The global crisis of
capitalism
and
its impact
The present financial crisis
afflicting the global economy should not be seen from the narrow
focus of the credit crunch and its relationship to the subprime
mortgage crisis in the Western countries, especially the US. The
crisis goes to the very foundations of the global capitalist system
and it should be analysed from that angle. What is at the core of
the crisis is the over-extension of credit on a narrow material
production base. This is in a situation in which money has become
increasingly detached from its material base of a money commodity
that can measure its value such as gold.
The expansion of the world economy from 1945 onwards was based on
the US providing some kind of link between money and the gold
standard, which the US tried to maintain until its collapse in the
1970s. Increasingly the dollar became the global currency but
without a backing to its currency from a money commodity. The
over-expansion of credit that has taken place since then, especially
with the globalisation of the world economy, has meant that a lot of
paper money and monetary instruments in the form of derivatives and
‘future options’ have lost any relationship to the ‘fundamentals’ in
the material production of the world economy.
That is why there has been a growing outcry that the growth of
‘speculative capital’ has over-run the growth of ‘productive
capital’ with large amounts of money and credit circulating without
the backing of any production at all. That is also why the
relationship between the ‘fundamentals’ in the economy and the new
credit instruments created on a daily basis in many cases from
speculative ‘short-selling’ have become narrower and narrower over
time. This is also why the present financial crisis is also a
reflection of the energy and food crisis, because oil and food
products such as wheat, rice and other commodities have been
subjected to speculative trading to back up paper money many years
in the future. The British Prime Minister, among the world leaders,
is the only one who has seen this connection when he brought it up
in the World Bank meeting a few months ago and also when he met the
US Democratic Party Presidential candidate, Barrack Obama, when he
visited Europe recently.
Thus the amount of credit floating around the world is ‘loose money’
completely run-wild, which claims a relationship with a narrow
production base. This is in a situation when the US is increasingly
unable to repay debts it has accumulated in its Treasury Bonds and
Bills, in which the rest of the world have placed their reserves.
Most African countries have millions of dollars in these US Treasury
bills, which are held as the countries’ ‘reserves.’ China, India and
Japan have trillions deposited in these ‘T’ bills and bonds This
means that should the world economy collapse under pressure of
‘loose money’ wanting to be given a value (which they do not have)
so that the holders of that ‘money’ can preserve their wealth, those
holdings in US Treasury bills (or US debt to the rest of the world)
will be lost forcing many weak economies to collapse along with it.
This is why it is wrong to conclude, like many people do that
capitalism has the capacity, as it has shown over the years, to
always reinvent itself by growing a new skin to resist the pangs of
crisis inflicted on it by its own greed. That is a false conclusion.
US and British capitalism are being put under pressure to stay a
float only by nationalising a number of banks and the corporations
that can no longer sustain their operations because of shortage of
‘liquid cash.’ These corporations and banks demand that the state
should bail them out. The state is being forced to bail these
enterprises out on condition that they shall sell the bulk of their
shares to the state. This means that these capitalist states are
being forced to move in the direction of central planning and
management of the economy. For lack of space, we cannot go into this
matter in greater detail.
In short, what Karl Marx called ‘the financial oligarchy’ is
demanding that the state should take over their burdens and maintain
the ‘value’ of their valueless credit instruments while insisting
that the poor workers and the middle classes shall take care of
themselves. In other world, the oligarchy demand communism for
themselves while relegating socialism and capitalism for the middle
class and the working class and the other poor strata of society
because socialism and capitalism are the only ways through which the
middle class and the working poor can ‘compete’ among themselves for
survival. Remember that Marx defined communism as: ‘to each
according to his needs’ and socialism as: ‘to each according to his
capacities.” Capitalism can now better be defined as: ‘to each
according to his own devices,’ which is a paradigm fit for the
working poor.
THE CREDIT CRUNCH AND THE FOOD CRISIS
The economic crisis has also revealed the way credit over-expansion
has affected food prices throughout the world. In fact when the
credit crunch struck the world and the food crisis was announced,
the crisis was recognised as a global food crisis. That is why the
International Monetary Fund and the World Bank immediately held a
special session of the Boards of Governors of their institutions to
develop policies to deal with this crisis when it became clear that
the food crisis was likely to stay with us until 2015 at the very
least.
Immediately following the meetings of these multilateral
institutions, the World Food Organisation-FAO held an urgent Food
Summit on June 3-5 in Rome, in which the Summit called for an
immediate response by governments. After the World Bank meeting, the
British prime minister, Gordon Brown, wrote a letter to the Japanese
Prime Minister Yasuo Fukuda, who was at the time the chair of the
G8, in which he asked the group to act with speed to address the
soaring food prices. What was significant was that Gordon also
recognised that the financial market-based risk management
instruments, including derivatives, had to be considered as
contributing to the food price volatilities. What did Gordon Brown
mean by this statement? The real problem underlying currency
instability and commodity price volatilities is the fact that the
dollar, which acts as a global reserve currency, is not backed by
any solid money commodity such as gold or silver. These money
commodities were historically overwhelmed by the growth of
capitalist wealth. As a result not all paper wealth that was held by
economic actors could be changed into gold in periods of crisis when
the demand for ‘real’ money became overwhelming. With the collapse
of the gold standard in the US in the 1970s because of the outgrowth
of Eurodollars, attempts were made to rely on other commodities such
as platinum to back up the dollar, but this was a non-starter
because the cost of storing platinum was too high to be borne by
paper wealth holders. But financial instruments, especially future
options and instruments called derivatives continued to grow in
volume.
This is what led to the food commodities coming into the picture to
back up future contracts and derivatives expressed in US dollars.
The centre of the global commodity trade is the Chicago Board of
Trade-CBOT. It is here that global trade in commodities is valued
and undertaken together with other commodities markets. It is also
here that all commodities, including food commodities, are
‘financialised’ in dollar financial instruments Wheat, oats, corn,
rice and soybean are all agricultural products traded on various
commodities exchanges, including the CBOT. Here the exchanges also
trade the financial ‘products,’ as well as futures and options
contracts on these and several derivative products such as bean oil.
Coffee, cocoa, sugar, cotton and orange juice are all ’soft’
commodities, many of which are traded on the CSCE (Coffee, Sugar and
Cocoa Exchange). Interestingly, since 80% of the oranges grown in
the U.S. are turned into frozen orange juice concentrate, it’s the
juice that is traded as a commodity, not the fruit.
An article that appeared in the Toronto Globe and Mail of 31st May
2008 argued that it was the deregulation of financial markets and
the systematic exploitation of US regulatory loopholes that had led
to the upsurge of speculative investments in food commodity markets,
much of it by institutional investors such as the managers of
pension funds. "These funds", wrote the authors, "have ploughed tens
of billions of dollars into agricultural commodities as a way of
diversifying their assets and improve returns for their investors.”
According to the authors, the amount of fund money invested in
commodity indexes had climbed from just $13-billion in 2003 to a
staggering $260-billion in March 2008, according to calculations
based on regulatory filings. There were warnings that this amount
could easily quadruple to $1-trillion, if pension fund managers
allocated a greater portion of their portfolio to commodities, as
some consultants suggested they were poised to do. Thus, it was the
progressive loosening of regulatory requirements, which made
possible the enormous influx of money, much of it fleeing the
meltdown in the market for mortgage-backed securities and the wider
fallout, including big leveraged buyouts in banks.
Because agricultural markets are small - relative to stock markets -
the amount of cash pouring into these markets gives these funds
substantial clout. The authors observed that these big institutional
investors controlled enough wheat in futures instruments, which
could supply the needs of American consumers for the next two years.
They blamed the "demand shock" from these recent entrants to the
commodities markets as the primary factor behind the sudden soaring
of food prices. They noted that if no immediate action was taken,
food and energy prices were bound to rise still further leading to
the catastrophic economic effects on millions of already stressed
U.S. consumers and the possible starvation of millions of the worlds
poor.
For instance, the Ontario Teachers’ Pension fund, which began with a
modest investment in food commodities in 1997, had by 2008 invested
some 3 billion dollars in this market. With rising investor activity
and increasing demand, prices began to rise. Between 2000 and 2007,
the price of wheat increased 147 per cent on the Chicago Board of
Trade. Over the same period, corn increased by 79 per cent and
soybeans by 72 per cent. As more funds moved in to invest,
speculators began clamour for more flexibility with trading limits
and since there were no controls, the food commodity prices kept on
rising.
It has been estimated that for every one percent increase in the
price of food, there is an additional 16 million people who go
hungry. In its briefing paper for the World Food Summit, the FAO
Secretariat devoted two whole paragraphs to the influence of
financial markets in pushing upwards the cost of staple food
commodities in its assessment of recent developments. However, it
had nothing to say about the matter when it came to recommending
"policy options" for dealing with the problem. This was not
accidental, but a reflection of the positions of the States.
This is why it was correct to conclude, as we have done above, that
for the financial oligarchy who wield power in the States, the
demand is that the State must guarantee them ‘communism’ (which can
assure them their needs) while for the producing and middle classes
the attitude of the State is only to guarantee them the conditions
for ’free competition’ for the little the financial oligarchy is
able to leave aside for the ‘markets’ (to compete over according to
their abilities and devices). Financial markets in the global
capitalist system, as well as global inter-governmental
organisations such as FAO, it seems, have no ‘policy options’ to
attend to the needs of the starving masses. There always are,
however, ‘options’ for ‘bailing out’ the financial oligarchy while
the masses are left to the devices of ‘the markets.’
THE WAY OUT OF THE CRISIS FOR AFRICA
It is clear from the above that agricultural production has become a
victim of late capitalist crisis. This is as it has been because
from its birth capitalism had always profited from agriculture as an
‘old industry’ in which this ‘industry’ provided the raw materials
for its expanded reproduction at low cost. Capitalist crisis has
therefore contributed greatly to the exploitation of agricultural
workers and ultimately to its collapse. It did so first, by
plundering the European peasantry and converting them into paupers
through the enclosure system by using the proceeds for its
‘primitive accumulation’ of capital as one of the sources of its
birth.
In so doing, it turned the peasants into workers and in its
imperialist phase turned to the colonies for agricultural raw
materials where the colonial peasant producers were paid prices
below subsistence subsidised by female and child free labour working
on land. Only after decolonisation and the establishment of the
European Common Market did Europe develop a common agricultural
policy to avoid being starved in case of wars in the post-colonial
States.
Secondly, with the increasing securitisation of commodities, in
which the central banks relied on a variety of commodities to give
value to paper debt instruments, capitalists fell to agriculture in
the post-colonial States of Africa to save their currencies from
collapse. This as we saw above is what led to the escalation in the
prices of food products leading to their destruction as commodities.
The collapse of the dollar and other ‘hard currencies’ has meant a
doom for those agricultural food products as their prices begun to
plummet with the collapsing currencies.
This is what the economists are calling a ‘recession.’ But nobody
knows when the recession will end although many of them now agree
that it is already on in all the developed capitalist countries. So
those who believed that with high food prices the peasant producers
would earn high incomes had better rethink their arithmetic because
they need to revise their knowledge of how capitalism operates in
its old age. African agricultural and food production based on
exports to the markets of the developed countries can no longer be
assured and so the African farmer has to find a way out of this mess
as quickly as possible.
What we have said above must already alert us as to what we have to
do to get out of the mess. First, we have to look at how we can
survive in terms of food availability. For the first time, we have
to wake up to the reality that African countries need a food
security policy as a matter of urgency about which leaders can no
longer dilly-dally. That means African countries have first to focus
on the home market followed by the regional market and finally the
global market. With the home market becoming the focus for our
production, we can create regional currencies because in that case
we shall have no alternative but to create them to serve the
regional markets, but operating under completely new conditions and
principles. But we cannot develop a food security based on food
crops of which people have very little knowledge, especially since
with the currency crisis; we shall not have sufficient dollars to
buy foreign food products with in the short and medium terms.
This means we have to rely more on indigenous food products as the
basis of our food security, which we must quickly encourage the
farmers to revive. Although many of our indigenous food crops were
abandoned in favour of exotic products that could also be sold on
the market, there is still a reservoir of knowledge about these
crops in the rural communities. So reviving these crops would not be
an uphill task if we have a policy that is driven with the same zeal
as that of the current production for export. The African elites
will have to content themselves with consuming indigenous crops
since they can no longer depend on exotic foreign products.
Secondly, we have to consider the strategy of encouraging
cooperative production because with the increasing population driven
by poverty and the great fragmentation of land holding, it will not
be possible to sustain families on the small farm-holdings. A
cooperative policy also presupposes a sound credit policy that can
enable farmers to borrow for their production and hence the need to
hasten the creation of a regional currency that can inform the
creation of new local credit systems drawing on the experiences of
the ‘informal sector.’ We
should learn what the people of Somaliland
have done in this respect because they have managed to create a very
strong local currency that is not pegged to any global currency.
The collapse of the global capitalist system will not mean the end
of the world! On the contrary, it will release the bottled up
energies of the people that have been suffocated by the collapsing
capitalist system. We shall survive by burying the old system and
creating a new one. Such a new system will have to be
socialist-oriented since even the most developed capitalist
countries have no alternative but to do so as we can already see
with the whole sale nationalisation of banks throughout Europe and
the US. Some countries such as Iceland have already gone bankrupt.
This means that even the political system has to change. The key to
political rejuvenation will lie in the ‘deepening of democracy’
right from the family level, to the clan and to the traditional
institutions level since the post-colonial state would have
collapsed along with the dollar. New forms of political power will
emerge at a local level unless new warlords try to occupy the
political space. But the warlords are already doomed as the Somali
situation already demonstrates. The local power structures will need
a wider cooperative basis on the model of confederal or federal
regional states and we should consider Southern, Eastern African or
the Great Lakes region for such a partnership.
The development of local markets will need the backing of regional
markets for wider exchange of commodities. Therefore, new forms of
agricultural and industrial production will have to be tailored to
local needs and tastes. Similarly, new local markets will emerge in
other parts of the world calling for global exchanges of commodities
with those consumers. Eventually a new global currency or currencies
based on a basket of commodities will have to be created to
facilitate these exchanges on a completely new basis not based on
capitalist super-profits run by transnational corporations.
At a political level, we shall increasingly see the emergence of a
global civil society along side the new global market. Hence, we can
already envisage the emergence of a GLOCAL SOCIETY (a Global society
based on local nationalities and global citizenship). Along side
with these developments will eventually emerge a federated global
State, which will be developed by the local powers. We can no longer
return to the caves, we can only move forward to a new world. Yes, a
New World is possible and it can now be said with certainty: A NEW
WORLD IS INEVITABLE!
* Professor Dani W. Nabudere is the Executive Director of the Afrika
Study Centre.
Credit: Pambazuka News
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