnational companies, in such a way that one of the main ideological organs of these companies, the weekly magazine, The Economist, repeatedly insisted that there were no transnational companies but only the sum of national companies.
The present crisis seems to me to point the finger at this fallacy. Institutions which are restricted to a national orbit are overtaken, which undermine the basis for the survival of international organisations that are based on the model of an assembly of nations. The more practical alternative seems to lie in a new coming together of the transnational companies and new supernational institutions which will emmerge from the present international institutions already in existance. But the fact that the big transnational companies act as sovereign entities on the world scale without this sovereignty being recognised officially is one of the main obstacles, which make it difficult or even prevent the urgent reorganisation of economic regulation.
Finally, it remains to do on a world wide scale what China was able to do with its economy, juggling State capitalism with the big private companies into one decision making body, consecrated by the admission of private capitalists as members of a Party which continues obviously to call itself Communist. Thus it would seem that Chinese capitalism is showing the way forward.
The big difference between this hypothetical system of regulation which I refer to, or any other one like it, and the Keynesianism which was fostered as a consequence of the Second World War is in the integration of the workers. In the Keysenian model, in the way in which Social Democrats and Christian Democrats applied it, the rate of ecomic growth, the increase in monetary supply and the rate of growth of wages come about from tripartite agreements made by the employers organisations, government and trade unions. However for the trade-unions to be able to carry out this role of regulating the labour market it is necessary for them to have a good percentage of workers as members. However the trade-unions can no longer be considered as representatives of the workers given a situation in which the rates of union membership have dropped dramatically.
In Australia, where more than 50% of the work force were unionised in the 1970s, this percentage dropped to 25% in 2001. This trend was practically identical in the United Kingdom, dropping from almost 50% in the second half of the 70s to some 30% in 2006. Also in Italy, where in 1980, some 50% of the workers were unionised, now the rate is under 40%. In the US, 34% of the work force were unionised in 1965 and only 12% in 2006. In Germany, the rate of unionisation was greater than 30% during the 1990s but fell to 20% in 2003. And finally in France where the unions organised 20% of the population in the 1970s this had fallen to below 9% in 2006. Very few countries have escaped this tendency.
Today the unions do not exist as organisors of the labour market, a role they are unable to carry out. The unions today survive mainly as holders of capital. The mechanisms which have allowed the unions to appropriate large share holdings are complex and varied. They are beyond the scope of these notes and I have dealt with these questions in a recent book in partnership with Luciano Pereira. To show the size of the problem it is enough to say that in 2003, of the 17 trillion dollars (1012) which made up Pension Funds and Mutual Funds in the world, some 12 trillion had a trade union connection or involved some other representatives of the salaried people.
Under these conditions can capitalists control workers only by company discipline and the huge system of of electronic control set up outside the workplaces? Certainly today, credit has become one of the most powerful ways to control workers. In the more developed countries the generality of individual credit and electronic money has led to the disappearance of any demarcation between the amount of salary and the amount of debts and has placed most workers in a position like those of a previous time when they were in debt to the company owned store. They became prisoners of debt, as today is happening to all wage earners in the developed countries. Indeed the fact that the present crisis is happening on the level of credit could become a very serious factor in the domestication of workers. And capitalists will not hesitate to use all aspects of this weapon.
Despite this, are the present mechanisms of control sufficient? After destroying or marginalising the bureaucratic organs of representation and integration of the workers can the bosses on their own create new ways to regulate the economic system including the labour market? Today journalists and academics who accept lowering their standards prattle on about the free market and they do it precisely at a time when oligopolies and oligopsonies really control the market. But despite all the demagogy of this speech the common people see themselves in it because they experience the only free-competitive market, competition between workers. Until now this has been, in economic terms, the big factor in the undisputed supremacy of the bosses over the last two or three decades. The market is only freely competitive for the workers who compete amonst themselves. But this fragmentation of the workers from now on, cannot but raise serious problems for capitalism to globally regulate the system. This is the crucial question which social struggles will have to answer over the coming years. And on that will depend the evolution of the crisis and the manner in which it will be resolved.